For decades, Southeast Asia has been among the fastest growing economies in the world and a major magnet of foreign investment. The region is on course to become the world’s largest single market by 2030, propelled by a number of factors such as dynamic economic activity, favorable demographics, openness to international trade, relatively stable and pro-business government policies, bustling entrepreneurial activity, and a recently rising trend that should not go overlooked – a surging digital economy. It is this latter development that Access Asia Group is keenly following due to its immense impact on overall economic, social and even political activity.
Home to some 700 million people with a relatively young and tach-savvy population, Southeast Asia is at the forefront of a global digital transformation that is impacting practically every business sector from banking to manufacturing to logistics to tourism and entertainment. At present, the region hosts the country with the fastest growing digital economy in the world – Vietnam – and the freest economy in the world – Singapore. Another little known but not insignificant statistic is that two Southeast Asia countries – Vietnam and the Philippines – top the global rankings of cryptocurrency adoption. A third country, Thailand, places eighth, while south Asian rivals India and Pakistan rank fourth and sixth respectively.
Why does this matter?
It matters because cryptocurrency and its underlying blockchain technology is rapidly becoming a major disrupter of business and finance. The dual force is spearheading a financial revolution that is changing how we perceive, transact, store, and even value money. On top of this, blockchain technology is penetrating and transforming a wide range of economic, social and political activity: from streamlining payments to supply chain management to managing national ID systems to upgrading electoral voting processes. Not surprisingly, the Philippines is already floating the idea of having its next election a blockchain-based election using a “tokenized electoral framework protocol.”
As penned by a Columbia University professor in a recent article on cryptocurrency adoption in South and Southeast Asia and why it matters to the rest of the world, the fast pace of cryptocurrency adoption in these two regions is setting a precedent for other regions and encouraging a global shift towards decentralized financial systems.
Decentralized finance, or DeFi, integrates cryptocurrency and blockchain technology to manage financial transactions without external agents and centralised institutions, replying on hardware, software, smart contracts, and peer-to-peer users. DeFi envisions a democratized financial system in which the participants regulate a transparent and inclusive system circumventing banks and central authorities.
One such DeFi protocol, which has some USD 600 million assets under management (a minuscule figure for a traditional financial institution but a not so shabby number for a community-owned DeFi bank), also boasts one of the best performing assets in the world – a little known cryptocurrency called Elephant Money that is up over 300% year-to-date.
The protocol’s founder, MIT-trained computer scientist Tony Perkins, has a wider vision that the protocol can bring “cashflow to all” and provide financial inclusiveness to millions of people who are unbanked. Indeed, this is another transformative power of cryptocurrency, blockchain and DeFi – that it is paving the way for a more inclusive financial system that reaches the world’s masses of the unbanked and underbanked. This is another reason why adoption is growing in Southeast Asia.
A recent report from Bain and Company, in collaboration with Google and Temasek, estimated that around 70 percent of the adult population of Southeast Asia is either unbanked or underbanked. The report deals specifically with the suitability of digital finance platforms as a means of banking penetration and argues that the demographic subset most likely to benefit from the proliferation of digital finance platforms is the underbanked. “Digital financial services brings with it the promise of accelerating broader financial services access for the underbanked and opening up a potentially large market for both established players and new entrants,” the report argues, identifying the underbanked market as “the true engine behind the growth in digital financial services.”
Access Asia views what is happening in Southeast Asia as a catalyst for global cryptocurrency and blockchain adoption. We also believe that decentralized finance will grow immensely in the coming years, particularly in light of the banking crisis that has highlighted the fragility of the current, centralized financial system. Literally and figuratively, the global financial system has an elephant in the room.