Deutsche Bank is building a Layer 2 solution under Project Dama 2 to address regulatory concerns around public blockchain adoption. The initiative is part of the bank’s broader strategy to make public blockchains viable for institutional use. This according to a report on Bloomberg.
Project Dama 2: A Solution for Public Blockchain Risks
The German banking giant has unveiled a test version of Project Dama 2, which includes a Layer 2 built on Ethereum. Ethereum, the second-largest cryptocurrency network, serves as the foundation for this new platform.
According to Boon-Hiong Chan, Deutsche Bank’s Asia-Pacific industry applied innovation lead, public blockchains pose risks for institutions. Concerns include unknowingly interacting with criminals or sanctioned entities and the unpredictability of blockchain hard forks.
“Using two chains, a number of these regulatory concerns should be able to be satisfied,” said Chan. The built-in Layer 2 will allow banks to curate a “bespoke list of validators” to process transactions and earn rewards.
Regulator-Friendly Features
Deutsche Bank aims to address compliance issues by integrating regulatory oversight into the Layer 2 system. Chan explained that regulators could receive “super admin rights” to monitor fund movements and detect illicit activities.
“You are not dependent on the Layer 1 for detailed transaction records anymore,” he added. The bank hopes to secure regulatory approval for a minimum viable product launch by next year.
Collaboration and ZKsync Technology
The Dama 2 platform is part of a larger initiative under Singapore’s Project Guardian, a collaboration of 24 financial firms exploring blockchain-based asset tokenization. Deutsche Bank partnered with Memento Blockchain and Interop Labs to develop the platform using ZKsync technology.
Project Guardian aims to test the feasibility of blockchain solutions for asset tokenization. Other participants include JPMorgan Chase, DBS Group, and Ant International.
Expanding Blockchain Applications
Deutsche Bank’s efforts align with its May 2024 announcement of an Ethereum-based platform for tokenized funds. The bank continues to explore blockchain’s potential to revolutionize traditional finance.
Chan believes the Layer 2 system will encourage banks to adopt public blockchains. “This technology can pave the way for new opportunities while meeting regulatory requirements,” he stated.
A Broader Move Toward Tokenization
Deutsche Bank’s participation in Project Guardian and its development of Project Dama 2 highlights its growing commitment to blockchain. The bank aims to solve regulatory hurdles while enabling secure and compliant use of public networks.
With Project Dama 2, Deutsche Bank moves closer to integrating blockchain into mainstream finance, signaling its readiness to lead in tokenized asset services.
