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Is Ethereum the blockchain of choice for Southeast Asian financial institutions, or will they look for alternatives due to limitations?
Because Southeast Asia is home to a lot of fintech enterprises and global crypto corporations, blockchain innovation is exploding. Singapore, in particular, has emerged as one of the world’s most crypto-friendly countries.
This was recently highlighted in a report by cryptocurrency exchange Gemini, which indicated that 67 percent of 4,348 respondents possess cryptocurrency. According to the analysis, Ether (ETH) is the most popular cryptocurrency in the region, with 78 percent of respondents claiming to own it.
Surprisingly, the Ethereum blockchain may also be the prefered network for Southeast Asian financial institutions. Companies in the region aiming to enable e-commerce cross-border payments choose Ethereum for a variety of reasons, according to Charles d’Haussy, Asia managing director of blockchain firm ConsenSys:
“From a technical perspective, different central banks and financial institutions that have been exploring various technologies always tend to come back to fundamental features, which Ethereum offers.”
Specifically, d’Haussy mentioned that financial institutions find it appealing that Ethereum offers a smart contract layer on a blockchain network, whereas other competitive technologies may only feature a smart contract layer without a blockchain. D’Haussy added that the Ethereum network also provides financial institutions with the ability to create accounts for certain tokens. He added that the process would sound familiar to many since “You have a bank account and banknotes which you can put into that account. This can be reproduced in many use cases. Other technologies explored in the past were not able to provide both accounts and tokens.”
Ethereum for finance in Southeast Asia
Given the unique functionalities of Ethereum, d’Haussy noted that financial institutions throughout Southeast Asia leverage it in a number 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 offering trading services for various digital assets including security tokens and cryptocurrencies — told Cointelegraph that the firm is using Ethereum for its security token exchange:
“We are using Ethereum as a permissioned blockchain for this purpose. The tokens that we are using are based on ERC-777, which is enabling us to create an exchange for this product. And because everything works on a blockchain, it replaces your traditional central depository or clearinghouse.”
In particular, it is possible to list ERC-777 tokens that are backed by equities, fixed income, or other real-world assets. These listings can then be offered for secondary retrading. Lee explained that a security token exchange can facilitate the sale of assets on a secondary basis: “Now when someone wants to sell these assets, they can just post it as an offer on the exchange. And whoever wants that particular amount, they can just lift that offer.”
Moreover, Lee remarked that DDEx had looked at other blockchain networks besides Ethereum to accommodate its security token exchange. However, he noted that Ethereum was the best choice due to the ease of finding programmers familiar with Solidity, the programming language designed for developing smart contracts on Ethereum.
Partior, a blockchain-based interbank clearing and settlement network jointly constructed by DBS Bank, JP Morgan, and Temasek, is also built on Ethereum, according to D’Haussy. Lee revealed that DDEx will soon issue its own Singapore Dollar stablecoin on the Partior network as part of Project Partior. Due to the diversity of vendors, richness of developers, and range of services offered on Ethereum, d’Haussy believes that this is the case for similar use cases. “Many other blockchains will be unable to deliver such a well-developed ecosystem.” As a result, numerous financial institutions have ruled it out,” d’Haussy explained.
It’s also worth noting that China’s interest in blockchain technology is growing. While d’Haussy feels that cryptocurrencies do not thrill the region, he does note that China is a major producer of blockchain networks. Although China recently advised state-owned enterprises to stop mining cryptocurrencies, d’Haussy noted that ConsenSys Quorum — the Ethereum-based distributed ledger protocol developed by ConsenSys — is doing well in the region: “Permissioned chains in mainland China are the prefered frameworks, and Quorum is currently being used for Blockchain-based Service Network, a Chinese government-backed nationwide blockchain project.”
Will Ethereum’s limitations hamper adoption?
While Ethereum is being used throughout Southeast Asia for a variety of reasons, there are still worries about the network’s high gas prices and scalability issues. DDEx, on the other hand, uses Ethereum on a permissioned blockchain for listing and selling security tokens, so high gas fees aren’t a concern, according to Lee. “Mining isn’t used as a consensus process.” As a consensus mechanism, we use IBFT. As a result, the gas tax does not apply to us,” he explained. High gas fees, according to D’Haussy, reflect that Ethereum is in demand, and layer-two solutions are being deployed to address the major difficulties that Ethereum faces today.
Even though this may be, some financial institutions in Southeast Asia have begun looking toward other blockchain networks. According to Brooks Entwistle, RippleNet’s managing director for APAC and MENA, Asia Pacific has become one of RippleNet’s fastest-growing regions, with transactions more than doubling since Q3 last year.
Ripple has facilitated a new on-demand liquidity corridor in the Philippines, according to Entwistle, after its intention to purchase a 40% stake in the cross-border payment processing centre Trangloa. He also mentioned that SBI Remit, a Japanese remittance company, is leveraging Ripple’s ODL technology to change remittance payments for the country’s substantial Filipino diaspora. Entwistle elaborated:
“This has profound implications for accelerating financial inclusion and creating economic fairness and opportunity, especially in a region which comprises some of the biggest remittance-receiving countries in the world such as the Philippines.
As a result, while Ethereum remains popular in Southeast Asia, alternative blockchain technologies are gaining popularity. Because of its rapid transaction speeds and low prices, the Solana blockchain, for example, has piqued the curiosity of businesses. Other blockchain networks are being used as financial institutions get more aware on diverse layer-one solutions, according to Henri Arslanian, PwC crypto leader and partner.
“Each layer-one solution has different features from speed and scalability to transaction fees and carbon footprint. Each organization will have its own priorities and use case requirements that may make them choose one network over another.”