Sony’s Entry into Crypto: What Sparks Will Fly Between Sony and Blockchain?
Summary:
Sony is making its move into Web3 in pursuit of a new growth phase. Key initiatives include acquiring a centralized exchange (CEX), launching the Soneium blockchain mainnet, and developing stablecoins.
Sony's Web3 strategy focuses on three pillars: non-financial (entertainment and gaming), financial (stablecoins, security tokens), and infrastructure. By connecting these areas, Sony aims to build a comprehensive Web3 ecosystem.
Under the vision of "Beyond Boundaries," Sony's actions will accelerate digital transformation, create new revenue streams, and enhance synergies.
1. Introduction
Sony once symbolized Japan's economic growth and was a leader in electronics, gaming, and entertainment, but its advantages began to wane in the 2000s. The company struggled to adapt to the rapid transition from analog to digital, facing competitive pressure from companies like Samsung. This slow response to market changes led Sony into a crisis.
In response, Sony took decisive measures to overcome these challenges and enter a new growth phase. The company significantly reduced its dependence on the electronics business, which once accounted for 70% of its total revenue, and shifted its focus to the future-oriented entertainment industry. This bold restructuring laid the foundation for future growth and profitability. By 2023, Sony surpassed Samsung in operating profit for the first time in 24 years—an achievement that, while possibly temporary, highlights Sony's success in transformation and innovation.
Sony's pursuit of innovation has taken a step further. At its recent annual strategy meeting, the company announced its commitment to pursuing innovation beyond industry boundaries, with the slogan "Beyond Boundaries." This aligns with Sony's recent moves into the Web3 space. This report will examine Sony's blockchain initiatives and explore its vision for the Web3 industry, aiming to gain insight into Sony's future outlook and strategic direction in the Web3 realm.
2. Sony Group Officially Enters the Web3 Industry
Sony is taking its innovation pursuit even further. At its recent annual strategy meeting, the company announced its dedication to innovation beyond industry boundaries, aligning with its recent foray into the Web3 field. This report will delve into Sony's blockchain initiatives and discuss its vision for the Web3 industry. Through this exploration, we aim to understand Sony's future concepts and strategic direction in the Web3 arena.
Sony has been actively investing in and developing blockchain technology from an early stage. Various Sony subsidiaries across different industries have explored ways to integrate blockchain into their fields. One significant early move was in 2016 when Sony Global Education announced plans to develop a blockchain-based digital education platform.
The experience gained from developing this digital education platform quickly expanded into other areas. Sony Music Entertainment applied the technology to digital content (including music, movies, and e-books) for authentication, sharing, and copyright management. In 2018, Sony Computer Science Laboratory introduced a hardware cryptocurrency wallet based on contactless IC cards. By 2019, Sony established a blockchain-based database platform for the Dutch government’s smart city research project.
Since 2022, Sony's blockchain-related initiatives have accelerated significantly, aligning with the Kishida government's promotion of the Web3 industry. Sony is shifting from blockchain research to translating this technology into viable business models. Recent moves, such as acquiring a centralized exchange platform, announcing plans to issue stablecoins, and launching its own blockchain mainnet, reflect this shift. Notably, Sony is boldly expanding into core areas of the Web3 ecosystem, challenging traditional business boundaries.
### Recent Announcements Related to Web3
1) Business Expansion through CEX Acquisition
In August 2023, Sony acquired the centralized exchange platform "WhaleFin," marking its official entry into trading. WhaleFin was initially launched under the name DeCurret and is a Japan-registered centralized exchange service provider, later acquired by Amber Group in 2022 and fully purchased by Sony Group’s subsidiary Quetta Web.
Recently, Sony has rebranded WhaleFin to "S.BLOX" and is looking to expand its trading business. The company aims to enhance the user experience of the trading platform and create new value in crypto trading by leveraging Sony Group’s diverse business connections. However, despite these ambitions, S.BLOX currently lags behind other trading platforms in competitiveness, offering only nine cryptocurrencies and generating a trading volume significantly lower than Japan's leading exchange, Bitflyer, raising doubts about its future potential.
Nevertheless, the acquisition by Sony still presents opportunities for synergy. Centralized exchanges serve as entry points to the Web3 industry, and significant synergies can be created by businesses relying on them, particularly amidst current challenges in crypto on-boarding and off-boarding. Additionally, Sony's integration across various Web3 sectors is expected to help enhance the competitiveness of the trading platform.
2) Soneium: Sony’s Blockchain Infrastructure Business
Sony's Blockchain Solutions Laboratory has officially entered the mainnet business, announcing the upcoming launch of the Ethereum Layer 2 blockchain "Soneium." This announcement comes about a year after establishing a joint venture with Startale Labs.
