German banking giant Deutsche Bank AG sees blockchain technology as a means to ease margin compression.
A new report suggests Deutsche Bank is testing an Ethereum-based platform, the name of which has not been specified. According to the bank, the platform offers services around tokenized funds.
Tokenization is the process of creating blockchain-based representations of real-world assets. Citigroup Inc. estimates that the tokenization market could reach $5 trillion by 2030, spanning bonds, real estate and private equity.
The bank will use this platform to provide archiving services to help issuers of tokenized funds manage investor information. The platform is also interoperable, meaning any fund manager can use it regardless of the underlying blockchain.
According to Anand Rengarajan, head of securities services in Asia Pacific and the Middle East and global head of sales for the bank, using blockchain and smart contract-based solutions allows the German banking giant to reduce costs, transaction times and overall risk.
“It will help us stay relevant because with the kind of margin compression impacting the entire financial services industry, innovation is the only way you can survive,” Anand said.
Margin compression refers to the reduction in financial services profit margins due to higher costs, regulatory pressure and increased competition.
At the moment, the project is still a proof of concept, but the bank plans to commercialize it in the future.
“The investment we will make in the next two to three years and what we have done in the last two to three years should pave the way for a good commercial future,” Anand added.
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The platform is part of the Monetary Authority of Singapore’s (MAS) Project Guardian. Through this joint effort, policymakers aim to explore use cases for tokenization in the areas of fixed income, asset management and currencies.
Deutsche Bank engaged Project Guardian on May 14 in an effort to test the feasibility of tokenization applications for assets in regulated markets.
Other big names working with the MAS include JPMorgan Chase & Co., DBS Group, Ant International, Standard Chartered Plc and T. Rowe Price Group. The aim is to develop industry standards for tokenization in areas such as cross-border forex settlement and bond trading.
While Deutsche Bank is optimistic about blockchain, the same cannot be said about their view on cryptocurrencies. A recent report from the bank questioned Tether’s stability and solvency, highlighting concerns over transparency and the risk of event disconnection.
Tether rejected these claims and criticized the report for its lack of clarity and substantive evidence.
Read more: Banking professionals are shifting to the crypto sector amid growing blockchain adoption