Deutsche Bank explores tokenized funds to survive margin compression

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Blockchain technology can enable banks to stay competitive and profitable as revenue from margin fees continues to drop, says Deutsche Bank.

Deutsche recently announced that it had joined Project Guardian, a project by the Monetary Authority of Singapore (MAS) that explores asset tokenization on public blockchains.

The project is a collaboration between regulators and financial institutions, including the U.K.’s Financial Conduct Authority (FCA), the Banque de France, and Japan’s Financial Services Agency (FSA). Private sector members include JPMorgan (NASDAQ: JPM), Standard Chartered (NASDAQ: SCBFF), SGX Group, HSBC (NASDAQ: HSBC), BNY Mellon (NASDAQ: BK) and China’s Ant Group.

Deutsche is testing a platform that offers digital services for tokenized funds that was launched through Project Guardian. The bank believes that initiatives like this can enable it to weather margin pressure, says global head of sales Anand Rengarajan.

“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,” Rengarajan told Bloomberg.

Deutsche is exploring using smart contracts to reduce transaction time, lower costs, and insulate the bank against unforeseen risks.

For now, Rengarajan revealed that the bank is testing a platform that offers record-keeping services for issuers of tokenized funds, allowing them to monitor investors, valuations, fund custody, regulatory arrangements, and more.

The platform is blockchain-agnostic, allowing fund managers to plug it into any blockchain of their choice. It currently exists as a proof-of-concept, but the lender intends to commercialize it by the time tokenized funds become popular.

“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,” added Rengarajan, who also doubles as the bank’s head of securities services for Asia-Pacific and the Middle East.

Asset managers are being forced to explore technology, including blockchain, for extra income sources and to reduce costs as their traditional business models continue to be disrupted. According to the Boston Consulting Group (BCG), profits for fund managers dipped 8% last year despite assets under management increasing by 12%.

Deutsche Bank has been investing heavily in digital assets and blockchain. Last year, it partnered with Swiss firm Taurus to offer digital asset custody; a few months later, Germany’s largest federal bank announced a similar offering. It also launched a euro stablecoin in 2023 through its asset management arm, DWS.

Watch: Tokenized was built with blood, sweat and tears