Is there any bio degradable hydrophobic material that is not poisonous and easy to spray up on paper cups?
I would say it depends on the product being used. As far as I know, silicone is very Hydrophobic and is used to seal off/insulate water. There's also a food safety Grade silicone that can be used. I believe you'll be using that for hot liquids that wont go over 60-70 degrees Celsius? So the answer for me is silicone. Do not confuse with silicon and silica.
Google research showed this:
Silicon– A natural chemical substance (atomic #14), meaning it can’t be divided into smaller particles without splitting atoms. It is the second most abundant element (after oxygen) and when it bonds with oxygen creates minerals called silicates (like quartz, olivine, micas, thomsonite, jadeite, and prehnite)
Silica– A compound made of silicon and another element. It is present in the human body in high amounts and emerging research suggests it can be beneficial for health. I’ve mentioned it before when talking about diatomaceous earth and how I consume it in natural form, but it isn’t the same as silicon or silicone bakeware and isn’t relevant when talking about the safety of silicone.
Silicone– A synthetic polymer created by adding carbon and/or oxygen to silicon. It can exist as a solid, liquid or gel and is often used in medical devices like pacemakers, joint replacements and implants. It is generally considered safe for these uses and is now used to make silicone bakeware.
I need to add that since it's food grade material it shouldn't pose any health issues. It is used for waterproofing and other lubricating uses. It create a film layer on the surface, spray a very thin layer don't spray too much, it's not needed and let that thin layer dry.