Research company base layer outlines the landscape of NFTs in Asia by looking at the Asian context, the factors influencing adoption and the use cases that will shape the future of non-fungible tokens.
When non-fungible tokens (NFTs) exploded into mainstream consciousness in 2021, the world was focused on their trading and price speculation. NFTs became associated with profits and status symbols, and subsequently, with the current onset of the bear market, losses and ridicule.
But NFTs are simply another technological invention. When we strip away our emotions, an NFT is simply a record on a distributed database that represents something of value that can respond to code deployed on a blockchain.
You can have that record represent your coffee mug or a video of your cat or a membership package to the gym – if you had a reason to. We know for a fact that people do so for reasons ranging from wanting to make a living by creating art to straight-up cash grabs.
Like all inventions, the reasons for creating NFTs will evolve through time and space.
Through time, NFTs will likely journey through the roller coaster of Gartner’s hype cycle, from the Trough of Disillusionment where it currently sits or is headed to, towards the Plateau of Productivity.
Through space, NFTs could potentially filter and evolve from the worlds of art and gaming to all facets of life from business to government. Their adoption and use cases in society will be shaped by the unique political, economic and socio-cultural conditions that form their context.
The Asian context
Some predict a surge in NFT adoption in Asia that is poised to surpass that in the West. While we’re cautious of making quantitative assumptions, we believe that Asia provides fertile ground for NFT adoption because digital consumption has become an ingrained way of life in the region.
While this has always been the status quo for the main economies of East Asia (China, South Korea, Japan, Hong Kong, Taiwan), other sub-regions are now following suit. A report by Bain & Company highlights that Southeast Asia is ushering in a roaring “digital decade”, characterised by native digital SMEs and early adopters who have embraced digital services end-to-end. Digitally native merchants and consumers provide a solid foundation for NFT adoption.
Despite this common denominator, Asia’s diverse culture means that one size does not fit all.
For example, Indonesia and India’s large youth populations, set against the backdrop of strong economies, provide the perfect fodder for the vibrant creative communities in art, music, fashion and entertainment that are key to the success of creator-based NFT projects.
On the other hand, many Asian economies will age more rapidly over the next several decades, including Hong Kong, Japan, China, Singapore, South Korea, Taiwan and Thailand. But the seniors market is also changing, with many now active online. In Japan and South Korea, more than 90% of seniors are expected to be online by 2030, while the share in China is expected to exceed two-thirds, according to McKinsey & Company. NFT projects in these markets may need to be designed with an older audience in mind.
A brand’s NFT strategy must consider the unique cultural background of the users and the communities they belong to. In this paper, we’ve identified four key forces unique to Asia that brands can leverage.
1. Crypto winter kills price speculation, NFTs shift to utility
The crypto winter killed the giddy excitement of making profits from play-to-earn games and NFT “flipping” across the native crypto community. From our own research and observations, this is happening globally and is likely to intensify as crypto markets crash further and for a longer duration than expected.
Asia’s crypto and NFT enthusiasts will be hit hard. We assume the majority of Asia’s retail crypto and NFT participants in 2021 have jumped in for a quick buck, which would be especially true for participants from emerging economies.
Take, for example, the adoption of Axie Infinity, a play-to-earn game, by low-income communities in the Philippines and Vietnam to boost their income during pandemic lockdowns. According to a Bloomberg article, the game has now gone from “illustrating Web3’s utopian potential” to a validation that Web3 is essentially a ponzi scheme as the game’s token valuations get wiped out. Another article highlights players in Vietnam becoming wary of play-to-earn games.
Expect the negative drumbeat from mainstream media to march on as markets plummet further. Meanwhile, those remaining in the space will attempt to grow more strategically, while holders will start turning to NFTs as a consumer seeking enjoyment and utility, rather than a speculative trader.
In Vietnam, for example, locally developed games have emerged following the global success of the move-to-earn game STEPN, which rewards users for exercising and moving outdoors. The admin of a move-to-earn running group with over 7,000 members says that Vietnamese users of STEPN are shifting to local projects because they “cost less, understand local communities, focus on community building and have direct interactions”. Run Together, for example, directs players to running communities in the real world and organises marathons.
