Core Thesis #2: India will lead web3 adoption in emerging markets
India is poised to become a web3 leader in emerging markets because of its robust economy, innovative digital infrastructure and exceptional founders
In our last blog post we explained why focusing on emerging markets is a core part of our investment thesis. Today we want to dive deeper into one of our focus markets: India. We believe India is particularly well-positioned to take leadership in web3 in emerging markets. This belief is based on India’s growing consumer market, widespead internet penetration and a large and growing pool of tech-saavy and ambitious entrepreneurs and developers.
India remains the fastest-growing major economy despite global economic headwinds
The Indian economy has grown phenomenally over the past decade. As things stand today India’s GDP growth rate is the highest amongst all major economies and its economy is relatively insulated from global spillovers. This makes India’s growth more resilient and stable when compared to other emerging markets.
Economic growth in India is also increasing disposable income across different segments of its population. The class divide in India has always been very stark. However it looks like this is set to change. Macroeconomic projections indicate that India’s income distribution could flip over the next decade giving rise to a larger middle class with greater spending power. Consequently the overall consumption in the country is projected to more than double from $2T in 2021 to $4.9T by the end of the decade. The economy is firing on all cylinders and as benefits from growth trickle down massive opportunities for disruptive products that target a variety of income segments will be created.
Wide-spread internet penetration has made India ready for the adoption of technology products
In addition to the steady growth in disposable income India boasts a young and tech-savvy population. Today India’s population stands at 1.4B with a median age of 28 years. Over 800M Indians are connected to the internet while over 600M use smartphones. With some of the lowest data rates in the world, exponential growth in connectivity can be expected from India as more and more Indians continue to come online.
India's rapid transition from offline to online has propelled it to become one of the leading consumers of digital products and services worldwide. Indians spend an average of 7.3 hours a day online - among the highest in emerging markets and nearly 33% more than China. Moreover the country boasts a massive user base of over 420 million gamers with about 26% being paying customers. The scale of India’s gaming consumer base is also evident from the fact that Indians account for more game downloads from the Google Play Store than any other nationality. Additionally, India is also home to the world's largest Youtube audience. At the heart of India’s digital revolution lies India Stack - a collection of open APIs for identity, payment and data sharing. The payment layer - UPI - has established India as a global leader in digital payments and has familiarized millions of Indians with online transactions. The convergence of growing disposable income, increasing online engagement and familiarity with digital transactions creates a fertile ground for web3 adoption in India.
More and more young Indians are exploring web3 beyond trading
India's interest in web3 is primarily driven by its young and tech-savvy population who are looking at web3 as the next big thing in the age of the internet. New web3-based functionalities such as democratised community formation, access to global opportunities, and self-sovereign ownership have captured people’s imagination.
Until early-2020 for the vast majority of Indians local crypto exchanges were the primary gateway to the web3 ecosystem. The Bitcoin boom of 2017 brought web3 into popular imagination but also restricted the general population’s understanding of web3 to trading cryptocurrencies. Simultaneously, small groups of engineers across the country were realising the potential of the underlying technology stack and started building products on top of it. As a result a new group of people emerged whose interest in web3 went beyond trading cryptocurrencies and into the benefits of the underlying technology.
A classic example of this is the formation of Polygon and its global success which has inspired many Indians to take a closer look at web3 - both from a developer and consumer perspective. Over time Indian consumers have started coming on-chain and today India boasts one of the largest web3 user bases in the world.
This trend of increasing on-chain activity is evident in Chainalysis’ latest report on web3 adoption where India ranks number 1 across four out of five metrics measured. India’s global leadership in web3 adoption is also visible in traffic coming from India to popular web3 products - Uniswap, Metamask, Opensea and Binance.
This growth has become significant enough for the government to take notice. Using the G20 as a platform the Indian government has taken the onus of working with other countries to frame an internationally harmonised regime to bring web3 under regulation. This move by the government is combined with a marked shift in the public tone adopted by government representatives - the conversation on web3 has now shifted from a ‘complete ban’ to an appreciation of the technology and a motivation to facilitate innovation while also ensuring consumer protection. This is a promising development. In addition, the government itself is also exploring use cases of blockchain technology from banking, supply chain management, healthcare to agriculture. India’s apex public policy think tank - NITI Aayog - has commissioned and operated pilot programs to test blockchain technology. The Telecom Regulatory Authority of India has been using blockchain and smart contract technology to prevent unsolicited commercial communications on telecom networks for the last few years. A Centre of Excellence in Blockchain Technology has also been established under the Ministry of Electronics & Information Technology to encourage government and private sector collaboration on this front.
Even though India is showing promising early signs of global leadership in web3 adoption there remains ample scope for continued growth from the country. Web3 investors in India account for only ~4% of the population today and there remains large scope for sustained growth. In conclusion, India is primed for web3 adoption as an increasing percentage of the population is coming online and spending on digital products, the government has shown willingness for methodical regulation, and general interest in web3 is spiking.
Indian Founders: Ideally positioned to take global leadership in web3
Over the past two decades Indians have built and led some of the world’s leading tech companies. At Hashed Emergent we believe that similar to their success in web2, Indian founders will also lead the charge in web3. Given the nascency of web3 at the moment we also anticipate that Indian founders will build giants in the web3 space which will see adoption on a global scale.
