Embracing the Blockchain Industry: Japan is Back, Again

KP Jang외 1명
Head of Research/
Jul 18, 2023

Translated by Lyne Choi

Japan crypto, japan blockchain industry


Table of Contents

1. How Japan Transitioned from a Crypto Powerhouse to a Crypto “Regulatory” Powerhouse

2. The Japanese Government's Efforts to Break Free from the Web3 “Galapagos”

3. Japanese Companies Embrace Web3 in Alignment with Government Initiatives

4. Major Blockchain Projects in Japan – Oasys and Astar

5. The Shifting Web3 Landscape from U.S. to Asia


1. How Japan Transitioned from a Crypto Powerhouse to a Crypto “Regulatory” Powerhouse


During the early days of the Bitcoin era, prior to Ethereum's emergence in 2015, Japan held a dominant position as a crypto powerhouse. The Tokyo-based Bitcoin exchange, Mt. Gox, played a pivotal role, accounting for a staggering 70% of the global trading volume in early 2014. Japan was widely recognized as a major hub for cryptocurrencies. However, this narrative underwent a significant shift when Mt. Gox fell victim to the infamous hack in February 2014.

BTC Trading Volume on Exchanges in July 2013

The exchange fell victim to a hack that compromised 850,000 BTC, valued at $500M at the time. The massive loss of customer assets within Japan, amounting to over 60B JPY, prompted the Japanese government and the Financial Services Agency to introduce stringent and unprecedented regulations.

First and foremost, in 2017, the decision was made to regulate crypto exchanges under the supervision of the Financial Services Agency. To operate within Japan, crypto exchanges are now required to adhere to regulations such as Know Your Customer (KYC) procedures and the segregation of asset custody. Moreover, new coin listings necessitate registration on a whitelist managed by the Japan Virtual Currency Exchange Association (JVCEA), a self-regulatory organization operating under the Financial Services Agency. The registration process entails substantial documentation and stringent criteria for approval, resulting in only 76 cryptocurrencies being currently whitelisted for listing on exchanges.

In addition to the Mt. Gox hack, Japan has witnessed several other incidents, including the infamous Coincheck hack in 2018. Responding to these events, Japanese financial authorities further tightened regulations, with a particular focus on regulating exchanges. In 2020, cryptocurrencies were included in the Payment Service Act, subjecting them to regulations akin to payment services. Additionally, token issuers became liable for corporate taxes of 30% on unrealized gains, while individual gains from virtual asset transfers were categorized as miscellaneous income and taxed at rates as high as 55%. These regulatory changes created a challenging environment for token issuance and private investment, resulting in the Japanese Web3 ecosystem losing its service builders and retail investors. Over time, the Japanese Web3 ecosystem found itself devoid of service builders and retail investors, gradually becoming an isolated ecosystem detached from global trends—a digital Galapagos Islands.

Timeline of Major cryptocurrency hacking incidents and regulatory introductions in Japan


2. The Japanese Government's Efforts to Break Free from the “Galapagos” Web3

In 2022, a wind of change began sweeping through the Japanese market, signaling a shift in perception regarding Web3 within the country's political landscape. This change was catalyzed by the Kishida administration's emphasis on a 'digital transformation' policy. While Japan had previously maintained strict regulations that effectively controlled the Web3 landscape and shielded it from major issues like LUNA and FTX, recent developments served as a wake-up call. As a result, voices advocating for the revival of the Japanese Web3 ecosystem gained traction, resonating within the political circles, and leading to the emergence of policy proposals.

To support this resurgence, the Japanese Ministry of Economy, Trade, and Industry established a dedicated office for Web3 & Metaverse policy under the secretary general's office. The objective of this office is to offer policy support to Web3-related companies and talent that have relocated to overseas destinations like Dubai, enabling them to continue their operations within Japan. The ruling Liberal Democratic Party has also aligned itself with government policy by publishing a whitepaper titled “Japan’s NFT Strategy for the Web 3.0 Era” in 2022 and the “Web3 Whitepaper” in 2023. Furthermore, the recent announcement of the non-collection of corporate taxes on unrealized gains from digital assets is another measure in line with government policy, reducing the burden on token issuers.