An article on NFT adoption in Singapore also highlights diverse utilities across various industries from where “users will be drawn to the space when they find a utility which speaks to them”.
2. A culture of entrepreneurship fosters experimentation
Southeast Asia’s micro, small and medium-sized enterprises account for over 99% of businesses in the region. India is presently the world’s third largest source of startups and was ranked the second most entrepreneurial country in the world. Indonesia, Taiwan and India sit at the top five economies in the world with optimal conditions for entrepreneurship. The appetite for owning and running businesses appears to be part of Asia’s cultural fabric.
This spirit of entrepreneurship, alongside the drive to keep ahead of the competition, is fuelling experimentation with NFTs as a novel way to engage with their customers, strengthen customer relationships and create new revenue streams.
Given the relative ease of creating NFTs, we’re seeing NFTs being deployed by a range of local entrepreneurs – from family-run businesses to startups and tech giants – across industries ranging from food, restaurant, retail and e-commerce. In most of the existing use cases, the NFTs function like loyalty cards or tickets, providing exclusive access to special experiences and discounts.
Here are just a few of the examples:
- Synchronize Fest, a music festival in Indonesia, released 100 Lifetime Ticket NFTs, giving holders free access to all future events. The NFTs were raffled to those who bought the non-refundable tickets for their cancelled 2020 event as a token of appreciation.
- In Taiwan, fried chicken restaurant Shiyun’s NFTs allow holders to redeem the food item represented by their NFT by showing them in-store.
- In Hong Kong, Gourmeta auctions off NFTs that give exclusive access to fine dining experiences at Michelin-starred Hong Kong restaurants Andō and MONO.
- South Korean convenience store CU’s NFT airdrop for White Day, a local romantic holiday, drew more than 20,000 applications. The NFTs were released in collaboration with popular musician LayLay.
- Indian e-commerce operator Flipkart announced the launch of an innovation lab to explore Web3 and metaverse use cases including NFTs, virtual storefronts, play-to-earn and other blockchain technologies.
- Singapore-based ARC is using NFTs as proof of access to a member-exclusive app and hangout spaces in real life to network and collaborate with like-minded individuals.
3. The creator “middle class” finds new income opportunities
Overall, Asia boasts a rich creator class with vibrant local art, music and entertainment scenes. For example, India is the world’s largest producer of films. In 2020, the industry was valued at US$2.5 billion, while Indonesia’s creative economy industry has been ranked third in the world in terms of its contribution to its national GDP. With its strength as a cultural hub for manga, anime and gaming and the resurgence of Japanese Cool in the global mainstream, Japan is also in a position to leverage its creative content for NFTs, as is Taiwan.
We believe many local creators have nurtured an established following and strong community over years but are either not profitable or have not been able to get compensated appropriately – a segment coined by Harvard Business Review as the “middle class” of the creator economy.
These creators are now experimenting with NFTs as a new vehicle to build a direct connection with their fans and unlock the monetary value of their strong IP and brand, in some cases expanding their community beyond their local markets.
Examples of NFTs opening up the creator economy in Asia:
- Karafuru is a collaboration project between Museum of Toys, an Indonesia-based online shop for designer toys, and local NFT artist, Wede. The project took the Indonesian NFT community by storm and made waves in the broader crypto community. So far, the project has organised a seaside carnival and collaborated with reputable brands such as Hypebeast and Atmos for another NFT collection, Karafuru 3D.
- Lost in Jukiverse is an NFT project from Indonesia that sold out in the current bear market. The NFTs are the second collection based on the comic character, Si Juki, created by Faza Meonk since 2010. According to the creator, Jukiverse NFTs are a bridge for IP brand development from Web 2.0 to Web3.
- Pili International Multimedia, which makes Taiwan’s longest-running puppetry television show, Pili, is looking to use NFTs to keep its traditional art form relevant in the modern era. Four of its puppet characters were made into digital versions and 30,000 sets have been sold as NFTs already. Each set started at US$40, translating into US$1.2 million in revenue since its listing in early February.
