Philippines Web3 Market Overview
A New Source of Philippines' Future Growth Driver
TL;DR
Young population and digitization: The Philippines has a young demographic, high English proficiency, and rapid digitization and internet infrastructure expansion to fuel its future economy.
Growth of the blockchain market: The blockchain market has grown rapidly during the COVID-19 pandemic driven by P2E gaming. The Philippine government provides a positive regulatory environment that supports the development of the sector. Major projects such as PDAX (exchange), Coins.ph (wallet), YGG (guild), and Metacrafters (community) are driving the industry forward.
Economic Challenges and Opportunities: Amidst challenges such as income polarization and lack of infrastructure, the Philippines will seek to transition to a knowledge-based economy with the blockchain industry as the centerpiece of its IT industry.
A Young Philippines Ready to Take the Leap
The Philippines is one of the younger countries in Southeast Asia, with a guaranteed workforce that is projected to maintain a median age under 30 until at least 2040. However, there are many social challenges that need to be addressed such as income polarization. The lack of an export-oriented industrial system is also another major risk factor. In addition, low per capita purchasing power and lack of infrastructure are major deterrents for foreign companies to enter the Philippine market. Nevertheless, the Philippines boasts a high level of English proficiency, and state-led initiatives aimed at addressing the aforementioned risk factors show a promising future.
Young demographic: The Philippines has a huge domestic market of over 100 million people. The median age is currently around 26, which is younger than in Vietnam (32) and Indonesia (29). The median age is projected to be only 26.7 even in the 2030s, expected to reach 30 as late as 2040.
High level of English Proficiency: The Philippines is a country where English has been normalized by American influence. The EF English Proficiency Index (EF EPI), an index that measures a population's ability to use English, ranks the Philippines 20th in English proficiency.
Economic growth and policies: President Marcos' government is focusing on national infrastructure projects and energy policy, overhauling the education system, and building digital infrastructure. These policies are aimed at achieving a GDP growth rate of 6.5-8% from 2023 to 2028 and reducing the government debt ratio.
Digitalization and Internet infrastructure: Through its “Digital Cities 2025” program, the Philippines is promoting digitalization in both urban and rural areas. The nationwide expansion of cell towers and installation of fiber optic cables aims to provide high-quality internet connectivity.
The growth of e-commerce: The Philippines' e-commerce market has been growing rapidly since the COVID-19 pandemic, especially among the younger population. It's expected to reach $23.6 billion by 2023, and e-commerce platforms like Lazada are gaining popularity.
Challenges: The Philippine market faces several challenges, including 1) opaque administrative practices, 2) lack of infrastructure, 3) income polarization, and 4) a service-oriented industrial structure. There are only a limited number of industries that are export-friendly. All major conglomerates are concentrated in service and domestic industries such as retail, real estate, and resorts, which makes achieving significant growth difficult.
Given the current economic and social situation of the Philippines, fostering export-friendly industries such as manufacturing in the short term seems unlikely. Under such circumstances, the most appropriate industries to concentrate for growth are those that 1) do not require heavy preliminary infrastructure investment and 2) are knowledge-based. The IT industry is a prime example.
In response, the government is focusing its short-term efforts on labor-intensive industries that can be done without infrastructure, such as call centers, centering on the BPO (Business Process Outsourcing) industry. Furthermore, it has also turned its attention to IT outsourcing and is expected to focus more on knowledge-intensive industries in the future.
Game-centric Growth of the Phillipine Blockchain Market
Characteristics of the overall gaming market
As mentioned earlier, the Philippines has a population of over 100 million people and a young demographic, which is tech-savvy and actively consumes digital content, including mobile games. The country's internet penetration rate has risen to 73.1%, thanks to the government's efforts to expand digital infrastructure. In addition, smartphone penetration in the Philippines is estimated to be around 76% in 2023. With affordable data rates, the country is ripe for mobile adoption.
As a result, the Philippine gaming market is expected to reach about $732 million in 2022, with mobile games in the leading position. The Philippine gaming market has similar characteristics to Korea's, including 1) the culture of internet cafes (PC bang culture) and 2) the rise of esports.
Internet cafe culture: Internet cafes began to proliferate in the Philippines in the 2000s due to the lack of internet penetration. The cafes quickly evolved to a place for socializing, especially with the popularity of multiplayer games like Dota and League of Legends. Currently, the culture of internet cafes is on the decline due to the rise of mobile gaming and the widespread use of the internet.
The popularity of e-sports: With players from Filipino teams such as TNC Predator, Mineski, and Bren Esports performing well, interest and participation in esports are on the rise. This popularity is leading to the growth of e-sports-related events, competitions, and related industries.
