Malaysia’s Web3 Rise: Beyond the Invisible Hand

This analysis originates from Tiger Research, delving into the underlying drivers behind Malaysia’s emergence as a significant player in the global Web3 landscape. We extend our gratitude to Lydian Labs, the organizers of Malaysia Blockchain Week (MYBW) 2025, for their crucial support in making this research possible.

Key Executive Insights

1. Overview

Tiger Research proudly served as the official research partner for Malaysia Blockchain Week, a flagship event for blockchain technology in Malaysia, presented by Lydian Labs. Significantly, regulators, who previously maintained a cautious approach to the cryptocurrency space, actively participated in productive dialogues concerning the industry’s progression.

[Image credit: MYBW 2025]

The government’s engagement signals a growing institutional acceptance of the cryptocurrency ecosystem within Malaysia. The event served as a nexus for various industry stakeholders, fostering expanded channels of communication between the government and the private sector. Tiger Research conducted interviews with key officials, specialists, and local teams during the conference. These first-hand observations informed and enriched the insights presented in this report.

2. Decoding the Malaysian Crypto Market: Three Defining Aspects

Malaysia’s cryptocurrency market is distinguished by three prominent characteristics: its position as a Southeast Asian hub, its role as a birthplace for international crypto projects, and its status as a world leader in Islamic finance.

Malaysia, a nation where Malay, English, Mandarin, and Tamil are widely spoken, benefits from a rich linguistic diversity. This creates a unique fusion of Eastern and Western cultural perspectives. Strategically located, Kuala Lumpur offers easy access to major Southeast Asian capitals like Ho Chi Minh City, Bangkok, and Jakarta within a two-hour flight. This ease of access fosters cross-cultural partnerships and facilitates business growth.

These favorable conditions cultivate talent with a global mindset. Beyond language proficiency, individuals inherently develop an understanding of diverse cultures. Despite the relatively small scale of the Malaysian market, it has given rise to prominent cryptocurrency ventures. Notable examples include Etherscan, Jupiter, Virtuals Protocol, and CoinGecko, all of which originated in Malaysia and now exert global influence.

The integration of Islamic finance adds a unique dimension to Malaysia’s crypto landscape. As the world’s foremost Islamic finance center, Malaysia mandates Shariah compliance for cryptocurrency businesses. This requirement has stimulated innovation rather than acting as a constraint. Malaysia took the lead in recognizing cryptocurrencies as Shariah-compliant, introducing Shariah-compliant Bitcoin funds and facilitating zakat payments in cryptocurrency. These advancements connect cryptocurrencies to the expansive global Islamic finance market, projected to reach $10 trillion by 2030.

3. The Shifting Sands of Crypto Regulation in Malaysia

Phase 1: Crafting the Digital Asset Regulatory Landscape (2019-2020)
Malaysia was among the first nations in Asia to establish a legal framework for digital assets. In 2019, the Capital Markets and Services (Prescription of Securities) (Digital Currency and Digital Token) Order 2019, classified digital assets as either Digital Currency or Digital Token. Assets meeting specific criteria were classified as securities, placing them under the purview of the Securities Commission Malaysia (SC).

The SC updated its Recognised Markets guidelines, mandating that Digital Asset Exchanges (DAX) register as Recognised Market Operators (RMO). Exchanges were required to meet rigorous standards, including a minimum paid-up capital of 5 million ringgit (approximately $1.25 million), robust governance protocols, and local incorporation. These measures were intended to enhance exchange stability and protect investors.

Types of Regulated Businesses:

• DAX (Digital Asset Exchange) Operators: Offer cryptocurrency spot trading services through order book systems or brokerage models.

• IEO (Initial Exchange Offering) Operators: Oversee token issuance and investor acquisition platforms within a regulated framework.

• Digital Asset Custodians (DAC): Provide secure storage and management solutions for cryptocurrencies aimed at institutional and retail investors.

In 2020, Malaysia published comprehensive operational guidelines to solidify its regulatory foundation. These guidelines distinguished IEOs and DACs as distinct business categories, each requiring registration as an RMO. This approach resulted in the development of customized regulatory standards tailored to the specific attributes of each business type.