With this announcement, the joint venture's name has changed from "Sony Network Communications Laboratory" to "Sony Blockchain Solutions Laboratory." Sony Group holds a 90% stake in this joint venture, with Startale Labs holding the remaining 10%. Given Sony Group's controlling stake, the joint venture is expected to play a central role in Sony's Web3 strategy, providing infrastructure for application and integration of Web3 technology across various departments.
A noteworthy aspect of Sony's blockchain solutions laboratory's strategic approach is that it’s not just launching a new mainnet. By integrating Astar's zkEVM technology into Soneium, Sony aims to leverage this technological asset to accelerate business development. This approach aligns with Sony's recent record of achieving success through bold innovation, contrasting with Japan's traditionally conservative corporate culture.
Another intriguing aspect is the personnel structure. The Sony Blockchain Solutions Laboratory is led by Jun Watanabe, former president of Sony Network Communications and a board member of Startale Labs. He is also in charge of Sony Group's cryptocurrency trading platform, S.BLOX. This leadership arrangement not only highlights the potential for internal collaboration within Sony Group but also suggests closer commercial ties between Startale Labs and Astar Network.
3) Sony's Stablecoin Business
Sony has shown a strong intent to enter the stablecoin market. According to a report by Nikkei in April, Sony Financial Group's Sony Bank has begun experiments on issuing stablecoins based on various fiat currencies, including the yen. This move appears aimed at exploring the potential of using stablecoins as a digital payment method across the broader Sony Group.
At the same time, Soneium's involvement in the stablecoin sector has increased interest within Sony Group regarding stablecoin-related businesses. In September, Soneium announced a partnership with Circle, the issuer of the USD-backed stablecoin USDC, planning to support USDC within the Soneium ecosystem.
This move has sparked discussions about whether Sony will issue its own stablecoin on the public Soneium mainnet. However, this plan is expected to face significant challenges. Regulators have indicated that issuing stablecoins on public mainnets, especially those issued by banks, poses risks and may require lengthy regulatory changes.
Despite these challenges, the participation of leading Japanese internet banks like Sony Bank is viewed as a positive signal for the industry. If Sony Bank can successfully issue stablecoins on Soneium, it could support various applications, including facilitating cross-border payments through integration with USDC. Future developments in this area warrant close attention.
3. Where Will Sony’s Web3 Business Go?
Sony plans to adopt a comprehensive Web3 business strategy encompassing multiple subsidiaries. This strategy is likely to revolve around three key pillars: 1) Non-financial sector, 2) Financial sector, 3) Infrastructure.
The non-financial sector is expected to be led by Sony Group, particularly focusing on leveraging Web3 technology in entertainment and gaming. Sony Music has already launched NFTs based on its artists' intellectual properties and is actively exploring the commercialization of music IP through Web3 technology. Discussions about leveraging Web3 in the gaming industry are heating up, as evidenced by recent patents related to NFT and SFT technologies.
The financial sector is anticipated to be led by Sony Financial Group, which is currently preparing to spin off from Sony Group. They will focus on integrating Web3 technology with the financial industry, including stablecoins and security tokens. Sony Bank is already researching stablecoins and is the first Japanese bank to sell loan bonds as security tokens. Building on this foundation, Sony Financial Group is expected to further expand the application of Web3 technology in the financial sector.
Finally, the Sony Blockchain Solutions Laboratory is expected to manage the infrastructure that underpins all of Sony's Web3 initiatives. Although the lab is effectively part of Sony Group due to its controlling stake, it is expected to provide infrastructure services for both Sony Group and Sony Financial Group, serving as a bridge between the two. By efficiently utilizing Sony's assets, the Sony Blockchain Solutions Laboratory is anticipated to be a key driver of synergy in Sony's Web3 business.
These three areas could organically connect. For example, stablecoins issued by Sony Financial Group could serve as payment methods within Sony Group or various intellectual property assets from Sony could be tokenized by Sony Financial Group. This rich array of collaborative opportunities allows Sony to build a comprehensive Web3 ecosystem covering its diverse business domains.
4. Conclusion
In the 1990s, Sony dominated the electronics market with the Walkman, but struggled to diversify in the 2000s. The rise of Apple's iPod weakened Walkman's position, while competition from Korean companies like Samsung and LG in the LCD TV market threatened Sony's status. The company failed to keep pace with the rapid transition from analog to digital, placing it in a vulnerable position.
To recover, Sony adopted a "select and focus" strategy. They cut back on underperforming businesses and made significant investments in core areas with high growth potential. As part
