Southeast Asia, a diverse region with an expanding population and rising incomes, is becoming a popular destination for crypto entrepreneurs and investors looking for high-growth startups in the space.
More than 600 crypto or blockchain companies are now based in Southeast Asia, according to a new report from venture investment firm White Star Capital. Much of the recent growth in venture capital funding across the region is due to crypto, blockchain, and web3 startups, which have attracted nearly $1 billion in funding in 2022 to date alone and are on track to surpass the total of $1.45 billion in 2021, the report says.
Investors from around the world are attracted to the region’s vibrant web3 scene, with those from the US, China and Singapore being some of the most active, the report shows.
While much of the deep, fundamental research and infrastructure development in the blockchain space still takes place in the US, Southeast Asia is ideal for web3 startups offering service-oriented to the consumer, Amy Zhao, a lead at cryptocurrency investment firm Ocular, told TechCrunch.
“The demographics of Southeast Asia are very favorable for web3,” said the investor. “[It has] young populations that inherently understand technology and are more willing to try new things. It is [mostly] developing economies, so the financial aspect of cryptocurrencies offers a lot of incentives for people to participate.”
Southeast Asia, with nearly 700 million people, has one of the fastest growing populations in the world. 480 million of them are active Internet users and more are getting online. By 2040, Asia is estimated to account for half of global GDP and 40% of global consumption, with much of it coming from the 10-member Association of Southeast Asian Nations (ASEAN), according to a report by Pinebridge Investments.
Like other developing countries, large sections of the population in Southeast Asia still have limited access to banking services despite the region’s great strides in financial inclusion over the decade. According to a 2019 Bain & Company report, more than 70% of the adult population remained “underbanked” or “unbanked.”
The lack of access to formal banking, in turn, leaves room for cryptocurrency-related alternative finance to grow. Decentralized finance, or DeFi, has flourished in the region, using distributed ledger technologies to process transactions and promising to allow users to earn returns and gain access to capital without the hassle of traditional financial intermediaries. Blockchain games that allow users to earn money by playing games (GameFi) are also popular, such as Axie Infinity from Vietnam-based Sky Mavis, which has a strong following in the Philippines and Indonesia.
Crypto adoption rates in Southeast Asia averaged 3.56% in 2021, but Singapore stood out with nearly 10% of its population owning crypto, ahead of the US at 8.3%, according to White Star Capital. In terms of DeFi adoption, Vietnam and Thailand were only behind the US in 2021, Chainalysis found.
Each country in the region has its slight edge in crypto innovation, Zhao observed. Vietnam is a source of “hardcore engineers” while the Philippines loves entertainment. Thailand, on the other hand, has a vibrant financial market. Singapore is likely to produce more SaaS products given its international talent pool.
Indonesia is “catching up” on web3, probably because the vast amount of talent is still in its web2 industry,” the investor said. But the country is also home to one of the best-funded blockchain companies in the region: crypto trading platform Pintu, which recently raised over $110 million from its Series B round.
It’s not just local businessmen who are courting web3 users from Southeast Asia. Having sensed the region’s appetite for blockchain services, New York-based crypto exchange Gemini announced a roadmap to enter the region last year. San Francisco-based Coinbase had plans to recruit in Southeast Asia as part of its global expansion before freezing recruitment amid the current market downturn.
In addition to consumer demand, Southeast Asian countries like Singapore also attract entrepreneurs with their relatively open attitude towards cryptocurrencies, which are largely banned in China and under increasing regulatory scrutiny in the US. .
“Singapore has always been very pragmatic. Regulations may not seem as lenient as, say, Dubai, which has attracted many large exchanges to move there from Singapore. But Singapore’s approach has been to build more long-term trust to protect consumers here,” Zhao said.
In January, the Monetary Authority of Singapore (MAS), the city’s state financial regulator, said that trading digital payment tokens or cryptocurrencies is very risky and therefore should not be promoted to the public.
“And in terms of innovation, it is a great support, like setting up regulatory sandboxes,” the investor added.
For example, MAS has worked with the industry to build a blockchain-based payment network. Temasek, Singapore’s sovereign wealth fund, has been an active investor in crypto startups, backing the likes of crypto asset management unicorn Amber.
“We hope that the regulators in [Southeast Asia] to continue developing its regulatory frameworks governing digital assets in the coming years. ‘Sudden stop’ regulations appear less likely as digital asset adoption increases, as it would hold back a vibrant sector with future prospects,” White Star Capital writes in its report.