Coinspeaker Blockchains Can Help Combat Margin Pressure: Deutsche Bank
Deutsche Bank AG, a leading banking institution based in Germany, has recognized the potential of blockchain technology. Notably, the banking institution aims to address margin compression across the financial services industry.
As per a report from Bloomberg, Deutsche Bank has begun testing on a platform based on the Ethereum network.
It is important to note that the platform is designed to offer digital services for tokenized funds under Project Guardian, an initiative led by the Monetary Authority of Singapore (MAS) to explore the benefits of blockchain tech in enhancing liquidity and efficiency.
Anand Rengarajan, Deutsche Bank’s Asia-Pacific and Middle East head of securities services and global head of sales, said that blockchain tech can be of substantial benefit in combating marginal compressing, adding:
“It will help us stay relevant, because with the kind of margin compression impacting the overall financial services industry, the only way one can survive is by innovating.”
Through its Ethereum-based platform, Deutsche Bank aims to offer record-keeping services that help issuers of tokenized funds monitor investors, custody arrangements, and valuations. Rengarajan emphasized the platform’s interoperability, enabling any fund manager to use it regardless of the blockchain underpinning their tokenized fund. Currently a proof-of-concept, the bank hopes to eventually commercialize the project.
Blockchain and smart contract-based solutions are promising technologies that can offer lower costs, reduce transaction times, and mitigate risk, noted the Deutsche Bank executive, while further adding:
“The investment that we will make over the next two to three years and what we made in the last two to three years should pave the way for a good commercial future.”
The popularity of smart contracts, self-executing software programs built on blockchains, has grown exponentially as traditional financial institutions such as Deutsche Bank have initiated programs to integrate such contracts into their services.
The financial industry, particularly fund managers, has been grappling with persistent downward pressure on fee income. Passive investment products are increasingly capturing market share, squeezing traditional revenue streams. A study by Boston Consulting Group revealed that the average asset management fee dropped to 22 basis points in 2023, down from 25 basis points in 2015 and 26 basis points in 2010.
Project Guardian and Industry Collaboration
Project Guardian represents a collaborative effort by policymakers and financial firms to explore the use cases of tokenization in areas such as fixed income, asset management, and foreign exchange.
The initiative, which supports Singapore’s ambition to become a global blockchain hub, includes participation from major players like JPMorgan Chase & Co, DBS Group, Ant International, Standard Chartered Plc, and T. Rowe Price Group.
These major financial institutions are working to set standards for tokenization in cross-border forex settlements and bond trading. Another leading banking firm, Citigroup Inc recently projected that the tokenization market could grow to $5 trillion by 2030. While the projections are optimistic, the tokenization industry is still budding and needs to tackle various challenges.
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Blockchains Can Help Combat Margin Pressure: Deutsche Bank