• Southeast Asian financial institutions are increasingly turning to the Ethereum blockchain

  • Southeast Asia is experiencing a surge in blockchain innovation, as the region is home to a number of fintech firms and global crypto companies. Singapore, in particular, has emerged as one of the world’s most crypto-friendly jurisdictions. This was recently highlighted in a report conducted by cryptocurrency exchange Gemini, which discovered that 67 percent of 4,348 respondents own cryptocurrency. According to the report, Ether (ETH) is the most popular cryptocurrency in the region, with 78 percent of respondents claiming to own the digital asset.

    Surprisingly, the Ethereum blockchain may also be the network of choice for Southeast Asian financial institutions. According to Charles d’Haussy, Asia managing director at blockchain firm ConsenSys, companies in the region looking to enable e-commerce cross-border payments prefer Ethereum for a variety of reasons:

    “From a technical standpoint, various central banks and financial institutions that have been exploring various technologies always tend to return to fundamental features that Ethereum offers.”

    Specifically, d’Haussy stated that financial institutions find Ethereum appealing because it provides a smart contract layer on a blockchain network, whereas other competing technologies may only provide a smart contract layer without a blockchain. D’Haussy went on to say that the Ethereum network also allows financial institutions to open accounts for specific tokens. He went on to say that the process would be familiar to many because “you have a bank account and banknotes that you can deposit into that account.” This can be replicated in a variety of scenarios. Other technologies that have been investigated in the past have not been able to provide both accounts and tokens.”

    Southeast Asia’s financial system will be based on Ethereum.

    Given Ethereum’s unique functionalities, d’Haussy noted that financial institutions throughout Southeast Asia use it in a variety of ways.

    For example, Daniel Lee, executive director and head of business and listing at DBS Digital Exchange (DDEx) — a digital exchange backed by DBS, one of Asia’s largest banking groups that offers trading services for various digital assets such as security tokens and cryptocurrencies — said that the firm is using Ethereum for its security token exchange:

    “For this purpose, we’re using Ethereum as a permissioned blockchain.” The tokens we’re using are based on ERC-777, allowing us to set up an exchange for this product. Because everything is done on a blockchain, it can replace your traditional central depository or clearinghouse.”

    ERC-777 tokens backed by equities, fixed income, or other real-world assets, in particular, can be listed. These listings can then be made available for secondary trading. Lee explained how a security token exchange can help with the secondary sale of assets: “Now, when someone wants to sell these assets, they can simply post it as an offer on the exchange.” And whoever wants that specific amount can simply accept the offer.”

    Furthermore, Lee stated that DDEx had looked into blockchain networks other than Ethereum to accommodate its security token exchange. However, he stated that Ethereum was the best choice due to the ease with which Solidity, the programming language designed for developing smart contracts on Ethereum, could be found.

    Partior, a blockchain-based interbank clearing and settlement network jointly established by DBS Bank, JP Morgan, and Temasek, is also built on Ethereum, according to D’Haussy. Lee revealed as part of Project Partior that DDEx will soon issue its own Singapore Dollar stablecoin on the Partior network. According to d’Haussy, this is true for similar use cases because of the variety of vendors, wealth of developers, and services available on Ethereum. “Many other blockchains will be unable to offer such a rich and mature ecosystem.” As a result, it’s a no-go for many financial institutions,” d’Haussy explained.

    It’s also worth noting that China’s involvement in blockchain innovation is growing. While d’Haussy believes that cryptocurrencies aren’t popular in the region, he does mention that China is a major builder of blockchain networks. Although China recently issued a warning to state-owned enterprises to stop mining cryptocurrencies, d’Haussy stated that ConsenSys Quorum — ConsenSys’ Ethereum-based distributed ledger protocol — is doing well in the region: “Permissioned chains in mainland China are the favorite frameworks, and Quorum is currently being used for Blockchain-based Service Network, a Chinese government-backed nationwide blockchain project.”

    Will Ethereum’s limitations prevent it from gaining traction?

    While Ethereum is widely used in Southeast Asia for a variety of purposes, there are still concerns about the network’s high gas fees and scalability issues. However, according to Lee, DDEx lists and trades security tokens on Ethereum on a permissioned blockchain, so high gas fees are not an issue. “We don’t use mining as a means of reaching a consensus.” As a consensus mechanism, we employ IBFT. “As a result, the gas tax does not really apply to us,” he explained. D’Haussy added that high gas fees show that Ethereum is in demand, noting that layer-two solutions are being implemented to address the major challenges that Ethereum is facing.

    Despite this, some Southeast Asian financial institutions have begun to explore other blockchain networks. RippleNet, the global payments network of blockchain firm Ripple, is being used for cross-border transactions throughout the region, for example. According to Brooks Entwistle, RippleNet’s managing director in APAC and MENA, Asia Pacific has emerged as one of RippleNet’s fastest-growing regions, with transactions more than doubling since Q3 last year.

    Entwistle also stated that, as a result of Ripple’s intention to acquire a 40% stake in the cross-border payment processing hub Trangloa, the company has facilitated the establishment of a new on-demand liquidity corridor in the Philippines. He also revealed that the Japanese remittance company SBI Remit is using Ripple’s ODL service to transform remittance payments for the country’s large Filipino diaspora. Entwistle elaborated:

    “This has significant implications for accelerating financial inclusion and creating economic fairness and opportunity, particularly in a region that includes some of the world’s largest remittance-receiving countries, such as the Philippines.”

    As a result, while Ethereum remains a significant player in Southeast Asia, other blockchain solutions are on the rise. Because of its high transaction speeds and low costs, the Solana blockchain, for example, has piqued the interest of enterprises. PwC crypto leader and partner Henri Arslanian said that other blockchain networks are being used as financial institutions gain more knowledge about different layer-one solutions:

    “Each layer-one solution differs in terms of speed and scalability, as well as transaction fees and carbon footprint.” Each organization will have its own set of priorities and use case requirements, which may lead to a preference for one network over another.

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