Deutsche Bank, a global investment bank based in Germany, is currently working on a solution to address the regulatory challenges faced by financial institutions when utilizing public blockchains. According to a report by Bloomberg, the bank is developing a layer-2 blockchain on the Ethereum platform to tackle concerns such as inadvertently engaging with criminals and sanctioned entities.
This layer-2 chain is being integrated into the firm’s Project Dama 2, a multi-chain asset servicing pilot that is part of the Monetary Authority of Singapore’s Project Guardian initiative. The initiative involves collaboration with 24 major financial institutions to explore asset tokenization.
Boon-Hiong Chan, Deutsche Bank’s Asia-Pacific industry applied innovation lead, highlighted the risks associated with public blockchains like Ethereum for regulated lenders. These risks include uncertainty about who validates transactions, worries about paying transaction fees to sanctioned entities, and the potential threat of unforeseen hard forks.
Chan explained that the layer-2 solution aims to mitigate these concerns by allowing banks to customize a list of validators and potentially granting regulators super admin rights to monitor fund movements closely. This approach would provide a more tailored and secure environment for financial transactions.
The bank conducted a test version of Dama 2 in November and is aiming to launch a minimum viable product by the following year. By leveraging two chains, Deutsche Bank believes that many regulatory challenges can be effectively addressed, reducing reliance on the layer-1 blockchain for transaction records.
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In conclusion, Deutsche Bank’s innovative approach to developing a layer-2 blockchain solution on Ethereum demonstrates the bank’s commitment to addressing regulatory concerns in the financial sector. By leveraging advanced technologies, the bank aims to enhance security, transparency, and compliance for its clients and regulators.