As of 2025, twelve entities are operating as digital asset RMOs: six cryptocurrency exchanges, four custody service providers, and two IEO platforms.

Phase 2: Strengthening Oversight and Restricting Foreign Exchanges to Safeguard Investors (2021-2024)
Following the establishment of the regulatory framework, the SC focused on reinforcing enforcement through proactive market monitoring. The SC went beyond simply creating regulations, taking direct action against unlawful activities to strengthen the credibility and security of the regulatory structure.

The SC pursued two main objectives: maintaining consistent regulatory practices by blocking unregistered international exchanges operating illegally in Malaysia and preventing investors from suffering harm by using unauthorized platforms. The SC created an “Investor Alert List” to provide advance warnings to users. This list included major global exchanges such as Binance and Bybit. The SC repeatedly emphasized that trading on these platforms was not protected under Malaysian law.

[Image source: Securities Commission Malaysia (SC)]

Starting in 2021, the SC transitioned from passive measures to direct and decisive enforcement. In July 2021, the SC instructed Binance to discontinue services to Malaysian users within a two-week timeframe and shut down all access channels, including its website. Following 2022, as the cryptocurrency market experienced global turmoil, including the collapse of FTX and Terra Luna, Malaysia intensified its regulatory strategy. The SC highlighted that these events occurred within an unregulated environment and took comparable measures against unauthorized exchanges like Huobi and Bybit.

These actions went beyond symbolic penalties. The regulatory authority implemented comprehensive blocking and market removal strategies. The SC partnered with Internet Service Providers (ISPs) to block access to the websites of targeted exchanges and requested that Google Play Store and Apple App Store remove the exchanges’ applications. Simultaneously, the central bank and tax authorities directed local banks to halt deposit and withdrawal services with unauthorized platforms. Authorities also intensified penalties against individual investors. Confirmed users of P2P trading or unauthorized exchanges faced frozen bank accounts, restrictions on financial products, and the potential repossession of vehicles and mortgages.

Phase 3: Rapid Transformation in Malaysia Following the Trump Election (2025-Present)

[Image source: Anwar Ibrahim]

After the election of Trump, Malaysia’s cryptocurrency market experienced a period of rapid development. Prime Minister Anwar Ibrahim engaged in discussions about cryptocurrency with former Thai Prime Minister Thaksin in January and later met with Binance founder Changpeng Zhao (CZ) in April to discuss establishing Malaysia as a digital asset hub. These actions signal Malaysia’s intent to guide regional digital finance policy during its ASEAN chairmanship. Compared to the prior year, the Malaysian Web3 market has expanded quickly, marking a turning point since Trump’s election.

[Image source: Gobind Singh Deo]

The government’s political support rapidly translated into specific policy changes. In June 2025, Prime Minister Anwar personally inaugurated the “Digital Asset Innovation Hub” as its first major achievement. Bank Negara Malaysia (BNM), the central bank, is spearheading this regulatory sandbox. The sandbox will provide a controlled testing ground, actively encouraging experimentation and innovation within digital assets. At a blockchain industry roundtable hosted by the Malaysian Digital Economy Corporation (MDEC), Digital Minister Gobind Singh Deo also announced the formation of the “Digital Asset and Blockchain Working Committee,” underlining the government’s methodical approach.

[Image source: MYBW 2025]

Alongside policy infrastructure, the advancement of technological infrastructure is also accelerating. Science, Technology and Innovation Minister Chang Lih Kang officially launched the Malaysia Blockchain Infrastructure (MBI) at the opening ceremony of Malaysia Blockchain Week 2025. This infrastructure is a joint effort between the Malaysian Institute of Microelectronics Systems (MIMOS), a government agency, and the local mainnet project Zetrix. The project explores practical blockchain applications ranging from improving government transparency to halal certification and optimizing trade and supply chain efficiency.

The most substantial change is the relaxation of regulations by the SC. The SC is moving away from a strict approval-based review process toward substantial deregulation, as evidenced by the Consultation paper released in June 2025. As of July 2025, only 23 cryptocurrencies that met the SC’s strict criteria were eligible for listing on local exchanges. Under the revised regulatory structure, exchanges can independently decide which cryptocurrencies to list, without requiring prior SC approval, as long as they adhere to specific standards.

