Deutsche Bank is making strides in the world of blockchain technology with the development of a Layer 2 under an asset-servicing pilot project known as Dama 2. This initiative is part of the bank’s efforts to address regulatory challenges faced by institutions seeking to leverage public blockchains in their operations.
According to a recent report by Bloomberg, Deutsche Bank AG is currently working on building a Layer 2 for a public network, with the aim of overcoming regulatory obstacles that hinder financial firms from fully embracing public blockchains. The bank recently unveiled a test version of Project Dama 2, which includes a Layer 2 built on the Ethereum network, the second-largest cryptocurrency network in the world.
Boon-Hiong Chan, Deutsche Bank’s Asia-Pacific industry applied innovation lead, highlighted the risks associated with public blockchains such as Ethereum, including concerns about interacting with criminal or sanctioned entities within the ecosystem. These concerns stem from uncertainties surrounding transaction validation and the potential for transaction fees to benefit sanctioned entities. Chan also pointed out the threat of a “hard fork” in the blockchain ecosystem that could disrupt the digital ledger.
To address these regulatory concerns, Deutsche Bank is exploring the use of two chains, which could help mitigate risks and provide a more secure environment for financial institutions. Chan emphasized that the Layer 2 developed as part of Project Dama 2 could open up new opportunities for banks to engage with public blockchains and customize a list of validators for processing digital asset transactions.
In addition, regulators could be granted “super admin rights” to monitor fund movements within the blockchain and identify any illicit activities. By utilizing a built-in Layer 2, banks are no longer solely reliant on Layer 1 for transaction records, offering a more efficient and secure way to manage digital asset transactions.
Project Dama 2 is part of a larger initiative called Project Guardian, led by the Monetary Authority of Singapore, which brings together 24 financial firms to explore asset tokenization using blockchain technology. Deutsche Bank collaborated with crypto firms Memento Blockchain and Interop Labs to develop the Dama 2 platform, utilizing ZKsync technology.
Deutsche Bank’s involvement in Project Guardian began in May 2024, when the bank announced plans to test an Ethereum-based platform for tokenized funds. By joining forces with other major banking institutions like JPMorgan Chase & Co., DBS Group, and Ant International, Deutsche Bank is at the forefront of exploring the potential of blockchain technology in the financial sector.