Taiwan Web3 Market Overview
Taiwan Web3 Market Overview
A balanced player rising from the past
TL;DR
Taiwan has a low wage structure despite its high GDP, which is attracting young people to the Web3 market as a way to overcome the situation. The Taiwanese government is also trying to move away from its past hardware-centric policies by fostering the Web3 industry.
In Taiwan, the FTX bankruptcy resulted in more than 300,000 victims and more than USD 400 million in damages. As a result, calls for regulation of cryptocurrencies continued, and on October 27, 2023, a draft regulation based on discussions with the industry entered the First Reading process.
Taiwan has a well-balanced web3 industry ecosystem in each sector, making it a favorable environment for developing an integrated Web3 business. In particular, it is expected to be a favorable market for web3 games due to its high spending on games relative to low wages. It also has lower operating costs than Hong Kong, which is an advantage for piloting projects to enter the Chinese market.
Web3, a breakthrough for Taiwan's youth
Taiwan's interest in the web3 market is closely linked to its economic growth. In recent years, Taiwan's economy has grown significantly. Its GDP has grown to be on par with South Korea, which can largely be attributed to its semiconductor-oriented OEM companies such as TSMC and MediaTek. However, due to the predominance of outsourced production, wages have been kept low to compete with China. According to the latest statistics released by Taiwan's Ministry of Labor, the average starting salary of a college graduate is only 35,000 New Taiwan dollars (roughly USD 1,090) in 2022.
The discrepancy between the high GDP and low wages has made it difficult for young people to afford high rents and living costs, which led to the disillusionment of growth. Consequently, they are looking for a breakthrough by moving to China or entering new industries with high growth expectations, such as the web3 industry.
A lesson learned from the past
The Taiwanese government has a positive view regarding the web3 industry mainly in order to focus on software such as social media, gaming, mobile apps, and platform businesses. Taipei Mayor-elect Chiang Wan-an and Minister of the Administration for Digital Industries Leu Jang-hwa have shown a positive attitude, stating at Taipei Blockchain Week that blockchain technology can lead to a bright future for Taiwan. In addition, Tang Feng, the Minister of Digital Affairs, seems to be playing a key role in shaping the market. Currently in charge of new digital technologies such as IoT, he is a former member of the open-source community g0v and has expertise in the Web3 market. The ministry recently gathered major industry stakeholders to discuss establishing a systematic framework for the web3 market, and a concrete proposal is expected to be announced soon.
Strengthening web3 regulatory oversight
The FTX collapse has caused major ripples in Taiwan's web3 market. According to the Taipei Times, more than 300,000 Taiwanese citizens were affected by the FTX bankruptcy, and the damage was estimated at more than USD 400 million. As a result, the need for 1) investor protection, 2) anti-money laundering (AML), and 3) market stability has emerged, and the need for regulation continues to grow.
On September 26, 2023, Taiwan's Financial Supervisory Commission (FSC) issued exchange-focused guidelines. The guidelines include rules to separate exchanges' assets from customers' assets, as well as measures to review the listing and delisting of digital assets. On October 6, 2023, Taiwan's Parliament held a public hearing including digital asset service providers, academics, and other industry stakeholders to discuss the draft proposal. On October 27, 2023, a draft bill incorporating the changes was submitted to the Parliament for a first reading. Previously only regulated by the Anti-Money Laundering Law proposed in April 2021, Taiwan’s web3 market has begun to properly enter the regulatory sphere.
While there is still a long way to go before the first reading, the Taiwanese government is looking to amend or introduce new legislation to ensure that the web3 industry operates with legal clarity. Within this legal framework, Taiwan's web3 industry is expected to proceed with improved regulatory clarity.
Taiwan blockchain ecosystem
Taiwan has a balanced web3 market ecosystem. In particular, the industry is centered on CeFi and DeFi projects, and new projects are emerging in various fields such as gaming and digital wallets as the NFT market continues to heat up. According to the "Taiwan Blockchain Industry Report" released by None Group, 40% of all blockchain companies were newly established in the last three years, and the proportion of companies established in the last five years reached 70%. This indicates how rapidly the blockchain industry is growing in Taiwan.
MaiCoin and BitoPro are Taiwan’s representative exchanges. Their main feature is that they are directly connected to banks. Far Eastern and KGI Bank seem to be the exchanges’ banks of choice. This is similar to South Korea's exchanges. In Korea, one exchange is supported by one bank. In contrast, one bank can be connected to multiple exchanges in Taiwan. However, the trading volume is still low, around 0.1% compared to Binance.
As Taiwan is one of the countries most affected by the FTX, it has been actively moving towards DeFi. Major projects are centered around DeFi as well. Projects such as Perpetual Protocol, Hakka Finance, and Dappio are leading the charge. Notably, Perpetual Protocol introduced the concept of perpetual futures to the DeFi market, eliciting a positive global response and its token increasing by more than 90%.
Taiwan's gaming market is driven by high average revenue per user, and the web3 gaming market is also showing steady growth. According to the Korea Creative Content Agency's '2022 Game White Paper', Taiwan's game market was valued at USD 2.97 billion (approximately KRW 3.9 trillion) as of 2021. It ranked 10th globally, more than tripling in size from USD 1.3 billion (approximately KRW 1.4 trillion) in 2018. According to Statista, the average revenue per user (ARPU) for mobile games in Taiwan is around USD 202, which is a high ratio of money to spend on games considering the relatively low wages. In comparison, the ARPU in South Korea is USD 240.
Web3 game companies are gaining steam in their growth. In 2022, Taiwanese web3 game company Red Door Digital (RDD) raised USD 5 million in seed investment. Ambrus Studio, Petarush, and others are continuing to develop games using NFTs.
Potential risk in Taiwan
Taiwan's population is mainly concentrated in urban areas, with about 70% of the total population living in cities. Taiwan's median age is in the early 40s which is higher compared to Indonesia. Furthermore, the declining fertility rate and increasing life expectancy follow the patterns of an aging society typically shown in developed Asian countries.
Another obstacle is cross-strait relations, namely the complex political and economic relationship between Taiwan and mainland China. Historically, Taiwan has had a complicated relationship with China, mainly stemming from the fact that Taiwanese citizens consist of immigrants from the Ming and Qing dynasties and mainlanders who arrived with the Nationalist government around 1949.
The United States and Taiwan recently signed the U.S.-Taiwan Initiative on 21st-Century Trade agreement, which seeks to strengthen economic ties and increase cooperation. China is adamantly opposed to such an alliance, saying it violates the "One China" principle, and political and economic risks are expected.
Still, Taiwan holds high potential
Taiwan has a well-balanced ecosystem in various areas of web3 and is home to globally recognized projects such as Perpetual Protocol. This makes Taiwan a more favorable environment for developing an integrated web3 business in a well-balanced ecosystem. Furthermore, global companies such as OKX and Binance are entering the Taiwanese market, indicating that the global market is recognizing Taiwan's potential in the Web3 space.
However, low wages and a limited domestic market size are problems that Taiwan cannot avoid. As the web3 industry is a borderless one, it can be an opportunity for Taiwan to overcome its constraints and expand its business to the global market. Taiwan has lower operating costs than Hong Kong, making it a favorable environment for pilot projects to enter the Chinese market. Although regulations are only now being introduced, Taiwan's well-developed Web3 environment driven by the private sector is expected to have great potential for future development.
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