Image Source: ©SQUARE ENIX

Table of Contents

1. Introduction

2. The end of hibernation: awakening of a global gaming powerhouse

2-1. Japan’s strategic move towards market revitalization through crypto-friendly regulations in 2023

2-2. Momentum builds in the Japanese blockchain gaming market

2-3. Exciting prospects in the japanese blockchain gaming market: market size, ip, and culture

3. Square Enix leading the charge in the Japanese blockchain gaming market

3-1. Square Enix: A pinnacle commitment to blockchain among Japanese game companies

3-2. Advancing the token economy: Square Enix’s vision for enhanced scalability through blockchain adoption

4. Symbiogenesis: shaping narratives alongside ten thousand gamers in an original IP-driven blockchain game

4-1. Immersive browser-anchored storytelling entertainment, focused on ‘information exchange’ within a vast universe

4-2. Focusing on providing memories to true fans with a craftsmanship approach

5. Set to establish a success paradigm demonstrating blockchain potential in Japan

1. Introduction

Square Enix made a strategic entry into the dynamic blockchain gaming market with the launch of Symbiogenesis on December 21, 2023. Renowned as the catalyst behind Japan's RPG surge and the innovative force steering classics like Final Fantasy and Dragon Quest, Square Enix now stands as a formidable player in Japan's gaming space, commanding a market capitalization exceeding $4.6 billion. This report delves into the dynamics shaping the Japanese blockchain market, Square Enix's strategic interpretation of blockchain's value proposition, and and the underlying motives steering its inaugural venture, Symbiogenesis.

2. The End of Hibernation: Awakening of a Global Gaming Powerhouse

2-1. Japan’s strategic move towards market revitalization through crypto-friendly regulations in 2023

Japan, having responded robustly to significant hacking incidents like Mt. Gox (2014) and Coincheck (2018) with stringent regulations, is now signaling a proactive embrace of a pro-Web3 stance as the linchpin of its new capitalist policy under the Kishida administration. In tandem, Japan has realigned its regulatory compass to cultivate emerging sectors, such as NFTs and metaverses. Notably, in July 2022, the Web3 Policy Promotion Office was established, placing the blockchain industry, with Web3 at its core, at the forefront of the national growth strategy.

Building on diverse recommendations, the government's White Paper on Virtual Asset Regulation (unveiled in April 2023), received final approval, prompting concerted efforts to liberate ecosystem participants hampered by stringent regulations. Simultaneously, the Japanese government is proactively alleviating the market's burden through enticing incentives, including endorsing stablecoin issuance, a 20% reduction in personal income tax rates, and exempting corporate taxes on tokens issued by companies.

September witnessed the emergence of a bill proposal enabling startups to issue cryptocurrencies, with indications that a policy addressing scalability challenges in startups' access to new investment funds could materialize in 2024. The government's regulatory clarity has not only encouraged startups but has also prompted major corporations to venture into the market. Evidently, Progmat (a subsidiary of MUFG managing digital asset issuance), a key player in the existing Web2 financial space, collaborated with XRP. Moreover, Japan's largest general trading company, Mitsui C&T, and Sony Group are making strides in the market with new blockchain-utilizing ventures, underscoring the proactive regulatory environment established by the government.

2-2. Momentum builds in the Japanese blockchain gaming market

As Japan undergoes regulatory shifts in favor of cryptocurrencies, it is imperative to observe the strategic moves within the gaming sector. Japanese game companies are strategically positioning themselves as swift followers in this evolving landscape. Although Japan entered the blockchain market slightly later than South Korea, its approach to integrating blockchain aligns closely with that of South Korean counterparts. Japan has transitioned from contemplating blockchain adoption to actively exploring business directions.

Two key factors contribute to this disparity. Firstly, Japan is likely to approach blockchain integration with a research and development focus until a proven model emerges in the market. The blockchain games slated for release in 2024 are anticipated to serve as preliminary tests, gauging market responsiveness. Secondly, Japanese game companies exhibit a higher dependency on game IP compared to their Korean counterparts. Consequently, they exercise caution in leveraging IP for blockchain games. While discussions on utilizing major IPs among large game companies are underway, the actual planning, development, and release of such projects are expected to be protracted. As a result, it is projected that Japanese game companies will progressively engage in active development of blockchain game businesses, with a more pronounced presence anticipated from around 2025.

