German banking giant builds Ethereum L2 to simplify asset services

Source: Blockchain Knights

Deutsche Bank is building an Ethereum-based L2 blockchain to address regulatory barriers that financial institutions face when using public blockchains, Bloomberg News reported Dec. 17.

The platform, called Project Dama2, represents the German banking giant’s attempt to leverage the potential of blockchain technology while minimizing the risks associated with public ledgers, which often inadvertently trade with sanctioned entities or criminals.

The project was launched as a pilot in November to simplify asset servicing.

Project Dama2 leverages ZKsync’s zero-knowledge proof (zkp) technology to provide cheaper and more efficient transactions.

In addition, the use of zkp also provides greater privacy and customized services for institutional users developed on Deutsche Bank’s proprietary blockchain. Crypto asset companies Memento Blockchain and Interop Labs are assisting in the development of the platform.

It is worth noting that Project Dama2 is part of the Monetary Authority of Singapore's Guardian project, which shows that traditional financial players are increasingly interested in blockchain-based asset services and tokenization solutions.

JPMorgan Chase executed its first transaction on a public blockchain at the end of 2022, which is also part of the Guardian project. 

Meanwhile, traditional financial giants such as BlackRock and Franklin Templeton have tokenized money funds with a total market value of more than $1 billion. 

Public blockchains provide huge efficiencies for regulated lenders.

In addition, Ethereum is also an infrastructure favored by institutions, accounting for 81% of the tokenization of real-world assets (RWA).

However, the report points out that these advantages are accompanied by uncertainty about transaction validators, transaction fees that may reach sanctioned entities, and the risk of unforeseen blockchain hard forks that may interrupt business.

The solution found by Deutsche Bank is to add its own L2 blockchain to it.

Boon-HiongChan, head of industry application innovation for Asia Pacific at Deutsche Bank, said: "Using L2 should be able to solve some of the regulatory issues."

Therefore, while connecting to Ethereum, Project Dama2 also allows banks to avoid some of the so-called risks inherent in public blockchains.

Deutsche Bank hopes to provide a safer and more compliant blockchain experience by creating a carefully curated list of transaction validators and providing various tools to give regulators exclusive "super management permissions."