Deutsche Bank AG has announced its strategic entry into blockchain technology as a potential solution for the margin compression challenges affecting the financial services industry, as reported by Bloomberg News on May 29.

The German banking giant is involved in Singapore’s Project Guardian, led by the Monetary Authority of Singapore, which aims to leverage blockchain's advantages in financial markets. Deutsche Bank is currently testing a new platform on the Ethereum network designed to offer services for tokenized funds under this initiative.

Anand Rengarajan, Deutsche Bank’s head of securities services in Asia-Pacific and Middle East, as well as global head of sales, stressed the importance of adopting innovative technologies, stating:

"Blockchain will play a critical role in helping us maintain competitiveness amidst margin compression in the financial services sector."

Rengarajan noted that blockchain and smart contract-based solutions can significantly cut costs, speed up transactions, and reduce risks.

Amid fee compression in the asset management industry driven by the rise of passive investment products, a Boston Consulting Group report shows a decline in average asset management fees from 26 basis points in 2010 to 22 basis points in 2023.

Project Guardian is a collaborative effort involving policymakers and financial institutions to explore tokenization in fixed income, asset management, and forex. It supports Singapore's aspiration to become a global blockchain hub, with participants including major firms like JPMorgan Chase, DBS Group, Ant International, Standard Chartered, and T. Rowe Price Group. They aim to establish industry standards for tokenization, particularly in cross-border forex settlement and bond trading.

Looking ahead, tokenization involves creating digital representations of real-world assets on a blockchain. Citigroup estimates the tokenization market could reach $5 trillion by 2030, covering assets such as bonds, real estate, and private equity. Despite its potential, tokenization is still in early stages and needs further validation at scale.

Deutsche Bank's new platform intends to provide comprehensive record-keeping services for issuers of tokenized funds, facilitating investor management, custody arrangements, and valuations. Currently in a proof-of-concept stage, the platform is expected to move towards commercialization in the future.

Rengarajan highlighted the platform's interoperability, enabling fund managers to use it regardless of the underlying blockchain technology, stating:

"We are making substantial investments in this technology over the next few years, building on our foundational work. This positions us well for a promising commercial future."

In 2023, Deutsche Bank collaborated with Swiss crypto technology firm Taurus SA to develop a digital-asset custody service, underscoring a broader trend among major financial institutions exploring commercial applications of blockchain and crypto technologies.