Deutsche Bank Tests Tokenized Funds on Public Blockchain – Ledger Insights
Today, Deutsche Bank Singapore released a report on a proof of concept (PoC) with the Memento Blockchain to provide a platform for asset managers to issue tokenized funds. Project DAMA (Digital Assets Management Access) includes some new features, especially the ability to provide mass customization of the fund.
The solution was awarded a grant from the Monetary Authority of Singapore as part of the Financial Sector Technology and Innovation (FSTI) programme.
DAMA does not aim to interrupt the fund issue or administration process. It still involves asset managers and transfer agents, with custodians taking on multiple roles, such as enabling digital cash.
A key function, however, is the ability to serve all the different roles in fund management from a single solution.
Transfer agents will provide an investor with a digital identity as a soul-bound token. With KYC data stored offline, this will enable the user to invest in any fund operated by the platform without having to repeat the KYC process.
Blockchain data will be the primary source of investors’ ownership, with an API enabling the transfer agent to maintain traditional records to comply with applicable laws.
Bleeding cutting edge of blockchain innovation
One of the promises of blockchain and tokenization is the ability to enable fund matching. The mass adjustment described in the report is more about rebalancing. For example, if the original fund has a certain proportion of stocks and bonds, changes in values may require the asset manager to rebalance the fund to maintain these proportions. One form of adjustment is if the user chooses to keep the original share instead of rebalancing it. Mass customization is seen as a way for asset managers to attract and retain investors.
The tokens are issued on the public Ethereum blockchain and investors can subscribe in various ways, including minting a token directly or a user investing via a decentralized exchange (DEX). Memento has its own DEX, ComboSwap, a crypto token, and the Domani protocol, a fund management solution that appears to have formed the basis of the PoC.
One of the issues discussed in the report is the potential for cryptocurrency-based funds. Memento’s market research indicates growing interest from institutional investors, but they are held back by a reluctance to self-custody and a lack of choice in digital asset custodians. That seems to be a key target for PoC because Deutsche Bank can play that role.
Meanwhile, Deutsche Bank Group’s interest in crypto and asset management extends to asset management subsidiary DWS, which is reportedly considering digital asset acquisitions.
Fund distribution firms such as Calastone, Allfunds and FundsDLT have been involved in the sector for several years. But in the past year several key asset managers and administrators have shown interest, including KKR, Vanguard, abrdn, Hamilton Lane and Apex.