Japan's Web 3.0 Whitepaper - summery of key points

The current global regulatory landscape surrounding Web3 differs significantly from the past. The United States, exemplified by the listing of Coinbase on NASDAQ, is seeking to tighten regulations following the FTX incident, under the leadership of SEC Chair Gensler. Europe has reduced regulatory uncertainty through the introduction of MiCA legislation, but obtaining licenses for cryptocurrency businesses remains challenging. Meanwhile, Web3 projects are gravitating towards the Middle East, specifically Dubai and Abu Dhabi, due to low tax rates and relatively relaxed regulatory requirements. In this context, the Japanese government's deregulatory stance is expected to foster Web3 adoption among enterprises and incentivize them to conduct their operations in Japan.


3. Japanese Companies Embrace Web3 in Alignment with Government Initiatives

In response to the Japanese government's shifting stance on Web3, Japanese companies are swiftly adapting to this new landscape. The gaming industry, a prominent sector in Japan, is at the forefront of preparations for blockchain adoption. Based on my network within the Japanese market, most Japanese game companies have already established dedicated blockchain teams and are actively preparing related services. Notably, Square Enix and Gumi are leading the charge, with Square Enix announcing in its CEO's New Year's speech that it is developing multiple blockchain games, while Gumi has shown strong interest in Web3, with founder Hironao investing in Double Jump Tokyo.

However, it will likely take at least a year or more for Japanese game companies to fully launch blockchain games. The majority of these companies are still in the process of setting up their teams, and based on the experience of Korean game companies, integrating blockchain into existing game IPs for the first time requires some time (although subsequent integrations can be significantly expedited with gained experience). Nevertheless, given Japan's position as one of the top three global gaming giants in terms of revenue, there is a strong probability of success stories emerging from their endeavors to embrace blockchain technology. Should an early adopter achieve success, it is expected to fuel the widespread adoption of blockchain even further.

As game companies pave the way, other sectors, including finance and general corporations, are also increasingly expressing interest in Web3. The financial sector, in particular, is exploring business opportunities primarily through Security Token Offerings (STOs), which were introduced into the system through the Financial Instruments and Exchange Act. SBI Securities has been at the forefront of incorporating blockchain technology, issuing token securities for its subsidiary's common stock and its own bonds. Mitsubishi Bank, on the other hand, has partnered with Nomura Securities to offer asset-backed token securities. Apart from the financial sector, various Japanese companies have ventured into the Web3 business as well. For instance, DMM Group, an IT and media company, has established a Web3 subsidiary called DM2C and is currently preparing the first content for a project named "Coin Musme." Previously, tight regulatory constraints, such as corporate tax collection on unrealized token profits, would have hindered such implementation. However, with the government's positive stance on Web3, companies are now exploring new business opportunities.


<DM2C Platform’s First Project, Coin Musme>

Moreover, major manga and anime companies, renowned for their creative content, have just begun exploring NFT projects. Toei, the owner of intellectual properties (IPs) such as Dragon Ball and One Piece, and Kadokawa, which holds IPs like Sword Art Online and Love Live, are venturing into the NFT market with new IPs called "DENDEKADEN" and "Girypto," respectively. Additionally, Oasys recently announced an upcoming NFT project based on the classic Japanese manga Captain Tsubasa, further exemplifying the industry's growing interest in Web3.


4. Major Blockchain Projects in Japan – Oasys and Astar

Oasys and Astar are prominent players in the Japanese blockchain market. While these platforms are relatively new, they have gained traction through partnerships with large Japanese companies, government entities, and the local transportation system.

Oasys: Emerging as an Oasis for Enterprises

Oasys has garnered support from prominent game companies in Japan and South Korea, which serve as validators on the platform. Notably, it has recently onboarded major Japanese telecommunications companies like Softbank and KDDI as additional validators. However, it is worth noting that the ecosystem surrounding Oasys is still evolving, and there is room for further development despite the impressive list of validator partners.

