Deutsche Bank is developing a Layer 2 solution on Ethereum to address regulatory challenges for financial firms using public blockchains. The project, part of its “Project Dama 2,” aims to mitigate risks of interacting with illicit entities in blockchain ecosystems.
A December 18 Bloomberg story claims that Deutsche Bank AG, a major German bank, is now constructing a “so-called” Layer 2 for a public network. The project aims to resolve regulatory obstacles that financial firms encounter when attempting to integrate public blockchains into their operations, according to the lender.
A test version of Project Dama 2, which incorporates a Layer 2 built on the Ethereum network—the second-largest cryptocurrency network by market capitalization behind Bitcoin (BTC)—was made public by Deutsche Bank last month.
Deutsche Bank Permission Status
The bank is still awaiting regulatory permission, but Chan told Bloomberg that it hopes to introduce the product as a minimum viable by next year. “Using two chains, a number of these regulatory concerns should be able to be satisfied,” Chan said.
According to Chan, banks may be able to investigate new prospects in public blockchains by using the integrated Layer 2 to create a “more bespoke list of validators” who will handle transactions involving digital assets in order to receive incentives.
He added that regulators may be granted “super admin rights,” which would enable them to keep an eye on the flow of money across the blockchain and identify any illegal activity.
“You are not dependent on the Layer 1 for detailed transaction records anymore,” said Chan.
Project Dama 2 is a component of Project Guardian, a much bigger effort created by the Singaporean Monetary Authority.
Project Guardian unites 24 top financial institutions investigating blockchain-based asset tokenization. However, the idea has sparked debate over how far banks are prepared to go in the cryptocurrency space.
In particular, partnerships with the cryptocurrency companies Memento Blockchain and Interop Labs gave rise to the Dama 2. ZKsync technology was used in the platform’s construction.
Deutsche Bank declared in May 2024 that it was testing an unidentified Ethereum-based platform. The platform will provide services focused on tokenized funds, according to the bank.
Together with other significant financial institutions like JPMorgan Chase & Co., DBS Group, and Ant International, among others, Deutsche Bank joined Project Guardian on May 14 with the goal of evaluating the viability of asset tokenization.