Asia Web3 Market Q3 Report: New Regulatory Frameworks Emerge, Government and Enterprises Drive Market Development Together

Original Title: "Asian Web3 Market Trends: Wrap-up for Q3 2024"

Author: Tiger Research Reports

Compiled by: Deep Tide TechFlow

Key Takeaways:

The Web3 market in Asia is rapidly growing, driven by a tech-savvy population, proactive government policies, and widespread corporate participation. Major countries such as South Korea, Japan, and Vietnam are leading the trend.

• New regulatory frameworks in South Korea, Indonesia, and Thailand are fostering blockchain innovation, with sandbox regulations encouraging experimentation in real-world assets (RWAs), decentralized finance (DeFi), and digital asset services.
• Emerging markets like China and Cambodia present both opportunities and risks. Despite regulatory challenges, unofficial participation in China remains significant, while Cambodia offers growth potential for SMEs willing to navigate legal complexities.

1. Tiger Research's Focus on Asia

Source: Chainalysis

At Tiger Research, we primarily focus on the Web3 market in Asia due to its immense potential and rapid growth. Asia stands out for several reasons: 1) a young and tech-savvy population, 2) high levels of technology adoption, 3) well-established regulatory frameworks, and 4) a proactive corporate attitude. These factors are driving Asia to become a leading force in the global Web3 space. Among the many countries in the region, we are currently focusing on the following key markets:

1. South Korea: Enterprise-level companies are entering the Web3 space, with blockchain game development taking a significant position. Major gaming companies are actively preparing for the launch of blockchain games, marking a shift in the industry.
2. Japan: Government-led initiatives are revitalizing the Web3 industry and promoting active corporate participation. Major companies with global IPs, such as Sony and Bandai Namco, are expected to make significant contributions.
3. Indonesia: With its large population and rapidly growing market, Indonesia has considerable long-term potential. The government's proactive stance, including the launch of a state-owned cryptocurrency exchange, further enhances this outlook.
4. Vietnam: Vietnam is poised to become a "Web3 powerhouse" in Asia, thanks to high levels of technology adoption among its young population and a competitive developer community.
5. Thailand: The government, financial sector, and public in Thailand are highly engaged in the crypto market. Traditional financial institutions are leading the way in Web3 initiatives.
6. Singapore: Despite having a clear regulatory framework and sandbox projects promoting innovation in ICOs, STOs, RWAs, and payments, reduced corporate support poses challenges.
7. India: With its vast talent pool and thriving startup ecosystem, India has immense potential in the Web3 space. Success stories like Polygon highlight India's capability to drive global Web3 infrastructure projects. These countries are leveraging their unique strengths to shape the future of the Asian Web3 market. Monitoring developments in these countries during the third quarter will provide valuable insights into emerging trends and opportunities in the Asian Web3 space.

2. New Regulatory Frameworks

2.1. South Korea: Questions on the Bill's Effectiveness

On July 19, 2024, South Korea introduced the "Virtual Asset User Protection Act" to enhance investor protection and ensure market integrity. Key provisions of the bill include: 1) clearer definitions of virtual assets, 2) mandatory interest payments on customer deposits, 3) insurance requirements in case of incidents, 4) strengthened regulation against unfair trading, and 5) strict penalties for market manipulation (MM) activities.

One of the most immediate impacts is that major exchanges like Upbit and Bithumb have begun competing to offer interest rates of 2-4% on customer deposits. Additionally, token issuance projects are strengthening internal controls to comply with the new regulations.

Source: Bithumb, Gate.io, Tiger Research

However, the $AVAIL case has raised questions about the bill's effectiveness. Reports indicate that arbitrage trading generated profits of around 1 billion KRW due to significant price discrepancies between domestic and global exchanges. This highlights ongoing issues such as price manipulation and market interference, but the lack of thorough investigations has led to doubts about the bill's actual impact.

2.2. Indonesia: Implementing a Blockchain Technology Sandbox

Under the Financial Sector Technology Innovation Regulation No. 3/2024 (POJK 3/2024), Indonesia's Financial Services Authority (OJK) introduced a sandbox framework in June 2024. This regulation covers a wide range of blockchain-related technologies and is expected to bring previously unregulated financial services into the official system.

Key areas of focus include virtual asset services, such as staking and stablecoins, which now have the opportunity to be tested within a regulatory framework and potentially gain recognition. The sandbox is expected to facilitate the development of new financial services, particularly at the intersection of blockchain and traditional finance, as well as the tokenization of real-world assets (RWAs). These innovations are poised to revolutionize Indonesia's financial market.

The on-site inspections indicate that the new regulations are actively being used for market supervision. Looking ahead, we will continue to assess the effectiveness of these regulations and monitor market reactions to ensure sustainable growth in South Korea's virtual asset market.

The sandbox regulations reflect the Indonesian government's proactive stance in supporting financial innovation while ensuring consumer protection and market stability. This initiative is expected to further accelerate the growth of Indonesia's fintech industry.

