Digital assets have wide range of benefits and harmonising regulations is key to wider adoption
Regulators need to play an important role in implementing measures to shield consumers from market manipulation, fraud and other risks associated with digital assets
Lee Kim Siang
TOKENISED digital assets and money can help to make banking more efficient, but more will need to be done to clarify regulations to create a robust ecosystem around such assets.
While there have been numerous trials, UOB Head of Blockchain and Digital Assets, Goh Yu Min, anticipates that broader adoption will only pick up after the next three years, starting with more developed markets like Singapore.
“This will happen when blockchain transitions into mainstream use for institutions and consumers and reach an inflection point for widespread usage” he said.
He observed that regulators globally have been refining their frameworks to enhance trust and interoperability in blockchain systems.
“This fosters confidence among mainstream financial institutions to integrate blockchain solutions. Increasingly, companies are incorporating blockchain into their core systems, transitioning from pilot phases to commercial readiness,” he said.
Global experimentation in digital assets has picked up pace
For instance, he noted that China is among the leaders, if not the leader, in CBDC development with extensive trials of the digital yuan, although widespread use is still evolving.
BT in your inbox
Start and end each day with the latest news stories and analyses delivered straight to your inbox.
Meanwhile, USD-pegged stablecoins such as Tether and the USD Coin appear to be gaining traction among investors, although everyday transaction use is still limited.
Several European Union countries are also exploring CBDC development as digital asset use grows in sectors such as real estate and securities.
US-based think tank Atlantic Council has published research showing that a total of 134 countries representing 98 per cent of the global economy are now exploring digital versions of their currencies.
Almost half of these countries are at an advanced stage of releasing such currencies, with pioneers such as China, the Bahamas and Nigeria starting to see usage rise.
According to Chinese officials, the usage of China’s prototype digital yuan has nearly quadrupled to reach 7 trillion yuan of transactions. Atlantic Council senior director Josh Lipsky predicts that China’s central bank could be close to a full launch in a year’s time. Separately, China has kicked off a trial using digital yuan for cross border payments with Saudi Arabia, Hong Kong, Thailand and United Arab Emirates.
Many benefits and applications for digital assets
Furthermore, Goh noted that as blockchain technology becomes more user-friendly and scalable, demand from enterprises and high net-worth clients will rise.
“This will mirror the digital transformation witnessed in the banking sector a decade ago,” he said.
Goh noted that digital asset solutions offer numerous benefits to individuals, businesses and the global economy as they allow individuals to efficiently diversify their portfolios and achieve potentially higher returns.
Businesses also stand to gain from the increased efficiency of digital asset solutions, which can streamline processes and reduce cost.
“On a global scale, the economy will benefit from accelerated economic growth, the creation of new jobs, and enhanced investment opportunities. International trade and commerce will also benefit through faster, more cost-effective and more efficient cross-border payments,” he said.
Technological advances in the digital asset space could also lead to more widespread adoption.
Newer blockchain protocols have innovated to solve scalability issues through mechanisms such as sharding, rollups and parallel processing.
Such mechanisms aim to reduce the costs of executing blockchain transactions and make them more efficient.
Still, Goh acknowledged that public acceptance remains a broader challenge. The public is not likely to be concerned with the underlying technology as they seek cheaper, better returns and flexible, personalised products. But regulators and financial services providers have recognised that blockchain can enhance product construction, servicing, and distribution to meet the public’s evolving needs.
He believes that regulators play an important role in implementing measures to shield consumers from market manipulation, fraud and other risks associated with digital assets.
“It is difficult to build trust in digital assets due to their novelty and the potential for scams,” he said.
“Singapore, Thailand, Malaysia, Indonesia, and Hong Kong have noted an increased adoption of digital payments, including mobile wallets and QR codes. Yet, digital money implementation is largely in experimental phases,” he added.
Harmonising of regulations is key for wider adoption
Aside from scams and manipulation, Goh said that regulatory clarity is needed around various aspects relating to digital assets.
These include classification, issuance, trading, custody, taxation, investor protection, and anti-money laundering and know-your-customer regulations.
“Regulators must provide clear, consistent frameworks to guide businesses and investors while fostering innovation,” he said.
Across different jurisdictions, Goh said that regulatory clarity and maturity levels differ.
In his opinion, Singapore has been leading the way on a supportive regulatory framework for digital assets, with guidelines and experiments to promote the responsible development of tokenised assets.
Malaysia, Indonesia, and Thailand are making significant progress in advancing their regulatory frameworks for digital assets, fostering innovation and ensuring a secure environment for digital asset growth.
Meanwhile, the US has a more complex regulatory landscape as different agencies oversee different aspects of the market. For example, the Securities and Exchange Commission (SEC) has been grappling with the classification of cryptocurrencies and tokenised securities.
As for the European Union, it has been working on a comprehensive regulatory framework for digital assets, known as the Markets in Crypto-Assets Regulation, which has yet to be finalised.
While there is significant momentum among major banks to develop blockchain capabilities and services, Goh said that international regulatory bodies will need to collaborate to harmonise standards and facilitate cross-border transactions.
“Enhanced regulatory support further encourages banks to invest in blockchain initiatives,” he said.
Copyright SPH Media. All rights reserved.
