Powering APAC’s Web3 Drive with Cryptocurrency Adoption
Driven by the rapid digital transformation of its banking, financial services, and insurance (BFSI) industry and data ownership shift, Asia Pacific (APAC)’s web3 market is experiencing a seismic boom. The epicentre of APAC’s web3 market boom is Southeast Asia (SEA) whose web3 market recorded a value of USD193 million in 2021 whereby this is expected to reach USD 6,475.8 million by 2030 with a projected compound annual growth rate (CAGR) of 50.2% over the relevant period. The boom in the web3 market of APAC in general and that of SEA in particular is driven by the region’s rising cryptocurrency adoption rates and business utility as highlighted in Chainalysis’ The 2023 Geography of Cryptocurrency Report and Ripple’s Crypto Trends in Business & Beyond Report.
1. Global Crypto Adoption
Global enthusiasm for cryptocurrency adoption is led by Latin America, followed by the Middle East, North America, Asia Pacific, and Europe. Decision-makers in the global financial services industry expect significant impacts from crypto and blockchain, with over half already implementing solutions, and experienced leaders expressing heightened optimism. Within the next three years, over 80% of global finance leaders plan to use cryptocurrencies through the key use case functions of tokenize, manage and move.
Crypto Key Use Case Functions (Source: Ripple)
2. India Leads the Way with Tax-Free DEXs
Leading the way for APAC’s cryptocurrency adoption drive is India which, despite having introduced a 30% capital gains tax (CGT) and a 1% Tax Deducted at Source (TDS) on cryptocurrency transactions in July 2022, sits on top of Chainalysis’ 2023 Global Crypto Adoption Index with Vietnam and the Philippines coming being ranked third and sixth respectively. Globally, 48% of global finance professionals have expressed overwhelmingly positive sentiments towards cryptocurrencies.
Top Six Countries on Chainalysis’ 2023 Global Crypto Adoption Index (Source: Chainalysis)
Decentralized exchanges (DEXs) were the most popular cryptocurrency transaction platform among Indians followed by centralized exchanges (CEXs), lending protocols, token smart contracts and non-fungible token (NFT) protocols. DEXs offer Indians a way to circumvent the 30% CGT and 1% TDS tax imposed by the government on cryptocurrency transactions. While India-based exchanges must collect TDS taxes from users, many DEXs which operate in a cross-border manner are not effectively doing so, thereby attracting Indian users. Globally, more than 75% of financial institutions have expressed an interest in leveraging DeFi services such as DEX transactions to meet their business requirements.
India’s Crypto Platform Type As Ranked in Usage by Estimated Transaction Volume (Source: Chainalysis)
3. Vietnamese’s Penchant for DeFi
Vietnam stands out with its decentralized finance (DeFi) and peer-to-peer (P2P) cryptocurrency transaction volume percentages which is rather unsurprising given the nature of the country’s emerging market with stricter capital controls as compared to other such markets. Against this financial contextual backdrop, DeFi platforms that offer decentralized financial services such as yield farming and P2P lending are becoming increasingly popular among Vietnamese looking for an alternative to traditional finance (TradFi) services. Globally, the two in three enterprise finance leaders are acquainted with using DeFi services for financial activities such as trading, borrowing, lending, utilizing digital assets for yield generation, and securing digital asset liquidity.
Vietnam’s Crypto Market Breakdown (Source: Chainalysis)
4. Filippinos Play-to-Earn
The Philippines’ crypto craze is driven primarily by the popularity of play-to-earn (P2E) games such as Axie Infinity. This popularity is due to several factors, including a young and tech-savvy population that had already adopted digital wallets, the impact of the COVID-19 pandemic, and a strong social media culture. While Axie Infinity has seen declines in usage and token price, it paved the way for broader crypto adoption as Filipino players are now equipped with blockchain wallets. Globally, 54% of decision-makers in the finance sector intend to adopt managed custody within the upcoming three years
Total Cryptocurrency Value Received by Philippines (Source: Chainalysis)
Notwithstanding the much-touted potential of web3, critics argue that the decentralized Internet and its promised benefits are overly hyped and may not meet the anticipated outcomes. Nonetheless, with cryptocurrencies being the financial instruments that power web3, the rising cryptocurrency adoption trends in APAC in general and SEA, in particular, are detracting the naysayers by catalysing the boom in the region’s web3 markets.