Asia Remains Interested In Web3

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2023 may be remembered as the year that the Web3 bubble burst. Hype about the third iteration of the internet had reached a feverish pitch by early last year, though actual use cases remained limited. Yet amid the highest interest rates in three decades, as well as stubborn inflation, investors started to get cold feet about what is still a nebulous and nascent ecosystem underpinned by technology that many central banks do not trust.

Crunchbase data show that funding to Web3 startups — defined as those in the crypto and blockchain sectors — fell 74% on annual basis in 2023. Startups raised $7 billion in 1,564 deals, compared to $26.6 billion in 2,891 deals a year earlier.

In Asia, however, the situation is somewhat more optimistic, including in both China and India – even though those two countries have severely restricted the use of cryptocurrency.

Web3 With Chinese characteristics

Ever since blockchain technology became prominent, China has been interested in using it for a wide variety of applications, from trade finance to supply chain security. This interest in blockchain reflects the tech and science-forward thinking that prevails at the highest echelons of the Chinese state. However, the Chinese government is not interested in – and indeed opposes – the idea of using blockchain to facilitate privatization of the financial system. This unique ethos informs China’s approach to Web3, which it sees as an extension of an already substantial Chinese digital financial services ecosystem.

In December, there were two important developments for Web3 in China. First, China’s Ministry of Industry and Information Technology said that the country would draft a national strategic Web3 development plan, building on local initiatives in Beijing, Shanghai and elsewhere. Second, the Chinese venture capital fund Greater Bay Area (GBA) Capital announced that it would set up a US$10 billion Web3 fund. A key motivation behind this project is to build the GBA into a Web3 hub.

In March, Johnny Ng, a member of the Chinese People’s Political Consultative Conference (CPPCC) National Committee, the country’s top political advisory body, submitted a formal suggestion at China’s annual Two Sessions. The proposal recommends that the Chinese authorities consider building a GBA-based financing platform for the blockchain and digital assets industry across the GBA connecting Hong Kong, Macao and Guangdong..

Thriving Ecosystem In India

Like China, India has taken a dim view of decentralized digital currencies given the challenge they could pose to the central bank’s authority. When it comes to Web3, however, New Delhi has been relatively tolerant, which has allowed startups to grow unfettered.

The Indian Web3 venture-capital firm Hashed Emergent estimates that India has one of the largest Web3 ecosystems in the world with more than 1,000 startups. The sector received $250 million in funding in 2023. While that was a decline in terms of overall funding from 2022, the number of deals has stayed consistent. Further, funding has risen for startups in Web3 finance, entertainment, and infrastructure sub-segments.

Some interesting use cases for Web3 have emerged in India. For instance, the Maharashtra State Board of Skill Development (MSBSD) has issued 100,000 digital diplomas via blockchain, a a significant improvement in efficiency from the previous manual verification system. For its part, the Telangana (a state in southern India) government’s initiative with local farmers, supported by AlgoBharat, employs blockchain to promote sustainable agriculture. Meanwhile, the startup Dygnify is building a blockchain-based credit enablement and data traceability platform for businesses access to credit and global carbon markets.

Caution Is Warranted

While both China and India could potentially develop large Web3 ecosystems, it is unclear if their respective antipathy towards cryptocurrency could ultimately derail those efforts. While crypto is not synonymous with Web3, it is one of the essential building blocks for the third iteration of the internet.

Some observers have conflated Beijing’s interest in Web3 with its willingness to let Hong Kong experiment with cryptocurrency. These are two separate initiatives from the standpoint of the Chinese authorities, and there are not any plans to build a Web3 ecosystem on the mainland underpinned by crypto. The one country, two systems model on which Hong Kong’s governance is based must be kept in mind. Hong Kong, with its open, globally oriented financial system, might be suitable as a cryptocurrency hub, but the mainland – where significant capital controls remain in place – is bound to take a more conservative approach.

To be sure, Southeast Asia, where many countries are embracing digital assets in one form or another, offers potential for Web3. In September 2023, the Monetary Authority of Singapore announced a commitment of up to $150 million Singapore dollars over three years under the Financial Sector Technology and Innovation Scheme to “support innovative FinTech solutions arising from emerging technologies such as Web 3.0.”

At the same time, it might be instructive to keep in mind what Tesla Tesla 0.0% CEO Elon Musk tweeted about the third iteration of the internet in Dec. 2021 as it remains relevant today. At the time, he wrote, “Has anyone seen Web3? I can’t find it.”

The plunge in Web3 investment in 2023 suggests that investors may have some of the same concerns, even if the crypto bear market is now in the rearview mirror. After all, while crypto is foundational to Web3, the inverse is not true. Digital assets and blockchain technology are here to stay, regardless if the Web3 concept endures.

Time will tell if Web3 has staying power like decentralized virtual currencies and the distributed ledger technology that underpins blockchain, or if it is more like the metaverse, a concept that generated a lot of hype when it emerged, but that is gradually atrophying because it is overly amorphous and does not solve any real business problem.

Image by: Pixabay

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