Brazil and Japan Forge a Web3 Path: A New Era for Economic Cooperation

Brazil and Japan boast a long history of friendship that is both marked by deep economic ties and the world's largest Japanese diaspora in Brazil. This can be seen as recently as in early May 2024, when Brazil's President Lula and Japan's Prime Minister Kishida met to discuss strengthening specific strategic partnerships between both nations, signing 38 memorandums of cooperation focused on areas like innovation and cybersecurity.

An emerging area of focus between Brazil-Japan relations can also be seen in the world of Web3, with Brazil seeking to expand trade while attracting more Japanese investment and technological advancements. Web3 offers a simultaneously interesting value for both Brazilian and Japanese public and private enterprises alike, with this revolution in decentralized technologies and ownership exciting tech enthusiasts, investors, and governments alike with its promise of a new internet era.

Brazil-Japan governmental partnerships focused on developing Web3

In mid-April 2024, the incumbent Japanese Liberal Democratic Party released a 2024 Web3 whitepaper where it called to make Japan a center of Web3, with a focus on decentralized autonomous organizations (DAOs) and Japanese interoperability with foreign entities. This growing focus on Web3, among other digital technologies, is driving Brazil-Japanese efforts to jointly leverage Web3 for economic growth.

In August 2023, Brazilian telecommunications regulator Anatel signed a cooperation agreement with the Ministry of Internal Affairs and Communications of Japan to develop open radio access network (RAN) deployments and other critical digital technologies, with open RAN’s lower costs and flexibility helping to build Web3 infrastructure customized to individual country and user needs. This built upon a previous effort by Brazil and Japan in signing trilateral agreements with the United States to promote their respective digital economies by promoting regional connectivity and enhancing cybersecurity efforts.

Private investment focused on cross-border Web3 growth

Private Japanese enterprises are also recognizing the significant opportunity that Brazil possesses in the Web3 space.

In mid-January 2024, TradeWaltz, a Tokyo-based blockchain-based trade management platform, announced its joint efforts with Consensys-based trade operations platform Covantis to further streamline trade procedures between Brazil and Japan. Covantis is currently used for about 80% of Brazil’s grain and oilseed exports, with this initiative seeing additional governmental support from Japan’s Ministry of Economic, Trade, and Industry.

Additionally, Japan’s SoftBank previously invested $200 million in Brazil-based Mercado Bitcoin, one of the largest cryptocurrency exchanges in Latin America, in a Series B funding round. Also, Japan-based MUFG Bank announced a partnership with São Paulo-based Banco Bradesco on Web3-based cross-border payments through Ripple, the company behind the XRP Ledger blockchain, further highlighting the paralleled growth-oriented nature of the Web3 world in both Brazil and Japan.

Brazil’s focus on Web3

Brazil offers fertile ground for Web3 disruption due to its tech-savvy population, strong cryptocurrency adoption, and booming fintech sector. The country's diverse economy, supportive startup environment, and growing academic interest in blockchain position it for significant growth in the Web3 space.

Brazil has marked itself as Latin America’s largest crypto economy, with the Brazilian government generally supporting the growth of Web3 in Brazil. This can be seen through crypto-friendly legislation and the introduction of Drex, Brazil’s digital currency infrastructure, which is built on Hyperledger Besu. Additionally, research from the Central Bank of Brazil (BCB) found that Brazilians held $50 billion in crypto compared to $16 billion in U.S. stocks.

Private enterprises also have a significant interest in growing Brazil’s crypto-friendly population, with a survey on Web3 perception and participation found that 41% of Brazilians currently owned or previously owned digital assets.

Ripple’s Grants Program recently unveiled its efforts to support Brazil-based projects using the XRP Ledger, the XRP asset blockchain, in May 2024, following news of the Solana Foundation’s plans to allocate over $10 million into Brazil’s Web3 ecosystem in January 2024. Additionally, Moonbeam, an Ethereum-compatible smart contract platform designed to help build natively interoperable applications, announced a partnership with Web3 infrastructure provider DUX and Grupo RÃO, Brazil’s largest Japanese food delivery service, to launch a Brazil-based Web3-powered loyalty program in November 2023.

Japan’s focus on Web3

The current Japanese government has focused on Web3 as a way to ensure both short-term and long-term economic growth. While there have been many recent challenges, including a troubled digital ID system rollout and linkage errors over Japan’s Digital Agency-sponsored My Number effort in 2023, coupled with an underlying risk-aversion mindset, Japan continues to focus on leveraging Web3 to drive economic development.

Japan is focusing on passing legislation and economic reforms to help ensure these efforts are successful. In February 2024, the Cabinet of Japan approved a bill amendment that would allow crypto assets to be added to the list of assets that investment limited partnerships (LPs) can acquire or hold, with LPs being the most common method for investing in startups and mid-sized companies in Japan. This legislation favoring crypto assets held by private enterprises highlights growing governmental approval of the utilization of crypto assets as an investment vehicle.

The Japanese government has also been focusing on rebooting its semiconductor manufacturing industry in recent years through legislation and attractive subsidies, especially given that Web3 relies heavily on powerful computing for tasks like running decentralized applications and powering various blockchain networks. February 2024 saw the opening of Taiwan Semiconductor Manufacturing Company’s Kumamoto plant, noted as Japan’s most advanced semiconductor fabrication facility. Samsung has also announced plans to develop a research facility for advanced chip packaging and a chip development facility in Japan worth hundreds of millions of dollars.

Conclusion

Brazil and Japan’s partnerships extend beyond Web3, with joint ventures in sustainability, infrastructure, and energy marking just some of the many additional collaborations between the two countries. However, Web3, among other digital transformations, offers a very interesting pathway for economic success for both Brazil and Japan. Given Brazil’s high crypto adoption rates and acceptance of Web3, combined with increasing Japanese interest in developing its own Web3 economies along with Japanese investments and technological know-how, Web3 could unlock significant economic opportunities in the long term for both countries.