Deutsche Bank attempts to solve public blockchain compliance barriers, pilot project Project Dama 2 incorporates L2

Deutsche Bank AG is working to address regulatory challenges that financial institutions face when trying to use public blockchains, such as the risk of inadvertently transacting with criminals or sanctioned entities. The bank launched a beta version of Project Dama 2, an asset servicing pilot, in November, which includes Layer 2. Boon-Hiong Chan, head of industry application innovation for Asia Pacific at Deutsche Bank, said in an interview that the bank's Layer 2 is connected to Ethereum. Chan said public blockchains such as Ethereum are fraught with risks for regulated lenders. These include not knowing "who is actually validating the transaction," whether transaction fees will be paid to sanctioned entities, and the threat of unforeseen hard forks, while "with two chains, many regulatory issues should be resolved." Dama 2 is part of the Monetary Authority of Singapore's "Project Guardian," an initiative involving 24 large financial institutions to test ways to tokenize assets using blockchain technology. Supporters, including Deutsche Bank, see blockchain as an opportunity to address margin compression in financial services. However, there are still questions about the extent to which banks should be involved in the crypto ecosystem. The Dama 2 platform was developed in partnership with cryptocurrency firms Memento Blockchain Pte. and Interop Labs and is built using ZKsync technology. The bank hopes to launch it as a minimum viable product next year, subject to regulatory approval. According to Chan, its Layer 2 component gives banks the freedom to experiment with public blockchains, will allow them to curate “a more customized list of validators,” and other benefits include the potential to give regulators (and only regulators) “super admin privileges,” meaning they can review fund movements if necessary. “You’re no longer dependent on L1 for detailed transaction records,” Chan said. (Bloomberg)