Key Points
Deutsche Bank is reportedly developing a Layer 2.
It’s part of an asset-servicing pilot project known as Dama 2.
The goal is to overcome regulatory obstacles for institutions wanting to use public blockchains.
According to a Bloomberg report published on Dec. 18, the bank is constructing a Layer 2 for a public network.
This project aims to solve regulatory difficulties for financial firms looking to integrate public blockchains into their operations.
In the previous month, Deutsche Bank launched a test version of Project Dama 2.
This project includes a Layer 2 built on the Ethereum (ETH) network, the second-largest cryptocurrency network following Bitcoin (BTC).
Concerns and Opportunities
Boon-Hiong Chan, Deutsche Bank’s Asia-Pacific industry applied innovation lead, stated that public blockchains like Ethereum pose risks for financial institutions entering the blockchain.
Firms are concerned about interacting with criminals or sanctioned entities in the ecosystem.
According to Chan, institutions are uncertain about “who exactly is validating the transactions”.
They also worry if transaction fees could end up with sanctioned entities.
Moreover, there’s a potential threat of a “hard fork” in the ecosystem that could drastically alter the digital ledger.
Chan told Bloomberg that using two chains should alleviate many of these regulatory concerns.
The bank is still awaiting regulatory approval, but it aims to launch the product as a minimum viable by next year.
Chan believes the built-in Layer 2 could open up new opportunities for banks within public blockchains.
This would allow them to create a “more bespoke list of validators” to process digital-asset transactions and earn rewards.
He also suggested that regulators could be granted “super admin rights”.
This would enable them to track the movement of funds within the blockchain to identify illicit transactions.
Project Dama 2 is part of a larger initiative by the Monetary Authority of Singapore called Project Guardian.
This project involves 24 leading financial firms exploring ways to use the blockchain to tokenize assets.
However, it has raised questions about how far banks are willing to venture into the crypto world.
Project Dama 2 was born from collaborations with crypto firms Memento Blockchain and Interop Labs.
The platform was developed using ZKsync technology.
In May 2024, Deutsche Bank announced it was testing an unnamed Ethereum-based platform.
The bank said this platform would provide services focused on tokenized funds.
Deutsche Bank joined Project Guardian on May 14.
It aims to test the feasibility of asset tokenization alongside other major banking firms such as JPMorgan Chase & Co., DBS Group, and Ant International among others.
