Optimism in the new year

SINGAPORE: This has been a year of reckoning for the movers and shakers in the cryptocurrency sector, from fugitive Do Kwon to disgraced FTX founder Sam Bankman-Fried and, more recently, Binance’s former chief Zhao Changpeng.

Among the biggest names in the digital assets market, they will have to face the music in the new year, with sentences to be handed to Bankman-Fried for fraud and Zhao for breaking anti-money laundering laws, and prosecution for former Terraform Labs head Kwon on the cards.

Standard Chartered Ventures chief Alex Manson told The Straits Times that while it is unfortunate the events led to a scandal and enforcement actions, they might be a blessing in disguise.

The firm, set up in 2018, is the innovation, venture and financial technology investment unit of Standard Chartered Bank.

“What I think is good news is the fact that one by one, we’re uncovering issues that we have all along known about in terms of the set-up, the way platforms have been conducting business, and of the overall infrastructure of a nascent industry. So, the industry is fixing itself,” he said.

Sabrina Tachdjian, head of fintech and payments at The Hbar Foundation, which supports the Hedera blockchain network, said: “Between the highly anticipated denouement of the Bankman-Fried trial and the apprehension of Kwon, it was not only a year of accountability, but also one of stabilisation.”

The drama is not fully over, but investors and market players say they have reasons for optimism in the new year.

Many said there would be greater institutional adoption as the laws get clearer and as governments, banks and financial institutions try to prove that digital assets have real-world uses, particularly in payments.

Stella Lim, chief operating officer of blockchain payments platform Partior, said the market is now looking at the practical applications of digital assets.

She added that there have been notable developments in the Republic by the Monetary Authority of Singapore (MAS) and major global banks like JPMorgan, Citi and HSBC, which have introduced services for tokenised digital assets driven by blockchain.

Lim said the cases introduced in 2023 would undergo further refinement to meet regulatory demands.

According to Eddie Hui, chief operating officer at digital asset and payments platform MetaComp, it will be only a matter of time before lending and borrowing functions are more broadly adopted and handled through smart contracts to improve liquidity and efficiency, and cut costs.

Smart contracts are computer programmes or protocols on the blockchain that execute the terms of a contract between buyer and seller.

Hui said such a system deployed on a private blockchain could make a lot of sense. A private blockchain is one that only specified users can access, usually by the entity it belongs to.

Ong Chengyi, head of Asia-Pacific policy at blockchain analytics firm Chainalysis, described 2023 as a “banner year for digital asset regulation”, as many governments across the region started to put in place guard rails for the industry.

“Next year will be about the digital asset sector maturing and transitioning into a regulated space.

“We can expect there will be friction as digital asset players across the region adjust to more stringent compliance obligations, but this can also open up new pathways for institutional adoption,” she said.

Web3 ecosystem builder TZ Apac’s managing director David Tng said that, looking beyond Singapore, Asia is expected to further grow its role as a hub for blockchain and cryptocurrency development.

Asia, he said, accounted for 55.8% of the regional decentralised finance transaction volume from July 2022 to June 2023, up from an earlier 35.2%.

“Countries such as Vietnam, Indonesia and the Philippines have embraced the convergence of grassroots and institutional adoption, showcasing the growing relationship between traditional economies and the crypto landscape,” Tng said.

Digital currencies are an area to look at in the new year as central banks and financial institutions here step up their trials to improve the speed and lower the costs of transactions. — The Straits Times/ANN