Participating companies must meet specific criteria, such as demonstrating innovative and unique services for Indonesian consumers and businesses. Additionally, they must submit the necessary documentation to the OJK during the application process. Approved companies will have one year to test their services, and after evaluation, they will have six months to obtain a full license. This balanced approach provides companies with the flexibility to enter the market quickly while ensuring sufficient time to experiment and optimize their services.

2.3. Thailand: Sandbox Regulations Extended to Real-World Asset Market

The Thai Securities and Exchange Commission (SEC) has taken significant steps to promote innovation in the digital asset and Web3 sectors. In August 2024, the SEC launched a digital asset sandbox to complement its existing detailed licensing framework. This sandbox allows for testing key initiatives aligned with emerging market trends.

The sandbox provides space for experimentation in various areas, including the tokenization of real-world assets (RWA), payment systems, security protocols, and decentralized finance (DeFi). Bitkub Academy, a subsidiary of the cryptocurrency exchange Bitkub, expressed optimism about this, viewing it as a great opportunity for entrepreneurs to test innovative ideas within a legal framework.

This initiative is also expected to directly benefit users, allowing them to experience new features and products in the digital asset and Web3 space. A typical example is RealX, Thailand's first tokenized real-world asset, which was listed on the Bitkub exchange due to the SEC's open attitude towards innovation.

Looking ahead, as new possibilities emerge in Thailand's digital asset market, more groundbreaking projects are expected to arise. At the same time, the establishment of clear and comprehensive legal regulations is anticipated to enhance market stability. Thailand's proactive attitude will play a key role in shaping the future of the country's digital asset ecosystem.

3. New Government Initiatives

3.1. India: National Blockchain Framework (NBF)

On September 4, 2024, the Indian government launched the National Blockchain Framework (NBF), marking a significant step in the country's digital transformation strategy. The NBF is not only about technology adoption; it represents an ambitious plan to build a more secure and efficient digital infrastructure by addressing the limitations of traditional systems in India's rapid digitalization process.

Several key objectives of the NBF include: enhancing transparency in the public sector, combating corruption, promoting technological innovation, and driving economic growth. Additionally, the initiative aims to improve citizen-centric services. By leveraging the immutability and transparency of blockchain, the NBF aims to enhance the reliability of government transactions and records. Its goal is to make data manipulation more difficult and increase citizens' trust in government systems.

Praamaanik, Source: NBF-brochure

Key components of the NBF include:

• Vishvasya Blockchain Technology Stack: As a blockchain-as-a-service (BaaS) solution, it provides decentralized infrastructure that enables startups and enterprises to quickly develop blockchain-based new services. This technology stack aims to accelerate the adoption of blockchain in both the public and private sectors by leveraging government data.
• NBFLite: A lightweight blockchain platform designed for startups and academia, supporting rapid prototyping, research, and education, aimed at fostering blockchain innovation and talent development in India.
• Praamaanik: A blockchain solution for mobile application source verification, enhancing the security of India's mobile ecosystem by preventing the spread of malicious or counterfeit applications, thereby increasing user trust and system integrity.
• National Blockchain Portal: This comprehensive platform provides the latest information on blockchain technology, including news, events, and educational resources. Its goal is to raise public awareness and increase access to blockchain knowledge.

India's NBF is one of the few state-led initiatives globally that supports blockchain technology across multiple industries. It views blockchain as critical infrastructure and has the potential to transform the country's digital landscape. If successful, the NBF could serve as a model for other countries, demonstrating how to integrate blockchain into national infrastructure.

4. Corporate-Driven Market

4.1. Japan: Financial Sector-Led Blockchain Ecosystem

As noted in previous reports, Japan's blockchain ecosystem remains influenced by the financial sector. A recent significant development is Sony's collaboration with blockchain company StarTale to launch a new Ethereum Layer 2 solution, Soneium, officially entering the blockchain space. Soneium was released in August 2024 and aims to leverage Sony's extensive global influence and user base to provide scalable infrastructure for Web3 applications.

Source: Soneium

Sony has also launched an incubation program called Soneium Spark, which provides developers with infrastructure, guidance, industry partnerships, and funding support of up to $100,000. This initiative follows Sony Bank's announcement of plans to launch a yen-backed stablecoin, further indicating Sony's increasing involvement in the Web3 ecosystem and its active exploration of new opportunities in blockchain technology.

Currently, Soneium is in the testing phase known as Minato, with plans to launch the mainnet in the first quarter of 2025. The platform is attracting attention, with reports of over 50 projects being developed or planned for deployment on Soneium. This marks a significant step for major tech giants entering the blockchain space, particularly against the backdrop of financial companies primarily creating their own blockchains. The success of Soneium could be a key step towards broader adoption and promotion of blockchain technology by large enterprises.

Source: Ishiba

On the political front, Japan is also undergoing significant changes. Ishiba is expected to become the next Prime Minister, sharing the same Liberal Democratic Party as the current Prime Minister Kishida. However, his stance on the blockchain market remains unclear. While Ishiba's policy proposals include plans to utilize blockchain and NFT technology to revitalize rural areas, this initiative primarily focuses on regional development rather than promoting the broader blockchain industry. It remains to be seen how Ishiba's policies will impact Japan's blockchain industry once he forms his cabinet.

