Why Tokenized Finance is Stalling Despite Regulatory Progress

Southeast Asia has made significant progress in digital payments and blockchain adoption, yet the growth of tokenized finance remains slower than many expected. A recent report, Powering Southeast Asia's Digital Future, published by Hashed Open Research and SCBX, suggests that the biggest obstacle is no longer regulation or technology. Instead, it is the lack of financial incentives for banks to embrace tokenized assets.

The report shows that over 60% of payments in Southeast Asian countries are now digital, compared with less than 30% when it was first introduced in 2019, meaning that consumers jumped directly from cash to mobile payments. On-chain transaction volume in the Asia-Pacific region increased by 68% year-on-year to $2.36 trillion, signaling rising blockchain activity in the region. However, the participation by institutions in tokenized finance remains low.

Banks Face Economic Challenges

According to Hashed Open Research and SCBX, regulatory frameworks and blockchain infrastructure have matured considerably in countries such as Singapore, Thailand and Malaysia. The report argues that the real challenge lies in banks' business models.

Tokenized assets currently generate limited revenue while potentially reducing fees earned through traditional financial services. In addition, banks holding certain tokenized assets on public blockchains face a 1,250% capital charge under the Basel Committee's global prudential standards if those assets do not meet strict classification requirements.

According to the report, this capital treatment discourages banks from expanding tokenization initiatives, regardless of how supportive their domestic regulators may be. Since Basel standards apply globally, banks in Singapore, Thailand, or Malaysia face similar capital constraints as institutions in Europe or North America.

Digital Payments Grow as Tokenization Evolves

The report places Singapore, Thailand, and Malaysia in the ‘offensive’ box, saying they are focused on building local-currency stablecoins and tokenized deposits. Meanwhile, Vietnam, Indonesia, and the Philippines are described as using a ‘defensive’ posture, basically by tightening the rules around existing dollar- denominated crypto use, to cut down the risk of financial dollarization.

The Philippines also shows how much blockchain-based financial rails matter. As the report notes, the country is looking into stablecoins to back nearly $35 billion in yearly inbound remittances, where quicker settlement and cheaper transfers could improve cross-border payments.

Malaysia is also expanding tokenization beyond conventional finance. Its sovereign wealth fund, Khazanah Nasional, is working on tokenized sukuk (Islamic bonds) to attract investors from the global Islamic finance market.

Also Read: Ripple Invests in ZILO and Licuido to Expand Tokenized Fund Markets Globally

Even with these developments, institutional interest remains mixed. According to the report, large financial institutions, like DBS, have put in a lot of work and funding into tokenized deposits, wholesale CBDCs and tokenized investment products, under efforts such as Project Guardian. However, smaller regional banks often don’t have enough capacity to take on the higher capital costs while they wait for tokenized finance to turn commercially profitable.

The report wraps up by saying that the next phase of digital finance across Southeast Asia will hinge less on getting regulatory sign-off and more on whether banks find a lasting economic reason to expand tokenized financial products. Until that ‘incentive equation’ shifts, tokenized finance will likely move forward steadily, but not rapidly.

FAQs:

1. What is tokenized finance?

Tokenized finance refers to converting real-world financial assets such as deposits, bonds, securities or real estate into digital tokens on a blockchain. This can improve settlement speed, transparency and operational efficiency while enabling programmable financial services.

2. Why is tokenized finance growing slowly despite regulatory progress?

According to the Hashed Open Research and SCBX report, the main challenge is economic rather than regulatory. Many banks see limited revenue opportunities from tokenized assets, while current capital requirements make holding certain blockchain-based assets expensive.

3. What is the 1,250% capital charge mentioned in the report?

The Basel Committee's prudential framework assigns a 1,250% risk weight to certain cryptoasset exposures that do not meet strict regulatory classifications. This significantly increases the capital banks must hold, reducing the attractiveness of tokenized assets.

4. Which Southeast Asian countries are leading tokenization efforts?

Singapore, Thailand and Malaysia are leading the region by developing local-currency stablecoins, tokenized deposits and blockchain-based financial infrastructure. Countries like the Philippines are also exploring stablecoins to improve cross-border remittances.

5. What could accelerate institutional adoption of tokenized finance?

Lower capital costs, stronger commercial incentives, clearer global standards and profitable business models could encourage more banks to adopt tokenized financial products. Continued investment in blockchain infrastructure and regulatory clarity will also play an important role.