Deutsche Bank is building an Ethereum-based layer 2 blockchain to address regulatory hurdles financial institutions face using public blockchains, Bloomberg News reported on December 17.
The platform, dubbed Project Dama 2, represents the German banking giant’s attempt to harness the potential of blockchain technology while minimizing the risks associated with public ledgers, which can often inadvertently transact with sanctioned entities or criminals .
The project, unveiled in November on a pilot basis, is designed to streamline asset management. It leverages ZKsync’s Zero Knowledge Proof (zkp) technology to provide cheaper and more efficient transactions.
Additionally, the use of zkp will enable improved privacy and personalization for institutional users developing on Deutsche Bank’s proprietary blockchain. Crypto companies Memento Blockchain and Interop Labs are contributing to the development of the platform.
Notably, the Dama 2 project is part of the Monetary Authority of Singapore’s Guardian Project, reflecting a growing interest from traditional financial players in blockchain-based asset management and tokenization solutions.
JPMorgan executed its first transaction on a public blockchain in late 2022, also as part of Project Guardian, while Visa is explore the tokenization of fiat currencies for traditional banks.
Meanwhile, traditional finance giants such as BlackRock and Franklin Templeton have tokenized money market funds with a combined market capitalization of over $1 billion.
TradFi leverages blockchain
Public blockchains offer immense efficiency to regulated lenders. Ethereum is the infrastructure of choice for institutions, as it dominates 81% of real-world asset (RWA) tokenization.
However, the report highlights that these benefits come with uncertainty over who validates transactions, the possibility of transaction fees reaching sanctioned entities, and the risk of unforeseen blockchain hard forks that could disrupt transactions. operations.
The solution Deutsche Bank found was to add its own layer 2 blockchain to the mix. Boon-Hiong Chan, Head of Industry Applied Innovation Asia Pacific at Deutsche Bank, said:
“By using two chains, a number of these regulatory concerns should be able to be satisfied.”
As a result, the Dama 2 project connects to Ethereum while allowing the bank to avoid some of the presumed risks inherent in public blockchains. By creating a curated list of transaction validators and offering tools to grant regulators exclusive “super administrator rights,” the bank hopes to provide a more secure and compliant blockchain experience.
