Southeast Asia Leads the World in Crypto Adoption, Propelled by Play-to-Earn Gaming: Chainalysis

Vietnam leads the world in grassroots cryptocurrency adoption, according to blockchain analytics firm Chainalysis’ latest “Geography of Cryptocurrency” report. The country, which topped the ranking for the second consecutive year, was one of three Southeast Asian countries at the top of the 2022 list.

“Vietnam shows extremely high purchasing power and population-adjusted adoption across centralized, DeFi (decentralized finance), and P2P (peer-to-peer) cryptocurrency tools,” the report says, citing a 2021 poll by Statista that showed 21% of Vietnamese reported they owned cryptocurrencies. On this measure the country is followed closely by the Philippines at 20% penetration, and for both populations play-to-earn gaming and remittances are the main adoption drivers, Chainalysis said.

Once again the ranking is dominated by countries categorized by the World Bank as “lower middle income,” such as Vietnam, Philippines, Ukraine, India, Pakistan and Thailand. Generally, these are economies where the national currency is weak and there is low availability of services for sending or receiving the currency across borders. In such countries, users “rely on cryptocurrency to send remittances, preserve their savings in times of fiat currency volatility and fulfill other financial needs unique to their economies,” the report reads.

This year’s poll by financial services company Finder shows that about 25% of Filipinos and 23% of Vietnamese are engaging in play-to-earn games. Also, the developer of the once-blockbuster online game Axie Infinity is based in Vietnam, and its wild success in the first half of 2022 inspired more crypto gaming startups to try to find success in the country, Forbes reported.

Axie Infinity, a digital pet game where players raise, trade and fight virtual creatures using non-fungible tokens, or NFTs, for in-game assets, became extremely popular in the region earlier this year, especially in the Philippines, where some players managed to earn significantly more than the country’s average salary. The most successful players used their gaming profits to pay for their kids’ school tuitions and even buy land and houses, CoinDesk reported.

The popularity of Axie Infinity fell in March, when North Korean hackers exploited the Ronin bridge, technology used by Axie to make the game faster. The attackers got away with $625 million in assets, although later the U.S. government was able to recover $30 million. By September, the number of active players was less than one-third than at the game’s peak of popularity in January, according to data from ActivePlayer.

Most of the top leaders in this year’s ranking are located in Central and Southern Asia and Oceania (CSAO). NFT-based gaming is popular and a strong factor attracting new users to crypto in the region, Chainalysis said. “NFT-related websites account for a majority share of DeFi-related web traffic in almost every CSAO country.”

Overall, the CSAO is “a hub for innovation in blockchain-based entertainment,” Chainalysis said. This region is a home for [the] headquarters of Web3 developer Polygon, game developers Immutable X, Stepn and Sky Mavis, which is the creator of Axie Infinity.

Remittances (cross-border money transfers) is another force attracting users to crypto. In Vietnam and the Philippines, which both have a sizable portion of their population working abroad, remittances are essential income. According to the World Bank, remittances form 5% and 9.6% of these countries’ respective GDPs. Given the high remittance fees with traditional money-sending services like Western Union, stablecoins may present a viable alternative.

Remittances remain a very important use case for crypto in Latin America, too, Chainalysis reported. In Mexico alone the crypto company Bitso alone processed about $1 billion in U.S.-to-Mexico remittances in 2022, CoinDesk reported.

African populations also actively use cryptocurrencies for remittances. According to Ray Youssef, CEO of the peer-to-peer crypto marketplace Paxful, the number of the company’s remittances users in Nigeria grew by 55% this year, and Kenyan users increased by even more – 140%.

To some nations, the advantage of using blockchain technology for remittances is becoming obvious enough to take action. For example, Egypt, which gets 8% of its GDP from remittances, in May announced it would begin work on a crypto remittances bridge between Egypt and the UAE, where many Egyptians work.

The picture wasn’t all rosy, however. Where governments have taken a hostile stance on crypto, the pace of adoption has measurably faltered. India and Pakistan, for example, were second and third in last year’s ranking, but in 2022 dropped to fourth and sixth place, respectively.

This year, India implemented a steep 30% tax on crypto profits, along with a 1% tax on every transaction. Pakistan is on its way to a full crypto ban.

Chainalysis’ ranking relies on web traffic data on various cryptocurrency websites provided by Similarweb, plus local experts’ observations, the company said. Chainalysis admits that usage of virtual privacy networks and other anonymizing tools can mislead researchers. However, VPN usage is not widespread enough “to meaningfully skew our data,” the company said.