Ubisoft game lineup to be onboarded on oasys and revenue

However, these concerns appear to have been alleviated at the IVS 2023 Oasys event held in Kyoto on June 28. During the event, major game companies made consecutive announcements that their own game IPs will be developed on the Oasys Verse platform. Ubisoft, for instance, revealed their upcoming game called Champions Tactics, which is set to launch on their new Verse platform, the Champions Verse. This move signifies Ubisoft's pursuit of a breakthrough in blockchain gaming. While the gaming market continues to expand, Ubisoft's revenue peaked in 2020 and has since declined, with 2022 figures resembling those of 2019. To overcome this situation, Ubisoft appears to be exploring the potential of blockchain gaming. However, it is anticipated that the company intends to primarily target the Japanese market, which ranks as the world's third largest, rather than the more challenging markets of the United States, Europe, and China, where launching blockchain games realistically poses greater difficulties.

com2us announces summoners war in 2023 oasys event<Com2uS Announces Summoners War: Chronicle on Oasys, Source: IVS 2023 Oasys Event>

In a significant announcement at the IVS 2023 Oasys Event, Com2uS revealed their plans to launch their flagship IP, Summoners War: Chronicle, not only on XPLA but also on Oasys. This strategic move is driven by the global success of Summoners War: Chronicle, which contributes to approximately 77% of Com2uS' total revenue and has gained significant popularity in Japan. Recognizing the significant Japanese user base, Com2uS aims to capitalize on this market opportunity. Game companies in Japan face regulatory requirements that necessitate obtaining a cryptocurrency exchange license to independently launch their own mainnet, blockchain games, as well as infrastructure such as DEX and wallets. As a result, Com2uS appears to have opted for releasing their games through Oasys, which has already established regulatory-compliant infrastructure, rather than undergoing the process of obtaining licenses. Additionally, Double Jump Tokyo announced a collaboration with SEGA to introduce their existing game center-based IP, Sengoku Shitatai-sen, as a TCG card game. Numerous other game companies have also expressed their intentions to develop a diverse range of games and build the Verse, as mentioned below.

Upcoming gaming titles/verses showcased in IVS 2023 Oasys special event

Astar: Fostering Strong Government Partnerships

Astar, a Polkadot parachain launched in January 2022, has gained significant popularity and currently holds the second-highest Total Value Locked (TVL) on DefiLlama. Distinct from Oasys, which primarily focuses on gaming companies, Astar takes a pro-government stance and continues to foster partnerships with prominent corporations and local governments. Particularly noteworthy is the alignment with the Kishida cabinet's vision of Web3 as a key driver of economic reform, with Astar CEO Sota Watanabe emphasizing the close collaboration between the company and the Japanese government.

Astar is bolstering its presence in Japan through the Astar Japan Lab, which operates a Web3 incubation program in partnership with Sony. Additionally, Astar has established collaborations with prominent entities such as Toyota and NTT DoCoMo. The expansion extends to cooperation with local governments throughout Japan. For instance, in October 2022, Astar signed an agreement with the city of Fukuoka to establish a Web3 hub akin to Silicon Valley in Japan. Additionally, Astar maintains strong relationships with local governments, having signed agreements with prominent regions such as Shibuya and Kyushu.


5. The Shifting Web3 Landscape from U.S. to Asia

The Web3 ecosystem has predominantly been driven by Western players in the United States and Europe. Western institutional investors recognized Bitcoin as an alternative investment asset, leading to the establishment of infrastructure for cryptocurrency investment. Smart contract platforms, spearheaded by Ethereum, were developed by U.S. developers, while alternative Layer 1 solutions like Solana emerged, sparking new narratives. However, in the wake of the Luna and FTX scandals, the regulatory environment surrounding Web3 in the United States and Europe has grown increasingly stringent and uncertain. Cryptocurrency exchanges and Web3 builders in the West are now more concerned about addressing the legal risks they face rather than focusing on the future of their businesses. Additionally, the Web3 Native ecosystem has yet to witness significant user adoption compared to existing industries, and blockchain services have faced criticism for their low quality and limited user acceptance. Overall, the situation is challenging.

However, the regulatory environment in Asia, including countries like Japan, the Middle East, and Hong Kong, is undergoing a favorable shift, and the active involvement of major corporations in Web3 is fueling new expectations within the ecosystem. Companies with a substantial user base are already preparing blockchain-based services, creating significant anticipation within the industry for the emergence of robust and successful offerings. As Web3 regulations continue to tighten in Western regions, creating an environment where crypto-friendly Asian countries can mutually benefit, there is hope that courageous entrepreneurs will achieve fruitful outcomes.

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