However, Malaysian regulatory authorities are not simply implementing deregulation. They are enhancing operational requirements, such as increasing the paid-up capital requirements for exchanges and introducing self-regulatory models, while maintaining a cautious stance on high-risk cryptocurrencies, including privacy coins, meme coins, and stablecoins. This approach aims to balance market autonomy and stability.

These policy changes illustrate Malaysia’s strategic intention to compete with Singapore and Hong Kong to become a dominant Web3 hub within the Asia-Pacific region. Coupled with the pro-crypto policies of the Trump administration, Malaysia is positioning itself as a pivotal bridge connecting Western capital with Asian markets.

4. In-Depth Look: Key Aspects of Malaysia’s Cryptocurrency Market

4.1. Centralized Exchanges
Malaysia has six officially recognized local cryptocurrency exchanges. Luno is the dominant player, accounting for over 90% of local trading volume, establishing a winner-takes-all dynamic similar to other Asian nations like South Korea and Thailand. However, the recently launched exchange Hata is demonstrating rapid expansion, bringing renewed energy to the market. Sinegy is also a significant participant, providing cryptocurrency trading services to businesses and institutional investors.

The actual influence of local exchanges remains limited. Despite regulatory efforts to restrict unauthorized exchanges like Binance, numerous investors continue to utilize global platforms through alternative methods. Estimates suggest that 40-60% of Malaysia’s total cryptocurrency spot trading volume occurs on global exchanges like Binance and Bybit.

Additionally, the small scale of Malaysia’s cryptocurrency market presents challenges for local operators. While Luno holds over 90% of the local market share, trading volume remains relatively low. Luno’s daily trading volume is approximately 200 times smaller compared to Upbit in South Korea. According to BNM’s 2024 annual report, as of the end of 2024, the total bank deposits flowing into locally registered DAX accounted for less than 1% of the total deposits within the banking system, representing approximately 0.4% of the market capitalization of securities listed on Bursa Malaysia.

The preference for global exchanges among investors stems from structural limitations of local platforms. The SC’s direct involvement in cryptocurrency listing approvals mandates a rigorous process, limiting the number of tradable cryptocurrencies to just 23. Low liquidity makes large-scale trading challenging, and the absence of margin trading or derivatives reduces their appeal for investors.

Faced with these constraints, local exchanges seek alternative survival strategies through parallel operations in brokerage services. They provide over-the-counter (OTC) trading and stablecoin on/off-ramp services outside the exchange, primarily targeting high-net-worth family offices and digital nomads for additional income. This business model has emerged due to local exchanges’ restrictions on major stablecoins like USDT and USDC, compounded by the lack of liquidity for large trades.

Malaysia’s cryptocurrency tax policy significantly influences the choice of exchanges. Cryptocurrency profits are treated as income tax rather than capital gains tax. The government only taxes the amount withdrawn. For instance, if an individual holds 10 BTC but only withdraws 1 BTC locally, the tax applies solely to the withdrawn amount. Airdrops, staking rewards, and DeFi earnings are also subject to income tax. The government monitors cryptocurrency activities by sharing trading data from local exchanges and imposes additional investigations and penalties on users who fail to declare their earnings. This tracking system appears to be a major deterrent for investors using local exchanges.

4.2. Stablecoins
Malaysian regulators maintain a cautious approach to stablecoins. Dollar-pegged stablecoins, such as USDC and USDT, have yet to be listed on local exchanges. While BNM has not issued a formal statement on this issue, this cautious stance likely stems from policy priorities. The Asian financial crisis of 1998 significantly shaped these priorities, where rapid capital outflows triggered severe economic instability. This experience has heightened vigilance regarding currency stability and foreign exchange management.

The SC’s recent consultation paper suggests that this cautious attitude remains. The authorities explicitly state that stablecoins are susceptible to market price fluctuations and could undermine the stability of the local financial system. Regulators do not view them as simple payment tools but rather as potential macroeconomic risk factors.

