German banking behemoth, Deutsche Bank AG, sees blockchain technology as a solution to combat margin compression. In a recent report, the bank revealed that it is experimenting with an Ethereum-based platform, the specific name of which was not disclosed. This platform is designed to provide services focused on tokenized funds.
Tokenization involves creating digital representations of real-world assets on the blockchain. Citigroup Inc. predicts that the tokenization market could reach $5 trillion by 2030, encompassing bonds, real estate, and private equity.
Deutsche Bank intends to use this platform to offer record-keeping services to assist tokenized fund issuers in managing investor data. The platform is also designed to be interoperable, allowing fund managers to utilize it regardless of the underlying blockchain technology.
Anand Rengarajan, the bank’s Asia-Pacific and Middle East head of securities services and global head of sales, stated that by implementing blockchain and smart contract-based solutions, Deutsche Bank can lower costs, reduce transaction times, and minimize risks.
“It will help us maintain relevance in the face of margin compression affecting the financial services industry overall. Survival necessitates innovation,” Anand explained.
Margin compression refers to the decrease in profit margins in financial services due to rising costs, regulatory pressures, and heightened competition. While the project is currently in the proof-of-concept stage, the bank plans to commercialize it in the future.
Deutsche Bank’s participation in Project Guardian, a part of the Monetary Authority of Singapore’s initiatives, aims to explore tokenization applications in regulated markets. This collaborative effort includes other major institutions like JPMorgan Chase & Co., DBS Group, Ant International, Standard Chartered Plc, and T. Rowe Price Group, with the objective of establishing industry standards for tokenization in areas such as cross-border forex settlement and bond trading.
Despite its enthusiasm for blockchain technology, Deutsche Bank remains cautious about cryptocurrencies. A recent report from the bank raised concerns about the stability and solvency of Tether, citing transparency issues and the risk of de-pegging events. Tether, in response, refuted these claims, criticizing the report for lacking clarity and substantial evidence.
In the midst of growing blockchain adoption, banking professionals are transitioning to the crypto sector as financial institutions increasingly embrace innovative technologies.