The Indian startup ecosystem has transitioned from leveraging cost advantages to driving global innovation
The first wave of startups in India were focused on capitalising on the cost arbitrage created by having ready access to a large pool of low-cost labour in India. As the Indian economy matured and the internet started penetrating various segments of society, Indian founders began focusing on building companies that would adapt globally successful business models to India’s unique culture. This led to the emergence of the first Indian startups that achieved major success. Today, over 97K startups are active in the country, with 108 unicorns, making India the third-largest startup ecosystem in the world.
Buoyed by the success of the first generation of startups, in recent years Indian founders have started adopting a longer-term approach and are now focusing on building product companies with a global vision. The mindset has shifted from generic services to unique products, and "me-too" business models have become a thing of the past. These new-age startups are leveraging India’s unique environment - affordable development and heterogenous user base - to achieve product-market fit and build best-in-class products that can also be served to a global audience. The abundant availability of venture capital, global recognition of Indian tech products and a large pool of talent has further catalysed this shift. Already we are seeing Indian startups inspire similar products across SE Asia - and this is a trend we expect to continue seeing.
Another exciting development is the steady increase in the number of developers from India who have started contributing to open-source code. According to Github in 2022 the number of contributions on the platform increased by 75% year over year in India, as compared to about 40% for the rest of the world. About 2.5M new developers from India joined Github - more than double the number of new developers from China. A similar trend is also being replicated in web3. According to Electric Capital’s developer report, India’s share of the global pool of blockchain developers has been steadily increasing over the years and has gone up from 2% in 2017 to 6% in 2022. Indian developers are clearly looking to benefit from global opportunities offered by the web3 space.
The inherently global and product-centric mindset of Indians is ideally suited to web3 ethos
Indians have migrated to all parts of the world over the years. Their search for economic opportunities and better education is an indication of the drive and global aspirations harboured by Indians. Today India has the largest diaspora with over 32M people spread across the world. Indian professionals have been pursuing the American dream for decades with engineers going to the US for higher studies and achieving high-paying jobs in big tech companies and eventually rising to lead these companies. Today 35 Indian CEOs helm multinational companies collectively holding a market cap exceeding USD $4T demonstrating the impact of Indian professionals on the global stage.
Between 1997 and 2019 in the US, despite constituting only ~1% of the total population of the country India-born founders comprised about ~8.3% of the total unicorn founders. This notable success stems from a combination of technical competence, adaptability, ambition, and strong English language skills - all distinctive traits of the Indian talent pool. Indian-origin immigrants also have a history of active contributions to their host communities. Today Indian-origin individuals serve as heads of state in multiple countries - the UK, Ireland, Portugal and Mauritius among others. These achievements demonstrate the influence and capacity of the Indians to adapt, connect, and contribute on a global scale. The accomplishments of Indian-origin individuals resonate deeply within India. They have inspired a generation of Indians to aim for similar global success. The decentralised and borderless nature of web3 provides an ideal platform for such tech-savvy Indians to fulfil their ambitions on a global playing field.
In conclusion, the strength of Indian talent lies in its exceptional blend of ambition, adaptability, and technical expertise. These qualities have positioned them as significant contributors on the global stage, particularly in environments that appreciate the borderless nature of talent like the world of web3.
The global nature of web3 gives English-speaking Indian founders an unfair advantage.
Of all frontier technologies at present, web3 is the most accessible to builders. Benefitting from the second largest English-speaking population in the world and an abundance of capable software talent, Indian founders have a natural advantage over their counterparts in other emerging market countries in building global, scalable products. Over 500 startups have already emerged in web3 from India with four unicorns raising a total venture funding of $1.3B+.
The Indian ecosystem remains resilient despite the ongoing bear market. This resilience was on display during the last edition of ETHIndia in Dec 2022 which set a record as the largest event in the history of Ethereum hackathons. Over 2K attendees from more than 300 cities gathered for the event. The hackathon received over 21K applications and resulted in the submission of 450+ projects. The final submissions covered a range of areas - including wallet improvements, web3 payments, zero-knowledge proof solutions, NFT utilities, and decentralised social infra - showcasing the diversity of products being built in India. The scale of this event - that too in bear markets - goes to show that many Indians have found their calling in web3.
While India holds a lot of promise in web3 adoption some tail risks remain. One of the key risks to economic growth is unemployment. In recent years, a significant number of individuals joined the workforce, but only a portion of them were able to secure employment opportunities. If unemployment rates continue to rise, it could lead to a decrease in consumer spending, resulting in a slowdown in overall growth. Another tail risk is regulation. The Indian government is still trying to understand how to regulate web3. While the government has taken a pragmatic approach recently, there is a possibility that they may impose restrictive regulations that could impede innovation and investment.
Despite these tail risks, India's unique blend of robust economic growth, strong digital infrastructure, entrepreneurial talent, and global mindset position it as a frontrunner in web3 adoption in emerging markets. By harnessing the opportunities presented by web3 technologies, India has the potential to shape the future of decentralised innovation and drive meaningful change on a global scale. This is why we are bullish on India.
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