3 Changes in the Indonesian Blockchain Market
Indonesia Special Report Update
TL;DR
While there is a possibility of blockchain-friendly policies under the new administration, high transaction taxes still limit the profitability and growth of crypto exchanges. This has led to an increase in peer-to-peer trading on global exchanges such as Binance.
As the authority to regulate crypto assets is transferred from BAPPEBTI to OJK, which oversees traditional financial markets such as banks and securities firms, the combination of blockchain technology and traditional assets will accelerate, further facilitating the RWA market.
In a market with a low average revenue per user (APRU) for gaming, but a high average revenue per paying user (ARPPU), projects need to develop a strategy that clearly targets their audience without falling into the trap of averages.
It's been about six months since our special report on the Indonesian Web3 market was published in October last year. The global blockchain market has seen many changes during this time, and the Indonesian blockchain market was no exception. We recently conducted another round of on-the-ground research in Indonesia and uncovered the latest developments and new insights, which we will share in this report.
A look back
The Indonesian blockchain market has great potential. It has the world's fourth largest population, a young population with a median age of 30, and political stability that provides a solid foundation for the market. The high penetration of crypto wallets in Indonesia compared to stock exchange accounts also shows the market's enthusiasm and growth potential.
Favorable policies toward Web3 provide additional growth drivers, but many challenges remain, including a lack of infrastructure, skilled labor, and an unclear regulatory environment. For more information, check out our previous reports.
Regulation: Indonesia is in the process of clarifying regulations regarding Web3 and crypto assets. Efforts include transferring the authority of the existing regulator, the Commodities and Futures Trading Authority (BAPPEBTI), to the Financial Services Authority (OJK), and establishing a dedicated committee for the blockchain sector under the OJK. In addition, a self-governance organization, the National Cryptocurrency Exchange System, is being introduced.
Infrastructure: Indonesia's Web3 infrastructure is in its infancy. In the absence of a local developer community and a lack of global experience among startups, most Web3 activities are done using global blockchain networks such as BNB and Ethereum, and general-purpose wallets such as Metamask.
Cryptocurrency exchanges: Indonesia's blockchain industry is centered on cryptocurrency exchanges, with more than 30 exchanges currently in operation. Due to 1) high taxes (totaling 0.21%), 2) lack of products, and 3) anonymity issues, many users tend to prefer global exchanges to domestic ones.
Gaming: The Web3 gaming market is still in its infancy, although it has great potential for growth due to high smartphone penetration and long gaming hours. Several major gaming companies are investing in Web3 game development, and the government is also supporting the development of the industry.
NFTs: The NFT market in Indonesia has suffered from the recent market downturn and is not very active. There have been a few popular projects in the past, but currently there is minimal activity.
Developer environment: The development ecosystem is relatively small, and many unicorns rely on outsourcing development overseas. Governments and companies are focusing on educating and training developers, but there is still a shortage of developers interested in the blockchain industry. Nevertheless, the developer community is growing, with communities like Blockdev.id being particularly active.
New Findings
Regulation
Presidential election: In the Indonesian presidential election on February 14, 2023, Prabowo Subianto won a majority of the votes in the first round. Prabowo has lost two previous presidential elections to incumbent Joko Widodo. However, this time Prabowo Subianto is running as the vice presidential candidate of the current president's eldest son, giving Prabowo the support of President Widodo. This means that Widodo and Prabowo have a de facto working relationship despite being from different political parties. The election outcome will maintain political stability in Indonesia and its blockchain market without major changes.
Expansion of state-owned cryptocurrency trading structure:
Indonesia has solidified its state-owned cryptocurrency trading structure, centered on the state-owned Cryptocurrency Futures Exchange (CFX). The CFX will focus on futures trading and will receive, manage, and oversee order book data from spot trading operated by each exchange.
As stated in our previous report, the state-owned system is not a centralized management of all liquidity by a central regulator. Spot trading order books are operated independently by each exchange. However, industry interviews confirm CFX's willingness to expand its spot trading footprint, to which many in the industry have expressed frustration.
