German banking giant builds Ethereum L2 to simplify asset services

Source: Blockchain Knight

According to a report by Bloomberg News on December 17, Deutsche Bank is building an L2 blockchain based on Ethereum to solve the regulatory obstacles faced by financial institutions when using public blockchains.

The platform, called Project Dama2, represents the German banking giant's attempt to harness the potential of blockchain technology while minimizing the risks associated with public ledgers, which can often be inadvertently linked to sanctioned entities or Criminals make deals.

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

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

In addition, using zkp can provide higher privacy and customized services to institutional users developed on Deutsche Bank's proprietary blockchain. Crypto asset firm Memento Blockchain and Interop Labs are assisting in the development of the platform.

Notably, Project Dama2 is part of the Monetary Authority of Singapore’s Guardian project, demonstrating the growing interest among traditional financial players in blockchain-based asset services and tokenization solutions.

JPMorgan executed the first trade on a public blockchain in late 2022 as part of the Guardian project.

At the same time, traditional financial giants such as BlackRock and Franklin Templeton have tokenized money funds, with a total market value exceeding US$1 billion.

Public blockchain offers huge efficiencies to 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 notes that these advantages come with uncertainty about transaction validators, transaction fees potentially reaching sanctioned entities, and the risk of unforeseen blockchain hard forks that could disrupt business.

The solution Deutsche Bank found was to add its own L2 blockchain to the mix.

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

Deutsche Bank hopes to provide a more secure and compliant blockchain experience by creating a curated list of transaction validators and providing tools to give regulators exclusive “super admin rights.”