- Pelempunk is an NFT project by Malaysia’s Penang-based artist Haizeel and featuring comical artworks of people getting slapped. The artist has also minted a total of 245 digital art pieces on Pentas.io, a local NFT marketplace, with about 96% of them being sold.
- In China, all 28,000 NFTs based on the late Qing dynasty painter Wu Changshuo’s artwork sold out, translating to a revenue of over US$500,000 (3.4 million yuan). The NFTs were launched by the Wu Changshuo Cultural Art Foundation.
- Japan’s Otaku Coin Association was established in 2018 to connect anime fans and support anime creator studios. A set of 6,500 NFTs for the on-chain game “Isekai Saga”, of which the Otaku Coin Association is a partner, sold out in early June despite the bear market, translating to over US$600,000 in sales.
4. Governments and institutions are more relaxed over NFTs
While state authorities in some markets in Asia have taken a tougher stance around fungible assets like cryptocurrencies, many lawmakers in the region are taking a light touch approach to regulating NFTs.
It’s important to emphasise that NFTs still remain largely unregulated but as a non-fungible asset, it can be argued that they fall in the same category as a work of art, which is typically less strictly regulated than currency. This adds to the excitement around NFTs by consumers and their dissociation from the world of crypto and coins.
- In China, cryptocurrency trading is banned but NFTs are allowed as long as there is a holding period after purchase and no quick resale. The country has also launched its own state-backed Blockchain-Based Service Network (BSN) and “digital collectible” platforms have grown exponentially.
- Although Thai regulators have banned crypto exchanges from including NFTs, retail banks have launched an NFT marketplace and are leading the world in opening a branch in The Sandbox, a blockchain-based metaverse game.
- In Malaysia, the minister of tourism, art and culture said that the government was keen to see how new technologies like NFTs could be leveraged as an alternative platform for artists.
- In South Korea, a crypto-friendly candidate won the presidential election. He famously minted his signature on a blockchain at a televised startup forum.
- Japan recently approved a new policy to drive Web3 adoption in hopes of sparking economic growth. Its NFT Task Force has also recommended hiring a Web3 minister.
What it means: Exploration of the new world
Our goal for this research was to provide an overview of the landscape of NFTs in Asia and the forces influencing it within the context of branding, business and culture.
Asia is still in the early days of using NFTs for brand building and business development. Crypto speculators rode the hype and spiked the adoption numbers last year during the market’s bull run, and we’re now only beginning to see how NFTs will play out as part of a more sustainable lifestyle and consumption culture in the region.
Essentially, NFTs are portals to new brand experiences – an open world teeming with possibilities. It is an experience that can be defined as narrowly as “owning a receipt to a digital file”, to as broadly as “owning IP rights to a creation”, including anything and everything in between.
As the blockchain is programmable, it is possible to inject new features into NFTs over time that allow them to expand their functionality and branding. Additionally, NFTs can seamlessly switch between the digital space and the physical world.
With increasing awareness of the technology behind NFTs, the perception of NFTs will dissociate from cryptocurrencies, art and gaming. They will gradually shift into real-world utility to satiate a growing consumer expectation for NFTs to go beyond the value of a digital file tied to the token.
For brands, NFTs are a manifestation of virgin territory and new beginnings.
NFTs present a new marketing tech stack for open-ended brand extension and community building that departs from the saturated digital marketing tactics on Web 2.0 dominated by Facebook, Instagram, TikTok or whatever the main social media platform is in your country.
Brands can use the technology to improve customer acquisition and retention, as well as provide token holders with a deeper level of value. It can also allow consumers the opportunities to work with brands and, in some cases, profit from early support, creating incentives to help brands succeed.
There are, of course, risks but those must also be weighed against the risk of remaining on the sidelines while the landscape gradually, then suddenly, shifts.
Global brands like Starbucks, Gucci, Prada, Nike, Budweiser, Emirates and Google are already setting sail and planting flags in this expansive new world.
In Asia, the impact of the region’s cultural diversity means that there is a need for brands to identify and address their markets’ utility gaps for Web3 on an individual level. Brands in Asia must look beyond the hype or negativity around NFTs and recognise the use cases for the technology beyond art and collectibles, to be able to find opportunity in the cultural and operational characteristics unique to each market in the region.