2-3. Exciting prospects in the Japanese blockchain gaming market: Market size, ip, and culture

My anticipation for the Japanese blockchain gaming market is grounded in three compelling factors: market size, intellectual property (IP), and cultural influence. Japan, an indisputable gaming juggernaut, holds the esteemed position of the third-largest global gaming market by revenue in 2022, trailing only behind the United States and China (refer to the chart below). Its pervasive impact on the gaming industry is underscored by the fact that seven out of the top 10 video game IPs, ranked by cumulative revenue, originate from Japan.

Iconic franchises like Pokémon, Hello Kitty, Super Mario, Gundam, One Piece, and Yu-Gi-Oh! epitomize the cultural phenomena emanating from Japan. The country fosters vibrant subcultures centered around anime characters, contributing to a diverse consumer landscape spanning games, music, movies, and more. Notably, seven of the highest-grossing films of all time at the Japanese box office are anime productions, including renowned titles such as Demon Slayer, Spirited Away, Your Name, and Princess Momonoke. A testament to the popularity of Japanese anime and the enormity of the domestic market is readily observable in Tokyo's Akihabara neighborhood.

Akihabara District, Image Source: Rakuten Travel

This cultural richness extends its influence globally, evidenced by the demand for Japanese content worldwide. In 2021, the training simulation game <Umamusume: Pretty Derby> exceeded $2 billion in cumulative global sales in its second year, while Makoto Shinkai's cinematic sensation <Suzume> garnered over 30 million global viewers and achieved a $167 million global box office revenue. YOASOBI's opening theme song for IDOL, <Oshi no Ko> achieved remarkable milestones, holding the #1 spot on Oricon's weekly streaming rankings for 13 consecutive weeks, topping the Billboard Global Chart Excl. U.S. Top 10 on June 10, and securing the #1 position on the YouTube Music Global Chart Top 100.

Cover of YOASOBI, Image Source: Soundcloud

3. Square Enix Leading the Charge in the Japanese Blockchain Gaming Market

Given the substantial potential in Japan, discussions with Japanese game companies indicate that Square Enix and Konami stand out as the most committed to blockchain gaming. The distinction lies in their direct involvement in game development, in contrast to other companies outsourcing game development to DoubleJump.Tokyo, which assumes responsibility solely for the final review and distribution.

3-1. Square Enix: A Pinnacle Commitment to Blockchain Among Japanese Game Companies

Square Enix distinguishes itself within the gaming industry through an unparalleled passion and interest in blockchain technology. The former President of Square Enix, Yosuke Matsuda, conveyed the company's dedicated focus on understanding the transformative impact of blockchain since 2018, exploring avenues to integrate this technology into its gaming ecosystem. Matsuda's unwavering confidence in blockchain was evident in his New Year's speeches, particularly in 2022, where he referenced the term "blockchain" 7 times. By 2023, he formally positioned blockchain as a pivotal domain within Square Enix's medium-term business plan, articulating the company's commitment to developing some blockchain games rooted in original intellectual property and substantial investments in the field.

Square Enix's commitment towards blockchain gaming aligns seamlessly with its evolving business trajectory. In 2018, the company established a $25 million venture fund encompassing 3D modeling, AI, robotics, and blockchain. Subsequently, in 2022, Square Enix and SBI Holdings directed a total of $52.7 million investment towards the blockchain game and NFT sector through collaboration with GUMI. The company further solidified its blockchain footprint by issuing digital letter of authenticity for its figure collectibles and inaugurating the groundbreaking Symbiogenesis in the previous year. The current President of Square Enix, Takashi Kiryu, outlined in his New Year's address for 2024 the reorganization and reallocation of resources to fortify the business areas outlined in 2023. The Blockchain Entertainment Business Division has been established since 2022 as a department in charge of developing NFT projects including Symbiogenesis.

3-2. Advancing the token economy: Square Enix’s vision for enhanced scalability and profitability through blockchain adoption

The paramount objective of embracing blockchain within Square Enix lies in the pursuit of heightened 'scalability' and 'profitability,' a fundamental restructuring aimed at revitalizing the token economy. This strategic imperative was articulated in Square Enix's 2022 New Year’s letter, emphasizing that decentralized gaming holds “the potential to enable self-sustaining game growth, delivering novel experiences to users. Traditional gaming models face limitations in content diversity and scalability. Unlike earlier eras where games predominantly involved content consumption, contemporary gaming demands a constant influx of new content to engage users. The challenge lies in the inherent disparity between the pace at which game developers can create content and the rapid consumption speed of users. Traditional methods constrain companies to produce content at a fixed rate, unable to match the dynamic pace of content consumption by users.

