The asset servicing project of Deutsche Bank AG, the German behemoth, is reported to be creating a Layer 2 blockchain, Dama 2, as part of its LBVA program. The aim of this is to facilitate institutions that want to integrate public blockchains into their operations, a Bloomberg report said.
The new Layer 2 solution being built to run on Ethereum, the world’s second largest cryptocurrency network by market capitalisation, is part of a wider initiative to ensure blockchain transactions are compliant. Deutsche Bank’s commitment to helping pioneer institutional adoption of blockchain came in the form of the test version of Dama 2, which was launched last month, addressing concerns over transparency and security.
Deutsche Bank Tackles Blockchain Risks with Layer 2
Deutsche Bank’s Asia-Pacific industry applied innovation lead Boon-Hiong Chan cautioned about the regulatory risks of public blockchains such as Ethereum. One of the risks in this process is dealing with illicit entities and, in some cases, transaction validation.
Chan told Bloomberg that such institutional firms are afraid they don’t know who the parties to transactions are really and that fees could end up in the hands of sanctioned entities. He also warned about the inherent unpredictability of “hard forks” to public blockchains that could erode the integrity of digital ledgers.
With a Layer 2 solution on board, Chan says he hopes to alleviate many of these regulatory concerns. To this effect, the bank relies on using two blockchain layers in order to give institutions more control and transparency of their transactions. Chan said a bespoke list of validators can be created to process transactions securely, and rewards can be given accordingly.
The Layer 2 platform also features features aimed at appeasing regulators, according to Deutsche Bank. For example, the proposed system might provide regulators with “super admin rights” the ability to watch transactions and spot illicit activity.
“You are not dependent on Layer 1 for detailed transaction records anymore,” said Chan.
Once approved by the regulator, the bank plans to roll out Dama 2 as a minimum viable product next year.
Developed in cooperation with the blockchain firms Memento Blockchain and Interop Labs, Dama 2 was built on top of ZKsync technology to make the system more scalable and efficient. The Monetary Authority of Singapore spearheaded this initiative, and this is part of a larger framework called Project Guardian.
Twenty-four major financial institutions, such as Deutsche Bank, JPMorgan Chase, DBS Group, and Ant International, team up to seek out tokenization and blockchain integration under Project Guardian.
On May 14, 2024, Deutsche Bank officially partners with Project Guardian to help propel tokenized financial services. Back in March, the bank announced that it was testing an Ethereum-based platform that would help support tokenized funds.
Deutsche Bank wants to fill a gap between traditional finance and blockchain technology with Dama 2. By meeting institutional concerns and conforming to regulatory standards, the project could help guide the way for wider use of public blockchain in the finance industry.
But how much do banks get involved with blockchain and crypto is a topic of discussion. The industry watches as Deutsche Bank and other financial giants like JPMorgan Chase try out the tokenization of assets and ponder what will befall the face of digital finance.