[Image source: Dune]

Despite regulatory caution, private sector stablecoin experiments continue. Blox is developing a stablecoin pegged to the ringgit, named ‘MYRC’. MYRC operates as a fiat-collateralized stablecoin, pegged to the Malaysian ringgit at a 1:1 ratio on the Arbitrum and Ethereum blockchains. Users can mint MYRC by depositing funds into local bank accounts through the Blox platform, and they can similarly redeem it. MYRC is currently in beta testing. The project has reached a market capitalization of approximately $700,000, exhibiting limited but active trading.

However, overlapping regulatory responsibilities have led to project delays. Malaysia’s dual regulation, with oversight split between the SC and BNM, has created ambiguity in responsibilities and standards. Blox has been working on this project for three years and has been in communication with regulators. Due to uncertain regulatory stances, the company has yet to receive final approval. The lack of a consistent regulatory framework for stablecoins is a primary factor in these delays.

There are emerging signs of change. Prime Minister Anwar recently announced considerations for establishing a regulatory sandbox through the “Digital Asset Innovation Hub.” This initiative includes stablecoin experiments based on the ringgit. This central bank-led sandbox will provide a controlled environment for fintech and digital asset companies to test new technologies and services.

Given the government’s ongoing concerns regarding capital controls, the initial emphasis may be on applications within the local financial ecosystem rather than cross-border payments. Potential use cases include 24-hour payment infrastructure, surpassing the traditional 9-hour banking system. Escrow services could leverage conditional payment features. Recent social issues, such as gym closures, have impacted refunds for prepaid amounts, and uncertainties in home renovation contract fulfillment create opportunities. The pilot implementation of “programmable money” could address everyday financial issues.

4.3. NFT Community
Malaysia’s NFT market remains sluggish. Many individuals who entered at inflated prices during the NFT boom have experienced losses and withdrawn from the market. This aligns with trends observed in other countries. While holders of globally recognized projects like BAYC, Azuki, and Milady exist, activities are primarily confined to small gatherings of enthusiasts. Malaysia lacks notable local NFT projects.

[Pudgy Penguin local offline event in Malaysia, image source: Pudgy Penguins Malaysia]

The local community of Pudgy Penguins is a prominent exception within this environment. This community has cultivated an independent ecosystem that goes beyond a simple network of NFT holders. An open operational approach and inclusive culture have fueled its success. The community encourages anyone to participate freely, irrespective of NFT ownership, keeping the barrier to entry low for newcomers.

Community members connect with individuals from diverse backgrounds, forming meaningful relationships built on fun and positivity that extends beyond mere information sharing. The community regularly hosts various offline events, such as wine tastings, go-karting, and pickleball. Even during bear markets, members maintain monthly gatherings. The community also actively participates in external community events, engaging in activities from other communities and collaborating through networks and referrals when needed.

[Image source: Pudgy Penguins Malaysia]

The community is developing ‘MY PENGU ACADEMY’, an introductory education program for Web3 beginners, with the aim of expanding the community and diversifying participation.

[Image source: Hata Global]

Meanwhile, local exchange Hata has launched a penguin-themed meme coin, $PENGU, on its global platform (offshore version only). Some Malaysian community members are engaging in trading through alternative methods. Given local restrictions on meme coin trading, this structure may provide additional incentives for community participation.

Malaysia’s NFT market is based more on community activities than trading. Among these communities, Pudgy Penguins is the most organized and scalable example. In a smaller market environment, offline networking is becoming increasingly important, and the operational model of Pudgy Penguins offers valuable insights.

4.4. Islamic Finance
Malaysia has established itself as the premier Islamic finance center in Asia, holding the top position in the global sukuk market, cementing its unparalleled status. This foundation is built upon its Muslim population, which constitutes over 60% of the country. As of 2024, Islamic finance accounts for approximately 47% of the entire financial system.

[Luno's Shariah compliance certificate for Ethereum staking service, issued by Amanie Advisors, image source: Luno]

This characteristic influences the cryptocurrency industry. Malaysia is the first nation to officially recognize cryptocurrencies as Shariah-compliant assets, approving 15 digital assets, including Bitcoin, as Shariah-compliant. All recognized digital asset market operators in Malaysia must maintain Shariah compliance, with local exchanges Luno and Hata adhering to these requirements.

