Deutsche Bank tests Ethereum-based platform to mitigate margin compression

German banking giant Deutsche Bank AG sees blockchain technology as a way to alleviate margin compression.

A new report suggests that Deutsche Bank is testing an unnamed Ethereum-based platform. According to the bank, the platform offers services focused on tokenized funds.

Tokenization is the process of creating blockchain-based representations of real-world assets. Citigroup Inc. estimates the tokenization market could reach $5 trillion by 2030, spanning bonds, property and private equity.

The bank will leverage this platform to provide record keeping services to help tokenized fund issuers manage investor information. The platform is also interoperable, ensuring that any fund manager can use it regardless of the underlying blockchain.

The German banking giant can reduce costs, transaction times and overall risk by using blockchain and smart contract-based solutions, according to Anand Rengarajan, the bank’s head of securities services for Asia-Pacific and Middle East and head of global sales.

“This will help us stay relevant because with margin compression affecting the overall financial services industry, the only way to survive is to innovate,” Anand said.

Margin compression means that financial services’ profit margins are shrinking due to rising costs, regulatory pressures and increased competition.

Currently, the project remains a proof of concept, but the bank plans to commercialize it in the future.

“The investments we will make in the next 2-3 years and what we have done in the last 2-3 years should pave the way for a good business future,” Anand added.

The platform is part of the Monetary Authority of Singapore (MAS)’s Project Guardian. Through this collaborative effort, policymakers aim to explore tokenization use cases across fixed income, asset management and foreign exchange.

Deutsche Bank acquired Project Guardian on May 14 to test the feasibility of asset tokenization applications in regulated markets.

Other important names collaborating with MAS include JPMorgan Chase & Co., DBS Group, Ant International, Standard Chartered Plc and T. Rowe Price Group. The aim is to advance industry standards for tokenization in areas such as cross-border forex clearing and bond trading.

Although Deutsche Bank is optimistic about blockchain, the same cannot be said for their perspective on cryptocurrencies. A recent report by the bank questioned Tether’s stability and solvency, highlighting concerns about transparency and the risk of de-pegging.

Tether denied these claims and criticized the report for its lack of clarity and solid evidence.