4.2. Vietnam: Education and Industry Synergy in Blockchain Ecosystem Development

Vietnam's blockchain ecosystem is rapidly growing, driven by strategic synergy between education and industry development. The core of this progress lies in the efforts of the Vietnam Blockchain Association (VBA) and the Blockchain and AI Innovation Institute (ABAII).

Source: ABAII

The VBA has partnered with Tether to hold educational conferences in major cities in Vietnam. Additionally, the VBA collaborates with ABAII to provide blockchain education to university students through its UniTour program, a series of university visits aimed at sparking interest in blockchain technology. Beyond education, the VBA has played a key role in helping students and young professionals enter the blockchain industry. One noteworthy initiative is the SwitchUp Accelerator program, which provides guidance, support, and investment for Web3 startups and projects.

Since its official launch on January 10, 2024, ABAII has initiated an active educational promotion campaign. ABAII has received certification from the Ministry of Science and Technology and is supported by the VBA, aiming to become a leading center for blockchain research, development, and application in Vietnam. Its long-term goal is to provide blockchain education to 1 million Vietnamese people by 2030. In the short term, ABAII plans to train 100,000 students across 30 universities.

This coordinated approach of combining education with startup incubation lays a solid foundation for sustainable growth in Vietnam's blockchain industry. With a clear strategy, Vietnam is striving to become a significant player in the global blockchain market.

5. Emerging Countries to Watch in the Blockchain Market

5.1. China: Will the Market Open Up?

Source: X @justinsuntron

Despite facing stringent regulatory crackdowns in 2017 and 2021, China's cryptocurrency market remains active behind the scenes. While the official stance on opening the market is poor, there is still a vibrant activity and enthusiasm among builders and investors.

Chinese entrepreneurs continue to seek ways to engage with the global blockchain ecosystem, such as participating in international projects and establishing overseas subsidiaries. Large capital from China remains a powerful force in the market, even though this is not reflected in official statistics. Chinese investors are still actively participating, contributing to the growth of the crypto market.

The existence of a gray market is another notable characteristic. Despite government bans, trading continues through peer-to-peer and offshore exchanges. This phenomenon indicates that regulatory measures alone have not completely halted activity.

While it is unlikely that China will formally reopen its cryptocurrency market in the short term, its technological strength and capital influence in the global blockchain ecosystem cannot be ignored. If China opens its market, the impact would be profound. However, even without an official market, China has played a significant role in shaping the global cryptocurrency landscape.

It is crucial to closely monitor regulatory changes and market dynamics in China, as developments related to China may still be key factors in the evolution of the global blockchain industry.

5.2. Cambodia: A Market of Risks and Opportunities

Cambodia's cryptocurrency market has recently garnered attention, but not for optimistic reasons. In August 2024, Huione Guarantee was embroiled in a major scandal, accused of involvement in illegal transactions worth $49 billion. As a result, reports about Cambodia's cryptocurrency market have largely focused on crime and fraud.

Source: Soramitsu

However, Cambodia's blockchain development is not solely defined by recent turmoil. Until 2022, the Cambodian government was actively exploring the application of cryptocurrencies. For example, the central bank developed a blockchain payment system called Bakong, demonstrating early efforts to embrace digital finance.

Currently, the Cambodian market appears somewhat stagnant, but this state also presents opportunities, particularly for businesses that see growth potential. Recent industry trends indicate a rise in the use of blockchain technology in Cambodia, suggesting that entrepreneurial activity is increasing.

Cambodia is a market worth watching. Despite the chaos, companies that actively collaborate with the government and take well-considered risks may succeed. However, this is not a market for large multinational corporations; rather, it is a place where SMEs can thrive through proactive and flexible approaches.

For SMEs willing to operate in a turbulent regulatory environment, Cambodia offers a first-mover advantage. Maintaining close communication with government agencies and gaining a deep understanding of local regulations is key to mitigating risks and seizing opportunities. However, caution is essential, as legal risks and market instability remain significant concerns.

Overall, Cambodia's cryptocurrency market is a "double-edged sword," presenting both risks and rewards. Companies with strong risk management capabilities and a willingness to adapt to local conditions may find promising opportunities in this dynamic and evolving market.

6. Conclusion

While markets in Africa, including Nigeria, are gaining momentum in the cryptocurrency space, Asia remains the fastest-growing region. So far, most changes in Asia have been driven by governments, large institutions, and corporations, while mass market services aimed at ordinary consumers are still in their early stages. Nevertheless, these developments mark an important step toward the future.

Asia's cryptocurrency market is rapidly evolving, fueled by proactive government policies, significant corporate investments, and strong interest from the younger generation. While widespread adoption may take time, the current phase is crucial for laying the necessary groundwork. As the market continues to mature, we will keep a close eye on Asia. The region's key role in shaping the future of the global blockchain industry is evident.