Malaysian regulators believe that cryptocurrencies may be more Shariah-compliant than traditional finance. The traditional banking system provides loans based on deposits and charges interest, which may violate the Islamic prohibition on riba (interest). The operational structure of cryptocurrencies involves compensation for actual work, such as network maintenance and transaction validation. Bitcoin mining is viewed as legitimate compensation for computational verification work, and Ethereum staking rewards contribute to network validation. These differ fundamentally from interest income.

[Image source: Halogen Capital]

Various Shariah-compliant cryptocurrency products have emerged. Halogen Capital operates as the world’s first Shariah-compliant cryptocurrency mutual fund management company, managing approximately $75 million in assets and offering Shariah-compliant Bitcoin funds, Ethereum funds, and other products.

Nawa Finance operates as a Shariah-compliant DeFi protocol, collaborating with Solv Protocol to provide Shariah-compliant Bitcoin DeFi products, which have received Shariah certification from Amanie Advisors, officially registered with the SC as a Shariah advisor. These products offer secure and transparent halal income structures, and Nawa Finance’s Total Value Locked (TVL) has exceeded $50 million, demonstrating significant achievements in the Shariah-compliant DeFi space.

[Sharlife's zakat payment receipt, image source: Sharlife]

Sharlife has demonstrated innovation in the Islamic charity system, supporting zakat payments using cryptocurrencies and collaborating with the Federal Territory Islamic Religious Council (MAIWP) to build a digital charity system.

However, practical limitations exist. Cryptocurrencies have not yet been recognized as an official payment method in Malaysia, limiting real-world applications, and the federal system also poses challenges for nationwide institutionalization.

Malaysia’s global expansion potential remains highly regarded. The expertise and experience accumulated in Islamic finance are competitive assets in overseas markets. Malaysia leverages this expertise to develop Shariah-compliant cryptocurrency products, and the country has previously extended the institutional and product models of the Islamic bond market to the Middle East and Southeast Asia based on local successes. This suggests that cryptocurrencies may also have similar expansion paths, with major Muslim countries like Saudi Arabia and Indonesia potentially adopting Malaysia’s Shariah-compliant digital asset model. Malaysia has sufficient potential to lead the global digital transformation in this field.

4.5. Mainnet Environment

[Image source: Solana Superteam MY]

Malaysia’s blockchain mainnet environment remains limited. Within the global mainnet landscape, Solana Superteam is almost the only active presence from Malaysia, collaborating with various Solana-based Malaysian projects, such as Jupiter and Meteora, focusing on supporting local builders and founders to expand the ecosystem. The organization actively runs community-centered activities, including hackathons, to achieve this goal. Ethereum KL, an Ethereum community, also operates locally but with limited activities.

[MYBW2025 IOTA keynote session, image source: IOTA]

IOTA is an exception. The project participated as an official sponsor of Malaysia Blockchain Week 2025 (MYBW 2025), conducting active marketing activities locally. The company has received Shariah compliance certification from the Cambridge Islamic Finance Academy (Cambridge IFA), subsequently strengthening its branding targeting the Islamic finance market and accelerating its market strategy in Malaysia.

[Image source: Zetrix]

Meanwhile, the Malaysian government’s strategic focus is on developing its own blockchain infrastructure rather than simply adopting global public chains, aiming to create a regulatory-friendly, controllable, and locally-centered blockchain ecosystem. They are achieving this by collaborating with the local mainnet project Zetrix to develop the national blockchain infrastructure ‘MBI’, indicating a policy direction to establish a stable and sustainable, state-led blockchain infrastructure rather than relying on external chains.

4.6. Bitcoin Mining

Malaysia ranks among the top ten globally in Bitcoin mining hash power, with large mining facilities concentrated in the Sarawak and Sabah regions of Borneo, powered by extensive hydropower infrastructure. The power supply in these areas exceeds demand, and Bitcoin mining actively utilizes this surplus electricity.