Characteristics of the Philippine Blockchain Gaming Market
The Philippine blockchain gaming market is growing rapidly based on an already well-established gaming market environment. During the COVID-19 pandemic, social distancing and travel restrictions have forced many people to look for ways to generate income from home, and P2E gaming has emerged as an attractive alternative. Many young Filipinos jumped on the lucrative P2E gaming bandwagon and have been actively participating in the games, calling themselves MFWs (Metaverse Filipino Workers). P2E games like Axie Infinity have seen significant growth in the Philippines and have become so popular that an active player community remains even with low monetization rates. Jeff Zirlin, co-founder of Sky Mavis, the studio behind Axie Infinity, even thanked the Filipino community at the YGG Web3 Games Summit and announced the reopening of Exo Infinity's Classic Mode.
Although the Philippine government does not appear to have any specific restrictions on P2E games, the country's tax authorities announced that they will begin taxing revenue generated from P2E games in 2021. In addition, the Philippine National Police recently issued a warning about the risk of fraud in P2E games.
Open Philippines Regulatory Landscape
Two main organizations oversee the blockchain market in the Philippines: the Bangko Sentral ng Pilipinas (BPS) and the Securities and Exchange Commission (SEC). Currently, the Philippine government has a regulatory framework in place for a minimum level of investor protection, such as VASP licensing. The country is one of the few places where many blockchain services, including P2E gaming, are possible. However, it is important to understand that as it is still an unregulated industry, it could be sanctioned at any time.
2017 - BSP recognizes cryptocurrencies: The BSP issued Circular No. 944, recognizing virtual currencies as a valid payment method.
2018 - ICO Advisory released: New draft regulations announced on how companies can legally raise money through ICOs.
2021 - Adoption of VASP Guidelines: The BSP adopted guidelines for Virtual Asset Service Providers (VASPs), creating a comprehensive regulatory framework for virtual asset exchanges in the Philippines.
Late 2022 - public SEC warning: SEC publicly warns against using unregistered cryptocurrency exchanges.
2023 - Adoption of taxation standards for cryptocurrencies: The Philippine government introduces new regulations that impose a capital gains tax of up to 15% on profits from cryptocurrency trading.
The Growth of the Philippine Blockchain Market
Currently, about 10 cryptocurrency exchanges are operating under VASP licenses. The largest exchanges are PDAX and Coins.ph. PDAX is a partner of the Union Bank of the Philippines and offers a wide range of services, including the ability to purchase tokenized bonds. Coins.ph is more of a wallet than an exchange, as it describes itself as a wallet in its service description.
In addition, there are guilds related to games, such as YGG Guild, and community creator Metacrafters. Although various blockchain services are released, not many services have gained global attention except for YGG Guild, which will hopefully change in the future.
The inevitability of the Philippines fostering the blockchain industry
As the Philippines is in urgent need of improving its industrial structure and developing its financial infrastructure, the country is expected to develop its blockchain market based on the enthusiasm of Filipino gamers with blockchain technology, a positive regulatory environment and active support from the government. Under the current circumstances, knowledge-based industries that can develop without infrastructure is Phillipines’ best choice, especially the IT industry. However, although the IT industry has growth potential in the domestic market, overseas expansion into an already-oligopolized landscape will be a major challenge. New IT industries that are attracting attention are artificial intelligence and blockchain, but the artificial intelligence industry has already entered the mass adoption stage and global maket entry opportunities is limited. On the other hand, the blockchain market is still in its early stages. Landing a leading position in the global market is feasible with active support.
The Philippines, in particular, is in need of financial infrastructure development and has the potential to actively adopt blockchain technology. There are still limitations to financial access due to the lack of bank branches in many areas and low bank account ownership rates in rural areas. In countries with mature financial infrastructures, the cost of converting the infrastructure to blockchain technology is high, but the initial deployment could be done at a lower cost with great benefits for the Philippines.
The extensive experience Filipino gamers have with blockchain technology is likely to support this, as they are bound to gain experience with various blockchain services such as DeFi through the process of opening and cashing out non-custodial wallets while playing P2E games. While many countries lack the experience to actively use the service due to their focus on cryptocurrency trading, Filipino users can play a big role in the development of blockchain technology by leveraging their experience in various blockchain services.
The government's positive attitude towards blockchain technology and minimal regulations support the development of the blockchain industry within a larger framework centered on investor protection. The successful Philippine Blockchain Week 2023, supported by the Department of Information and Communications Technology (DICT) and the Department of Trade and Industry (DTI), promoted the national adoption and utilization of blockchain technology.
In November 2023, the country launched its first tokenized bond issue worth $270 million, demonstrating technological innovation in the financial industry. Comments from Central Bank Governor Eli Remolona Jr. indicate that the Philippines is likely to issue a wholesale central bank digital currency (CBDC) within two years. This may boost the digitization of the Philippine financial system and strengthen the connection between the traditional financial system and the digital economy.
Therefore, the Philippines will inevitably actively promote the blockchain industry. However, the use and development of blockchain services is a completely different matter. Active educational support from the government will be essential to achieve the latter. In addition, there are many risks involved in actively supporting the blockchain industry in a nascent market at the national level, so there will be many discussions to be had in developing blockchain technology for the Philippines.
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