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Southeast Asian financial institutions switch to Ethereum blockchain

7 min reading

Ethereum Blockchain seems like the accurate choice for building financial institutions in Southeast Asia right now but is there a possibility for other options?

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Blockchain innovation is on the rise in Southeast Asia as the region is home to a number of global fintech and crypto companies. Singapore in particular has become one of the most cryptocurrency-friendly countries in the world. This was recently highlighted in a report by crypto exchange Gemini, which found that 67% of the 4,348 respondents currently own crypto. Additionally, the report found that ether (ETH) is the most popular cryptocurrency in the region, with 78% of respondents saying they own digital assets.

Interestingly, the Ethereum blockchain could also be the network of choice for financial institutions based in Southeast Asia. This idea was discussed at an event recently hosted by the Enterprise Ethereum Alliance called “Ethereum in Finance: A View from Singapore”. Charles d'Ossie, Asia Blockchain ConsenSys chief executive and attended the event, said that companies in the region looking to enable cross-border e-commerce payments prefer Ethereum for several reasons:

“From a technical point of view, various central banks and financial institutions studying various technologies always tend to return to the main function of Ethereum.

In particular, d'Haussy mentioned that financial institutions find it interesting that Ethereum offers a smart contract layer on the blockchain network, while other competing technologies can only include a smart contract layer without a blockchain. D'Haussy added that the Ethereum network also gives financial institutions the ability to create accounts for certain tokens. He added that the process will be familiar to many because “you have a bank account and records that you can deposit into that account. It can be reproduced in many applications. Other technologies examined in the past failed to provide accounts and tokens. Let’s take a look at two distinctions following this issue:

  • Ethereum for finance in Southeast Asia
  • Will Ethereum restrictions prevent adoption?

Ethereum for finance in Southeast Asia

Given Ethereum's unique functionality, d'Haussy found that financial institutions in Southeast Asia use it in a variety of ways.

For example, Daniel Lee CEO and Head of Business and Listing at DBS Digital Exchange (DDEx) - a digital exchange backed by DBS, one of the largest banking groups in Asia, which offers trading services for a wide range of digital assets, including security tokens and cryptocurrencies. – stated that the company uses Ethereum to exchange security tokens: “We use Ethereum as the official blockchain for this purpose. The token we use is based on ERC-777 which allows us to make exchanges for this product. And because everything works on the blockchain, it replaces your traditional central securities storage or clearing house.

Specifically, it is possible to list ERC-777 tokens backed by stocks, fixed income securities, or other real-world assets. This offer can then be offered for a second bid. Lee explains that a security token exchange can facilitate the sale of an asset on a secondary basis: "Now that someone wants to sell the asset, they can post it as an offer on the exchange. An d if you want this certain amount, you can simply take advantage of the offer." Lee also noted that DDEx is researching blockchain networks other than Ethereum to customize its security token exchange. However, he found Ethereum to be the best choice because it was easy to find programmers who were familiar with Solidity, the programming language developed to help develop smart contracts on Ethereum.

D'Housey also pointed out that Partior - a blockchain-based interbank clearing and settlement network co-created by DBS Bank, JP Morgan and Temasek - is also built on Ethereum. As part of Project Partior, Lee said that DDEx will soon launch its own stable e-money coin on the Partior network. According to d'Haussy, this is the case with such applications because of the variety of providers, the large number of developers, and the variety of services available on Ethereum. “Many other blockchains will not be able to provide a rich and mature ecosystem. As such, it is not suitable for many financial institutions,” said d'Ossie.

It is also interesting that China's participation in blockchain innovation is increasing. While d'Housey believes that the region is not worried about cryptocurrencies, he does mention that China is a major builder of blockchain networks. For example, although China recently warned state-owned companies not to dig into cryptocurrencies anymore, D'Housey mentioned that ConsenSys Quorum - a Distributed Book Protocol based on ConsenSys Ethereum - is doing well in the region: it is currently being used for blockchain-based Network services that supported by the Chinese government's national blockchain project.

Will Ethereum restrictions prevent adoption?

Although Ethereum can be widely used throughout Southeast Asia for a variety of purposes, concerns about high gas costs and network scalability issues persist. However, according to Lee, DDEx uses the official Ethereum blockchain to register and trade security tokens, so high gas fees are not an issue. “We don't use extraction as a consensus mechanism. We use IBFT as our consensus mechanism. "Therefore, the gas tax doesn't really apply to us," he said. D'Housey added that the high cost of gas continues to show that Ethereum is in demand, noting that secondary solutions are being implemented to address the key challenges Ethereum is currently facing.

Nonetheless, some financial institutions in Southeast Asia have started looking for other blockchain networks. For example, RippleNet - Ripple's global blockchain payments network - is used across the region for cross-border transactions. Brooks Entwistle, managing director of RippleNet at APAC and MENA, said that the Asia-Pacific region has been one of the fastest growing regions for RippleNet, with transactions more than doubling in the third quarter of last year.

Entwistle added that following Ripple's intention to acquire a 40% stake in cross-border payment processing center Trangloa, the company has activated a new on-demand liquidity corridor in the Philippines. He also said that Japanese remittance company SBI Remit used Ripple's ODL service to convert remittance payments for the large Filipino diaspora in Japan. Entwistle explains:

“This has a major impact on accelerating financial inclusion and creating equity and economic opportunity, especially in a region that hosts some of the world's largest remittances, such as the Philippines. While Ethereum continues to have a significant impact in Southeast Asia, other blockchain solutions are actually evolving. For example, the Solana blockchain is attracting business interest due to its high transaction speed and low fees. Henri Arslanian, lead and crypto partner at PwC, said that other blockchain networks are being used as financial institutions become more acquainted with world-class solutions:

“Each single-tier solution has different characteristics, from speed and scalability to transaction costs and carbon footprint. Each organization will have its own priorities and requirements for use cases that may lead them to choose one network over another.

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