The large hydropower plants in Sarawak produce electricity exceeding the region’s demand, with plans to export this surplus to Singapore and other countries in the future. Before the completion of submarine cable infrastructure, the mining industry prioritizes utilizing this electricity, with local governments collaborating with mining companies. Cheap electricity drives rapid growth in the mining industry, providing a stable alternative in a turbulent global mining environment, partially due to China’s mining ban.

[Malaysian police crushing Bitcoin mining machines, image source: The Malaysian Reserve]

However, illegal mining poses a serious problem. According to data from the Malaysian Blockchain Association ACCESS, the national utility company Tenaga Nasional Berhad (TNB) reported electricity losses of approximately 441 million ringgit ($100 million) due to illegal mining. Cases of electricity theft are frequent, sometimes leading to fires, and recent incidents include identity theft for fraudulent electricity contracts. In response, authorities have intensified their crackdown, seizing 985 illegal mining devices.

Malaysia’s mining industry shows growth potential based on abundant renewable energy and institutional acceptance. However, the industry also faces social costs and regulatory issues arising from illegal mining, indicating that while Malaysia is rising as a global Bitcoin mining center, it also carries challenges that need to be addressed.

5. Navigating the Landscape: Opportunities and Challenges in Malaysia’s Crypto Market

5.1. Challenges
Malaysia’s multilingual population offers communication advantages, but projects face complexity when entering the market, needing to tailor strategies according to different target groups, creating entry barriers.

For example, there are significant differences between ethnic Chinese Malaysians and non-Chinese Malaysians, using different languages, community channels, and investment preferences. Shariah influences the majority Malay population, exhibiting a relatively passive attitude towards financial investments, while ethnic Chinese Malaysians actively engage in local and international stock investments, also actively using global cryptocurrency exchanges and derivatives on on-chain trading platforms like Hyperliquid. The market segmentation is evident, and a one-size-fits-all strategy cannot effectively address this structure.

Malaysia’s Web3 industry faces limitations based on its developer talent pool. While Malaysia has many capable entrepreneurs, the developer talent pool remains relatively limited compared to neighboring countries like Vietnam and Indonesia. Top talent often flows to Singapore and other external regions, establishing companies or continuing careers outside Malaysia, creating structural issues. Malaysia has cultivated world-class talent, yet the local Web3 ecosystem itself faces structural constraints that hinder its vibrancy, posing significant challenges for the development of the local market.

5.2. Opportunities
Despite these challenges, Malaysia’s cryptocurrency market retains significant potential, demonstrating particular advantages in talent-based networks. Projects like Coingecko and Etherscan originated in Malaysia and gained global influence, and Malaysian talent also plays key roles in various global projects, including Meteora, Drift, and Pendle. These individuals form tight-knit networks throughout the global cryptocurrency industry, creating an environment for sharing opportunities and collaboration.

These networks show potential as a foundation for the development of Malaysia’s local ecosystem. Recently, an increasing number of talents who established careers abroad are returning to Malaysia, driven by low living costs and stable living conditions. These returnees inject new vitality into the ecosystem through connections with local communities, and opportunities for knowledge sharing and collaboration with the next generation are also expanding.

[Image source: Asia Pacific University Blockchain Club (APUBCC, left), Sunway Blockchain Club (SBC, right)]

Major universities, including Asia Pacific University (APU), Sunway University, and Taylor’s University, actively engage in blockchain-related academic activities, ensuring a continuous influx of the next generation of Web3 talent. If government-level policy support aligns with these trends, Malaysia’s Web3 ecosystem could grow at a faster pace.

[Binance Sharia Earn, image source: Binance]

Malaysia serves as an Islamic finance center, and the market is assessed to have unique opportunities in Shariah-compliant digital assets. Islamic finance currently occupies a small portion of the cryptocurrency market. However, related demand shows signs of gradual expansion, exemplified by Binance’s recent launch of Shariah-compliant products. Malaysia has institutionalized various Shariah-compliant products in traditional finance and possesses the institutional foundation and practical experience needed to extend this trend to digital assets, making Malaysia particularly noteworthy.

This foundation is not limited to the local ecosystem. There is global demand for Shariah-compliant products, particularly concentrated in the Middle East, and the potential for connections with these markets indicates that Malaysia is well-positioned. In the future, Malaysia could develop into a global Islamic digital asset center.