TL;DR

• Taiwan once branded itself as Asia’s “Blockchain Island” with strong support for blockchain technology. However, strict anti-money laundering and investor protection policies limited business entry.
• Recently, signs of change have appeared. Major companies like FamilyMart and Taiwan Mobile are adopting blockchain. The government has also eased its stance, supporting CBDC development and permitting investment in overseas cryptocurrency ETFs.
• The VASP Association’s launch has spurred growth with regulatory improvements and rising Web3 hiring. However, external risks, such as Taiwan’s international situation, are still key considerations.

1. Introduction

Former Taiwanese legislator Jason Hsu’s speech at BlockFesta, Source: Blockfesta 2018

Taiwan once showed strong ambition to become a “Blockchain Island” as the number of blockchain companies steadily grew. However, following the FTX crisis, which impacted 300,000 people and led to losses of around $400 million, Taiwan shifted to a more conservative stance. The focus is now on investor protection and market stability rather than on revitalizing the Web3 industry.

Approximately a year after our last report, change is evident in the Taiwanese market. Local virtual asset service providers (VASP) have formed a self-regulatory organization, and the government has eased its stance on blockchain technology. Major corporations are now adopting blockchain, which is driving market growth. This report examines trends in Taiwan’s Web3 market and explores whether Taiwan can genuinely become a “blockchain island.”

2. Industry Regulation in Taiwan

The Taiwanese government initially announced ambitious plans to use blockchain technology as a national growth engine. However, its focus has shifted more toward investor protection than active industry support. In 2021, it imposed anti-money laundering obligations on VASPs, and in late 2023, introduced investor protection guidelines for exchanges.

Source: Taiwan Virtual Asset Service Providers Industry Association

Taiwan remains focused on building a stable market environment. This focus is evident with the launch of the Taiwan Virtual Asset Service Providers Industry Association (VASP Association) in June. The association, formed by 24 licensed VASPs, includes major exchanges like MaiCoin and BitoPro. It works with the Financial Supervisory Commission (FSC) to draft a law to support the crypto industry’s growth. Key objectives include creating an anti-money laundering and anti-terrorist financing framework and developing a classification and rating system for crypto service providers. These initiatives aim to strengthen the market’s resilience.

The Taiwanese government has emphasized maintaining a balance of autonomy and regulation for VASP association. This approach aims to support both investor protection and the growth of Web3 companies. It remains to be seen if this increased autonomy will foster the healthy development of the Web3 industry.

3. Taiwan in 2024: What’s New?

3.1. Cryptocurrency Investment Market

In June, Taiwanese regulators announced plans to allow investment in overseas cryptocurrency ETFs, with investment permitted by September. However, only institutional investors, professional investor corporations, and individual professional investors are allowed, with minimal safeguards in place. This contrasts with South Korea, which restricts investment in overseas crypto ETFs. Taiwan’s government is gradually shifting from its conservative stance on cryptocurrency regulation, balancing growth with risk management. With the VASP Association now established, it will be interesting to see if the crypto exchange market will also experience further easing.

3.2. Central Bank Digital Currency

Taiwan has been developing and researching a Central Bank Digital Currency (CBDC) since 2019. Last year, a retail CBDC prototype was deemed viable for Taiwan’s 23 million citizens. However, as one of the world’s most cash-intensive countries, Taiwan faces questions about the practical utility of a retail CBDC.

Real-world data supports these concerns. Despite the rise of e-payments since the pandemic, cash usage in Taiwan is expected to account for 42% of total payments in 2023. This rate is double that of South Korea and China. Cash payments in e-commerce are also more common in Taiwan than in other countries. These trends demonstrate a strong cash preference among Taiwanese citizens. This preference limits the cost-benefit ratio of retail CBDCs.

After validating a retail CBDC, Taiwan is now focused on developing a wholesale CBDC. Central Bank Governor Yang Chin-long has announced plans to test a wholesale CBDC prototype later this year. A cautious approach is expected, with the central bank prioritizing stability over speed in development. The goal is to explore how a wholesale CBDC could function in specific scenarios. This approach aims to validate its impact on the stability and efficiency of the financial system.

3.3. Digital Asset Custody

In October, the Taiwan FSC announced plans to allow banks to pilot digital asset custody services starting in the first quarter of next year. Currently, three commercial banks in Taiwan are interested, along with several securities firms. However, the service will primarily focus on banks due to their capitalization. The FSC is placing a strong emphasis on security and anti-money laundering, given the large asset volumes involved. The service will initially target cryptocurrency exchanges and gradually expand to professional investors.

4. Taiwanese Companies Embrace Web3

Source: Bitopro

Taiwanese companies are beginning to adopt Web3 services. This trend suggests a shift in the market. Bankee, a digital banking platform in Taiwan, has launched a Crypto-Friendly Bank Account service in partnership with the Bitopro exchange. The service still requires a bank account and exchange integration. However, it enhances user convenience by allowing instant Taiwan dollar top-ups directly from the exchange app. This collaboration between traditional financial institutions and exchanges marks a new phase in Taiwan’s Web3 market.

Source: BitoGroup

Family Mart has introduced a “Point to Crypto” service. This allows customers to exchange loyalty points for cryptocurrencies such as BTC, ETH, USDC, and USDT. The service was developed in partnership with stablecoin issuer Circle and Bito Group, which operates the BitoPro exchange. As Taiwan’s largest convenience store chain, Family Mart’s initiative is expected to greatly enhance public access to cryptocurrencies.

Source: Taiwan Mobile

Meanwhile, Taiwan Mobile, Taiwan’s second-largest telecommunications company, is preparing to enter the cryptocurrency business. Its subsidiary, Fu Sheng Digital, has acquired a VASP license. This move suggests an initial step toward partnerships with VASPs or launching its own crypto platform. Locally, many expect Taiwan Mobile to collaborate with exchanges to expand cryptocurrency use cases. Although specific plans remain undisclosed, Taiwan Mobile’s VASP license acquisition is anticipated to have a significant market impact.

5. Conclusion

Companies considering entry into Taiwan should also monitor the international landscape. Geopolitical risks, including the Russia-Ukraine war, ongoing Middle Eastern conflicts, and tense relations with China, add uncertainties for business operations in Taiwan. Careful risk management is essential.

H1 2024 Asia web3 job postings by sector, Source: Web3Jobs, Tiger Research

Despite these challenges, Taiwan’s market shows strong growth potential. The domestic Web3 market is expanding, with Web3-related hiring more than doubling year-over-year. International interest is also rising, highlighted by events like Taipei Blockchain Week and the Asia Blockchain Summit 2024.

However, Taiwan still needs time to fully establish itself as a “blockchain island.” The country lacks strong policies to foster the Web3 industry and is cautiously introducing regulations. Taiwan continues to observe neighboring countries, such as Japan and South Korea, before setting its own regulatory path. More proactive steps are needed for Taiwan to become a major player in the global Web3 market.

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