Approval of additional Custody Service Providers: In December 2023, Bappebti approved one new custody service provider in addition to the existing service providers. Contrary to the original announcement of limiting the number of custody service providers, the approval of a new company has raised several questions in the industry.
Infrastructure
New Mainnets gaining popularity: The BNB chain used to gain popularity in Indonesia, backed by the Binance exchange. However, with CZ's recent resignation and the change in industry trends, interest in new chains is growing. In particular, new mainnets such as Arbitrum, Ronin, and others are gaining traction as the market is booming and they are competitively giving out more grants.
Exchanges
State of the crypto exchange market and challenges: Indonesia's two major crypto exchanges, Indodax and Tokocrypto, have maintained a stable position in terms of market share, but still lag far behind global exchanges in terms of total trading volume. In searching for good projects to list, they tend not to favor homegrown projects, unlike some exchanges in other countries.
The popularity of peer-to-peer trading: P2P trading on global exchanges in Indonesia is quite popular due to the low transaction fees and the convenience of sending money directly to your account. In particular, the ability to send money directly to an account in Indonesia through P2P trading has proven attractive to Indonesian investors.
Blossoming RWA market: Unlike six months ago, Indonesia is gearing up for RWA and STO business. D3Labs, an Indonesia-based RWA Tokenization Service Provider, is working on an infrastructure project to support the tokenization of securities with major Indonesian banks. However, there is still a lack of clear regulations regarding RWA in Indonesia. D3Labs is reportedly in talks with OJK about a sandbox program
Gaming
Understanding the Indonesian gaming market
It's worth noting that the average revenue per user (ARPU) in the Indonesian gaming market is around $16, but the average revenue per paying user (ARPPU) is higher at around $40. Some MMORPG genres, which are particularly popular in Indonesia, have ARPPUs of over $100. The percentage of paying users in the market is around 7%. Given the large population of Indonesia, it's a significant market for games.
Indonesian game players prefer a variety of payment systems, including third-party payment services, credit cards, and digital content payments (DCPs). However, some foreign game companies have failed in Indonesia because they only supported in-app purchases when they entered the country.
The web3 gaming market is still in its infancy In Indonesia, but companies such as Agate, Mythic Protocol, and Avarik Saga are leading the development of games using blockchain technology.
Agate: Agate has much experience in developing many outsourced Web3 gaming projects. Together with South Korea's Iskra, they are planning to launch their supernatural RPG 'Atma: Battle of Souls' in the first half of 2024 with Web3 elements added to their IP Code Atma. How its performance as a domestic IP will measure up to its competitors will be worth keeping an eye on.
Mythic Protocol: Mythic Protocol is continuing its game development. It announced major operational changes in the first half of 2024.
Avarik Saga: Avarik Saga hinted at a strategic partnership with major chains. The official announcement is in March and the partnership is expected to play a pivotal role in the game
Who is the target audience
Indonesia has great market potential based on strong macro indicators, such as a large population and a young demographic. Of course, the low average indicators belie the wide discrepancies between different social classes. Despite gradual change, the wealth gap is reflected in relatively low averages across many indicators, which can make the Indonesian market seem less attractive based on average market data.
Yet, the users who actually pay tend to have high purchasing power. Understanding their payment characteristics and behavior patterns will be a key consideration for Web3 projects. Rather than targeting average users, projects must clearly identify and attract the right audience. This requires constant observation of local market trends.
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Disclaimer
This report has been prepared based on materials believed to be reliable. However, we do not expressly or impliedly warrant the accuracy, completeness, and suitability of the information. We disclaim any liability for any losses arising from the use of this report or its contents. The conclusions and recommendations in this report are based on information available at the time of preparation and are subject to change without notice. All projects, estimates, forecasts, objectives, opinions, and views expressed in this report are subject to change without notice and may differ from or be contrary to the opinions of others or other organizations.
This document is for informational purposes only and should not be considered legal, business, investment, or tax advice. Any references to securities or digital assets are for illustrative purposes only and do not constitute an investment recommendation or an offer to provide investment advisory services. This material is not directed at investors or potential investors.