Alternative avenues: The Deutsche Bank office building in Singapore. The German lender is testing a platform based on the ethereum network, looking for an opportunity to respond to the margin compression across financial services. — Bloomberg
SINGAPORE: The blockchain technology underlying the digital asset sector provides an opportunity for banks to respond to the margin compression across financial services, according to Deutsche Bank AG.
The German lender recently began testing a platform based on the ethereum network, crypto’s key commercial highway.
The platform offers digital services for tokenised funds through Project Guardian, a Monetary Authority of Singapore initiative exploring potential liquidity and efficiency benefits from blockchains.
“It will help us stay relevant, because with the kind of margin compression impacting the financial services industry, the only way one can survive is by innovating,” said Anand Rengarajan, the bank’s Asia-Pacific and Middle East head of securities services and global head of sales.
Blockchain and smart contract-based solutions can lower costs, transaction times and risk, he added.
Smart contracts are self-executing software programmes built on top of blockchains to help deliver financial services.
Fund managers face continued downward pressure on fee income as passive investment products capture greater swathes of the market.
The average asset management fee in 2023 was 22 basis points, down from 25 basis points in 2015 and 26 basis points in 2010, according to a study by Boston Consulting Group.
Project Guardian is a collaborative effort by policymakers and finance firms to explore tokenisation use cases across fixed income, asset management and foreign exchange – and a cornerstone in Singapore’s efforts to establish itself as a global blockchain hub.
First unveiled two years ago, companies experimenting under the initiative include JPMorgan Chase & Co, DBS Group, Ant International, Standard Chartered Plc and T. Rowe Price Group. They are aiming for industry standards for tokenisation in areas like cross-border foreign exchange settlement and bond trading.
Tokenisation refers to the process of creating blockchain-based representations of real world assets.
Citigroup Inc has estimated the tokenisation market could swell to US$5 trillion by 2030, spanning the likes of bonds, property and private equity. The sector remains a nascent one and unproven at scale.
Through its platform, Deutsche Bank will offer record-keeping services to help issuers of tokenised funds keep tabs on investors, custody arrangements and valuations, according to Rengarajan.
The service is meant to be interoperable so that any fund manager can use it regardless of what blockchain underpins their tokenised fund.
The project remains a proof-of-concept for now, Rengarajan added, but ultimately the bank hopes to commercialise it.
“The investment 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.”
Deutsche Bank partnered with Swiss crypto technology firm Taurus SA last year to begin work on a digital asset custody service. — Bloomberg
