Southeast Asian financial institutions turn to the Ethereum blockchain

Southeast Asia is home to many fintech companies and global crypto companies, which means that blockchain innovation is booming. Singapore is one of the most crypto-friendly nations in the world. A report by crypto exchange Gemini recently revealed that 67% of the 4,348 respondents own crypto. According to the report, Ether (ETH), which is the most widely used cryptocurrency in the region with 78% of respondents claiming ownership, is the most valuable.

The Ethereum blockchain could be the preferred network for financial institutions located in Southeast Asia, it seems. Charles d’Haussy is Asia managing director of blockchain firm ConsenSys. He told Cointelegraph that Ethereum is preferred by many companies in the region who are looking to enable cross-border e-commerce payments.

“Technically, central banks and financial institutions who have explored different technologies tend to return to the fundamental features of Ethereum.

Specifically, d’Haussy said that financial institutions find it attractive that Ethereum offers a smart-contract layer on a Blockchain network. While other technologies may only have a smart-contract layer without a Blockchain, other competitors may offer one. D’Haussy said that financial institutions can also create accounts for specific tokens through the Ethereum network. The process sounds familiar, he said. “You have a bank and banknotes that you can put in that account. This process can be replicated in many situations. In the past, other technologies were not capable of providing both tokens and accounts.

Ethereum as a finance option in Southeast Asia

d’Haussy pointed out that many financial institutions in Southeast Asia use Ethereum because of its unique functionality.

Daniel Lee, executive vice president and head of business at DBS Digital Exchange, (DDEx), a digital exchange backed in part by DBS, Asia’s largest bank group, told Cointelegraph that Ethereum is being used for the security token exchange.

“We use Ethereum as a permissioned Blockchain for this purpose. We are using ERC-777 tokens to create an exchange for this product. Because everything is on a blockchain, it can replace your traditional clearinghouse or central depository.

It is possible to list ERC777 tokens that have been backed by fixed income, equities or other real-world assets. These listings can then become available for secondary retrading. Lee explained that the security token exchange can facilitate secondary asset sales. “Now, when someone wants these assets to be sold, they can simply post it as an offering on the exchange. Anyone who wants this amount can simply lift the offer.

Lee also noted that DDEx had considered other blockchain networks to host its security token exchange. He did however note that Ethereum was the best choice because of the ease with which Solidity, the programming language used to develop smart contracts on Ethereum, can be found programmers.

Related: Are institutional investors key partners in crypto?

D’Haussy also pointed out that Partior, a blockchain-based interbank settlement and clearing network jointly created by JP Morgan, DBS Bank and Temasek, is also built on Ethereum. Lee, who is part of Project Partior shared the news that DDEx would soon issue its own stablecoin in Singapore Dollar on the Partior network. According to d’Haussy this is possible due to the variety of vendors, wealth developers, and the wide range of services on Ethereum. “Most other blockchains won’t be able to offer such a rich, mature ecosystem. It’s therefore not a good choice for many financial institutions,” stated d’Haussy.

It is also fascinating to see that China’s participation in blockchain innovation has been on the rise. Although d’Haussy thinks that the region isn’t interested in cryptocurrencies, he pointed out that China is a major builder of blockchain networks. Despite China’s recent warning to state-owned enterprises not to mine cryptocurrencies, d’Haussy said that ConsenSys’ Ethereum-based distributed leger protocol ConsenSys’ Quorum is performing well in the region. “Permissioned Chains in China are the preferred frameworks, and Quorum is being used currently for Blockchain-based Service Network. This is a Chinese government-backed national blockchain project.”

Are Ethereum’s limitations going to hinder adoption?

Although Ethereum is widely used in Southeast Asia for various purposes it remains to be a concern about its high gas fees and slow scaling. Lee says that DDEx uses Ethereum on a permissioned Blockchain for trading and listing security tokens. Therefore, high gas fees should not be an issue. We don’t use mining to create consensus. IBFT is our consensus mechanism. He stated that the gas fee does not apply to them because of this. D’Haussy said that high gas prices further prove that Ethereum is in high demand. He also noted that layer-two solutions have been implemented to address the major problems facing Ethereum today.

Despite this, many financial institutions in Southeast Asia are now looking at other blockchain networks. RippleNet, the global payments network for blockchain firm Ripple, is being used throughout the region to facilitate cross-border transactions. Brooks Entwistle is RippleNet’s managing director for APAC and MENA. He told Cointelegraph that Asia Pacific was the fastest growing region of RippleNet, with more than doubling in transactions since Q3 2017.

Entwistle said that Ripple had acquired a 40% share in Trangloa’s cross-border payment processing hub Trangloa. This has enabled the establishment of a new liquidity corridor in the Philippines. Entwistle also shared that SBI Remit, a Japanese remittance firm, uses Ripple’s ODL to convert remittance payments for large Filipino diasporas in Japan. Entwistle explained:

“This has significant implications for accelerating financial integration and creating economic fairness, opportunity and opportunity, especially in a country that includes some of the largest remittance-receiving nations in the world like the Philippines.

While Ethereum is still a significant player in Southeast Asia’s blockchain market, there are other solutions that are on the rise. The Solana blockchain, for example, has attracted enterprise interest because of its low transaction costs and high transaction speeds. Henri Arslanian (PwC crypto leader) and partner told Cointelegraph that other Blockchain networks are being used as financial institutions gain more knowledge on different layer-one options.

Each layer-one solution offers different features, from speed and scale to transaction fees and carbon footprint. Every organization has its priorities and specific use cases that could lead to them choosing one network over the other.

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