While the Japanese government’s recent favorable turn toward blockchain and cryptocurrency is a cause for celebration for Yudai Suzuki, co-founder of Tokyo-based Web3 incubator Fracton Ventures, regulatory agility and an embrace of the industry’s inherent internationalism are necessary for government support to translate into domestic success, he said.

Plans for a native Japanese metaverse known as ‘Ryugukoku’ are now in development, while discussion of cryptocurrency regulation is expected to feature when Japan hosts the Group of Seven summit in Hiroshima on May 19-21. Leaders from Japan, the U.K., Canada, France, Germany, Italy and the U.S, will attend, as well as the European Union

However, government attitudes toward innovation remain wedded to legacy industrial norms of Japan’s post-war economic boom, while a heavy-handed approach to regulation has had a stymieing effect on the nation’s crypto industry to date, according to some reports.

In an interview with Forkast, Fracton’s Suzuki — who helped organize this month’s DAO Tokyo — discussed Japan’s pivot toward Web3, or the development of a new internet built around decentralized blockchain technologies, the metaverse, and non-fungible tokens (NFTs).

The following Q&A has been edited for clarity and length.

Forkast: A government-affiliated Web3 white paper released in early April called for, among other things, expansion of guidelines related to decentralized autonomous organizations (DAOs), changes to crypto tax regulations, the introduction of start-up visas, and clarification of NFT rights. How do you view this acceleration of crypto regulation and reform in Japan?

Suzuki: At Fracton, as a Web3 incubator, we really appreciate this new positive government stance. Previously, it was difficult to show the benefits of the switch to Web3, meaning that many thought of it as just a buzzword. But now we’re seeing the emergence of opportunities that the government can really understand, including, for example, how local communities can use a DAO model to increase participation among digital citizens. 

Forkast: What are the immediate benefits of the change in government attitudes for Web3 development in Japan?

Suzuki: We’re seeing a diversity of players arriving on the scene from many different angles, be they entrepreneur developers, designers, incubator accelerators and now an ecosystem-friendly government that finally seems to understand this opportunity. All these pieces fit together like a puzzle, and once all the pieces are in place, we believe we’ll see Japan become a fluid, global level ecosystem and destination point for Web3 development. 

Forkast: What factors have prevented Japan from emerging as a Web3 innovation hub in the past?

Suzuki: Previously, the main problem for the development of even the Web2 start-up ecosystem in Japan was that every venture capital firm and developer was focused only on the Japan market. The VCs recommended that each company and project first try to achieve the number one position in the Japan market before going global. But by the time they get to the number one position in Japan, it’s already too late to have a similar impact on the global market. 

Forkast: Could that approach be about to change?

Suzuki: Yes. The difference now is that every protocol, every DAO is global first and so a part of global activities from day one. Which is great for everyone involved, as it means we can easily connect with excellent global contributors in the early phases of development. We’re also now seeing the emergence of a Web3-native generation of 18 to 25-year-olds. Their first interactions with society and economics are through Web3, so their mindset has changed, becoming more open. Many of them also want to break through the language barrier to communicate with global people. It’s really a game-changing time for our ecosystem.

Forkast: Despite the emergence of that new generation, the government approach to Web3 is largely focused around the nation’s legacy corporations. The group of companies heading up the ‘Ryugukoku’ metaverse project, for example, is led by industrial heavyweights Mitsubishi and Fujitsu. Are you concerned by the potential for conservatism in the government’s approach?

Suzuki: I don’t want to say I dislike the government approach, but it has been wrong in the past. It’s often based on their own experience, where Japan’s original growth was based on sales of cars or motorbikes, which is totally different to the Web3 space, which is based on software, the blockchain and technology. If they focus only on these huge Japanese companies, they will not succeed.

Forkast: What steps can the government take to avoid that?

Suzuki: If the government wants to be involved in this ecosystem and wants to increase the number of developers in the Web3 scene in a natural way, not just by collecting together a number of big-name domestic companies, we have to think globally about how we can contribute to the space and coordinate with others. We would like to see them focus on actual contributors and actual developers, those people who have already contributed to the development of products and produced results within the Web3 space. They therefore need to increase the opportunity to invite great people to Japan to share their knowledge, which will ultimately contribute to the government’s aim of economic growth.

Forkast: Finally, with all the talk of regulation in the west, can proactive government rule-making now work as a boost for the Japanese Web3 ecosystem? 

Suzuki: Generally, the government wants to change the laws and set new regulations at an early date. That over-regulation led many crypto entrepreneurs to leave the field for AI or other types of start-up in the past. We ask politicians not to do that again. In the Japanese system, there is a law at the center, and around that there are a set of guidelines and the guidelines are always flexible. So rather than completely changing the law or making a new one, we ask that they please just work on a set of flexible guidelines that can then be updated and upgraded, allowing regulation to keep up with each new development.