This third generation of the internet endeavors to differ from previous versions by being decentralized and giving users control of their data rather than the Big Tech juggernauts which hold that information today. At present, Web3 encompasses cryptocurrency, blockchain and other technologies such as the InterPlanetary File System (IPFS) – which identifies files by their hash so that anyone hosting that content can serve it when it is requested – and uses them as building blocks for a still-hypothetical next-generation internet.
Crypto is an intrinsic part of the Web3 story so far because virtual currency tokens are the main means of rewarding users for participating in Web3 networks.
While the rise of Web3 is a global phenomenon, the Asia-Pacific region will be at the forefront of the development of the third iteration of the internet with its large population of youthful, digitally native consumers who spend a lot of time online chatting, shopping, viewing content and gaming. For them, Web3 is a natural evolution of their existing online experience.
Despite the crypto bear market in 2022, Web3 funding managed to grow significantly. According to a new report by Metaverse Post, a website that focuses on breaking news in Web3, the metaverse and crypto industries, Web3 startups raised a total of US$7.1 billion in 2022, up 208% from 2.3 billion in 2021. The top three funding categories were gaming with $4.49 billion, the metaverse with US$1.82 billion and social networks with US$259.1 million. Meanwhile, infrastructure, AR&VR and AI respectively raised US$200.8 million, US$178.6 million, and US$136.5 million.
The Web3 story is gradually deviating from that of the overall troubled crypto sector, which encountered one setback after another in 2022. One of the reasons for this phenomenon is that VCs, which had been some of the world’s most ardent boosters of crypto during its long bull run, are becoming warier of the risks entailed in backing high-risk, volatile, non-transparent centralized crypto services like lenders and exchanges. Some high-profile VCs lost big last year due to the collapse of erstwhile crypto giants like Celsus Network, BlockFi and FTX.
Data compiled by Pitchbook show that VCs invested US$1.5 billion in Web3 companies in the third quarter of 2022, a 44.5% growth sequentially. Web3 was the only crypto segment that recorded an increase in capital invested for the period as it is somewhat insulated from the day-to-day price fluctuations of crypto tokens.
Web3 in APAC so far
At present, interest in Web3 among enterprises in Asia Pacific is high, in many cases exceeding use of the technology. A survey published in October 2022 by the International Data Corporation (IDC), a research firm, found that 89% of firms in the APAC region “appreciate the importance of Web3.” Yet, IDC also found that on-the-ground adoption of Web3 “seems limited,” underscoring the gap between hype and reality described earlier in this article.
That said, there are some promising Web3 projects in the region. For instance, the Thai-UK Web3 startup Perception, which was founded in 2019, initially received a grant from Siam Commercial Bank, one of the kingdom’s largest and oldest lenders. Perception is also supported by the Government Savings Bank of Thailand and other investors and has qualified for the UK’s Global Entrepreneur Program (GEP).
Meanwhile, in May 2022, Hong Kong-based content production provider Gusto Collective raised US$11 million that it will use to boost its Web3 marketing services. Gusto Collective is optimistic about Web3’s potential in the region due to the large population of young, digitally native consumers that includes many avid gamers. The company expects its Web3 virtual event platform, which will feature art exhibitions and other events in the metaverse, will eventually be a regular revenue driver.
In Japan, leading television station TV Tokyo began last year to promote Web3 content, including NFT games, and is partnering with the Singapore-based GameFi company Digital Entertainment Asset (DEA) to collaborate on the creation of Web3-related educational content.
DEA also recently signed an MOU to collaborate on Web3 services with the Japanese internet giant Rakuten Group, which got its Web3 start with the Rakuten NFT marketplace and Rakuten Wallet crypto exchange. DEA’s co-founder and co-CEO Naohito Yoshida said in a press release that DEA endeavors to become the world’s leading provider of Web3 entertainment services, adding that “the best way to achieve this aim is to increase mainstream adoption of Play-to-Earn gaming, and that “our partnership with Rakuten is a great step in this direction.”
APAC as a future growth driver
Looking ahead, the APAC region is poised to adopt Web3 swiftly in the coming decade on the back of growth of 5G and 6G networks as well as blockchain technologies. The Canada-based consultancy Emergen Research estimates that the global Web3 market will grow at a compound annual growth rate of 43.7% from 2021-2030, reaching US$81.5 billion in 2030. Countries in the APAC region will record the fastest revenue growth during this period due to strong demand for Web3 systems from sectors including finance, e-commerce and healthcare/pharmaceuticals.
One of the most interesting markets in APAC for Web3’s development will be China. Though the Chinese government has effectively banned cryptocurrency, it remains supportive of blockchain technologies – potentially leaving open room for Web3 to develop in its enormous market provided crypto is eschewed. For instance, though NFTs have never been banned in China, companies that operate in this area often refer to them as “digital collectibles” to avoid falling afoul of regulators.
Though some would argue Web3 and crypto are inextricably linked, China has always adhered to its own vision of the internet, and even if the Chinese version of Web3 has limited global ties, the domestic Chinese market is large enough to support a self-contained ecosystem.
To that end, the city of Shanghai last year said it would establish a US$1.4 billion fund to invest in metaverse-related projects and aim for the industry worth 350 billion yuan (US$50.6 billion) by the end of 2025. Shanghai also issued a policy paper in July 2022 that proposed support for NFTs and firms researching and piloting asset digitization, the trading of digital intellectual property, and digital ownership.
That said, it remains to be seen if China’s state-backed Blockchain Service Network (BSN) will bear fruit. The BSN is known for offering an infrastructure for developers to develop decentralized apps while being compliant with the country’s strict regulations, notably handling and storing user data in China.
In September 2022, the international version of the BSN was launched, with the support of HSBC. Known as the BSN Spartan Network, it includes versions of popular public blockchains like Ethereum, Cosmos and PolygonEdge that do not use cryptocurrencies.
This commentary was written in collaboration with Banking Circle and originally appeared on Banking Circle.