The essence of blockchain-based games lies in constructing a token economy and a tailored incentive system capable of stimulating User Generated Contents (UGC). By cultivating an ecosystem where users actively contribute to content creation, a self-sustaining decentralized game ecosystem becomes a tangible reality. This transformative shift empowers users to not only consume content but also assume the role of producers or studios. For companies like Square Enix, this evolution represents a transition from mere game developers to influential content distributors.

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4. Symbiogenesis: Shaping Narratives alongside Ten Thousand Gamers in an Original IP-driven Blockchain Game

4-1. Immersive browser-anchored storytelling entertainment, focused on ‘information exchange’ within a vast universe

Image Source: ©SQUARE ENIX

Image Source: ©SQUARE ENIX

Symbiogenesis stands as a browser (Chrome)-based entertainment venture, immersing gamers in an engaging narrative where information exchange serves as the linchpin for unraveling the game's intricate story. Each of the 10,000 NFT characters, minted on both the Ethereum and Polygon blockchains, possesses a unique tale accessible solely to the NFT owner. Gamers are presented with the choice to either "monopolize" their character's information for a solitary journey through the narrative or "share" it with fellow gamers for collaborative exploration (naturally, the more information amassed, the smoother the game's completion). Players must unravel the mysteries of the Symbiogenesis universe, undertaking missions and quests grounded in the daily-released story and character information.

Image Source: ©SQUARE ENIX

The overarching narrative unfolds across six chapters, each introducing new NFT characters and stories. As participants progress through all six chapters and secure key items in the quests, the top three achievers gain entry into the conclusive "World Mission," a pivotal event determining the fate of Symbiogenesis. Notably, Square Enix initiated the release of 500 NFT characters concurrently with Symbiogenesis Chapter 1 on December 21, 2023.

Image Source: ©SQUARE ENIX

4-2. Focusing on providing memories to true fans with a craftsmanship approach

In my perspective, the fundamental ethos guiding Symbiogenesis is centered on providing gamers with indelible memories. Crafted for an extended gaming experience spanning two to three years, the game unveils an expansive narrative within a meticulously detailed Japanese world. Despite boasting an average daily playtime of 10 to 20 minutes, Symbiogenesis offers an impressive balance, allowing it to be enjoyed akin to a lightweight webtoon while maintaining a high level of immersion due to the narrative's completeness. Notably, Square Enix goes beyond furnishing in-game content by intentionally leaving narrative gaps for community participation, fostering a deeper connection for gamers actively contributing to the storyline.

In stark contrast to the prevailing trend where most blockchain games and NFT projects regard NFTs primarily as financial assets, emphasizing their market value, Square Enix deviates by placing paramount importance on the "memories cultivated after playing the game." While NFT prices may undergo fluctuations, Square Enix's focus is on ensuring users derive value beyond the monetary investment. Instead of solely gauging success through external NFT price metrics, Square Enix seeks user feedback affirming enjoyment. Attaining user satisfaction, irrespective of NFT price dynamics, is considered a success in itself. This distinctive approach, placing utmost importance on the user experience and memories forged through gameplay, stands as the authentic differentiator for Symbiogenesis.Top of Form

Bottom of Form5. Set to Establish a Success Paradigm Demonstrating Blockchain Potential in Japan

Symbiogenesis, Square Enix's groundbreaking blockchain game, distinguishes itself from mainstream genres epitomized by renowned titles such as Final Fantasy and Dragon Quest. In contrast to platforms accentuating NFT price surges, Symbiogenesis intentionally avoids adhering to a tokenomics structure solely focused on financial gains.

Instead, it places paramount importance on delivering a novel and profound gaming experience to thousands, if not millions, of dedicated fans. The primary goal of the game is to secure new followers for Square Enix within the Web3 community, prioritizing long-term growth over immediate revenue spikes. The unequivocal vision steering the development of Symbiogenesis stands out as a focal point, capturing attention regardless of its ultimate success. From this vantage point, it is considered of utmost significance to be documented as a successful case exemplifying the potential of blockchain in Japan. Notably, Square Enix's pivotal role in the Japanese blockchain gaming market is particularly noteworthy, establishing itself as a leader despite perceived challenges in taxes and regulations within listed Japanese companies. By doing so, Square Enix presents a convincing example to other Japanese gaming firms, emphasizing the possibilities of Web3 game development and assuming a pivotal role in shaping the landscape of the Japanese blockchain game market.