German banking giant Deutsche Bank AG sees blockchain technology as a means to alleviate margin compression.
Deutsche Bank is reportedly testing an unnamed Ethereum-based platform, according to a new report. According to the bank, the platform provides services centered on tokenized funds.
Tokenization is the process of representing real-world assets on a blockchain. Citigroup Inc. estimates that the tokenization market, including bonds, real estate and private equity, will reach $5 trillion by 2030.
The bank will leverage this platform to provide record-keeping services to help tokenized fund issuers manage investor information. The platform is also interoperable, meaning any fund manager can use it regardless of the underlying blockchain.
The German banking giant can use blockchain and smart contract-based solutions to reduce costs, transaction times and overall risk, according to Anand Rengarajan, the bank’s head of securities services for Asia Pacific and the Middle East and head of global sales.
“With the kind of margin pressure affecting the entire financial services industry, it will help us stay relevant because the only way to survive is through innovation,” Anand said.
Margin compression refers to falling profit margins in financial services due to rising costs, regulatory pressures and increased competition.
Currently, the project remains in the proof-of-concept phase, but the bank plans to commercialize it in the future.
“The investments we will make over the next two to three years and the investments we have made over the past two to three years will be the cornerstone for a good commercial future,” Anand added.
This platform is part of the Monetary Authority of Singapore’s (MAS) Project Guardian. Through this joint effort, policymakers aim to explore tokenization use cases across fixed income, asset management, and foreign exchange.
Deutsche Bank joined Project Guardian on May 14 to test the feasibility of asset tokenization applications in regulated markets.
Other major names working with MAS include JPMorgan Chase & Co., DBS Group, Ant International, Standard Chartered Plc and T. Rowe Price Group. The goal is to develop industry standards for tokenization in areas such as cross-border foreign exchange payments and bond trading.
Deutsche Bank is optimistic about blockchain, but the same cannot be said about its prospects for cryptocurrencies. The bank’s recent report questioned Tether’s stability and solvency, highlighting concerns about transparency and the risks of unpegging.
Tedder dismissed these claims, criticizing the report for lack of clarity and substantive evidence.