German banking giant Deutsche Bank sees blockchain technology as a way to mitigate margin compression.
A new report claims that Deutsche Bank is testing an unnamed Ethereum-based platform that the bank says will offer services centered around tokenized funds.
Tokenization is the process of creating a blockchain-based representation of real-world assets, and Citigroup predicts the tokenization market, covering fixed income, real estate and private equity, will reach $5 trillion by 2030.
The bank will use the platform to provide record-keeping services to tokenized fund issuers to manage investor information, and the platform is interoperable and can be used by any fund manager regardless of the underlying blockchain.
According to Anand Rengarajan, head of securities services and global sales for Asia Pacific and the Middle East at the bank, using blockchain and smart contract-based solutions will enable the German banking giant to reduce costs, transaction times and overall risk.
“Innovation will help us remain relevant as with the margin compression that is impacting the entire financial services industry, the only way to survive is to innovate,” Anand said.
Margin compression refers to the decline in profit margins in financial services due to rising costs, regulatory pressures and increased competition.
At the moment the project is still in the proof-of-concept stage, but the bank plans to commercialize it in the future.
“The investments we will make in the next two to three years and those we have made in the past two to three years should pave the way for a good commercial future,” Anand added.
The platform is part of the Monetary Authority of Singapore's (MAS) Project Guardian, a collaboration that aims to encourage policymakers to explore use cases for tokenization in the fixed income, asset management and foreign exchange sectors.
Deutsche Bank joined Project Guardian on May 14 to test the feasibility of asset tokenization applications in regulated markets.
Other major companies working with MAS include JPMorgan Chase, DBS Group, Ant International, Standard Chartered and T. Rowe Price Group Inc. The goal is to develop industry standards for tokenization in areas such as cross-border foreign exchange settlements and bond trading.
Deutsche Bank is bullish on blockchain but does not share the same view on cryptocurrencies, with a recent report from the bank casting doubt on Tether's stability and solvency and highlighting concerns about transparency and the risk of an unpegging event.
Tether denies the allegations and criticized the report for lacking clarity and substantive evidence.
