Vietnam is leading the way in decentralized finance (DeFi) in the ASEAN region, while Thailand has experienced the fastest growth, according to a report from the Organisation for Economic Co-operation and Development (OECD). However, the report also highlights that DeFi in ASEAN is primarily dominated by institutional investors, with limited retail participation due to complexity and a lack of regulation.
The ASEAN region, consisting of ten countries including Indonesia, Malaysia, the Philippines, Thailand, and Vietnam, has been focusing on financial inclusion. Despite this, the OECD report states that over half of the region’s 600 million residents remain unbanked. However, the majority of the population is young and digitally adept, which presents a fertile environment for the adoption of digital assets.
While DeFi has thrived in the ASEAN region, it has not achieved its goal of democratizing finance. The report reveals that East Asia has the highest proportion of institutional activity in DeFi globally. The complexity of DeFi protocols and the unregulated and non-custodial nature of the industry make it difficult for retail investors to participate.
This sentiment aligns with a previous paper from the Bank for International Settlements (BIS), which argued that DeFi’s decentralization is an illusion and that the sector is too intricate for retail traders.
Although more user-friendly DeFi platforms have emerged in recent years, they still lack transparency and offer complex trading strategies that are unsuitable for retail investors. The OECD suggests that regulation could play a crucial role in opening up the sector to broader retail involvement. Additionally, traditional financial institutions could leverage DeFi in areas such as atomic securities settlement.
The report also highlights tokenization as a promising application within the sector. Distributed ledger technology (DLT)-based finance and tokenization offer cost-efficiency for small-size transactions, fractionalization, and new avenues for capital formation.
The OECD report follows a forum between OECD and ASEAN government officials in Seoul, South Korea. During the forum, the officials discussed digital asset regulation and other trends in the digital finance world, indicating a growing interest in fostering a regulatory framework for the industry.
Kim So-young, the vice chair of South Korea’s Financial Services Commission, commented on the need to establish an appropriate regulatory system to address potential risks associated with new technologies and protect consumers.