Traditional banks have entered Layer 2. Deutsche Bank is built based on ZKsync and has tested multiple use cases.

Author:Weilin , PANews

Traditional financial institutions have also begun to move towards Layer 2. Boon-Hiong Chan, head of industry application innovation in the Asia-Pacific region of Deutsche Bank, recently revealed to the outside world that Deutsche Bank is launching a Layer 2 solution based on Ethereum. The project is called Project Dama 2, and its beta version has been launched in November. , is expected to be officially launched next year after regulatory approval.

This move not only marks the further exploration of traditional financial institutions in the field of blockchain, but may also start a new trend in which secure and compliant blockchain solutions are introduced into the core of traditional finance, further increasing the adoption rate.

Built on ZKsync Stack, multiple use cases are being tested

Deutsche Bank’s Project Dama 2 is also part of Singapore’s Monetary Authority of Singapore (MAS) Project Guardian. It is a collaborative initiative between policymakers and the financial industry that aims to increase the liquidity and efficiency of financial markets through the tokenization of assets.

A total of 27 industry institutions participated in Project Guardian, including Ant Group, ANZ, Bank of New York Mellon, Citibank, DBS Bank of Singapore, Fidelity, Franklin Templeton, HSBC, JPMorgan Chase, Moody's, UBS, Standard Chartered Bank, S&P Global, etc. In addition, it also includes a series of associations and cooperative organizations, such as SWIFT, as well as policy-making institutions such as central banks and the World Bank.

Memento Blockchain and Interop Labs are Deutsche Bank’s technology partners helping Project Dama 2 develop its minimum viable product. Specifically, Memento Blockchain has developed a fully functional testnet of the public permissioned chain Memento ZKchain. The testnet is built on the ZKsync Stack, supported by Matter Labs, and achieves cross-chain interoperability through the Axelar network, powered by Interop Labs.

Memento ZKchain’s main features include:

· Digital identity based on Soulbound Token : a secure and immutable identity system for permission management and facilitating KYC, AML, sanctions checks and investor suitability testing.

· Paymaster function : designed to simplify gas fee management through traditional payment channels and provide a clear audit trail for gas fee payments.

· Customized blockchain browser : Designed specifically to manage on-chain transaction confidentiality while retaining full regulatory review capabilities.

· Creation and issuance of tokenized funds : realized through the Domani Protocol decentralized application (dApp), supporting the creation and distribution of tokenized traditional investment funds, hybrid funds that combine digital and traditional assets, or completely native digital funds.

In addition, Interop Labs has implemented comprehensive cross-chain connectivity between the Memento ZKchain testnet and Avalanche Fuji and Stellar through the Axelar network. This feature supports integration with more than 69 blockchain networks, improving the accessibility, security scalability, and customization capabilities of financial applications.

Currently, the project team of Project Dama 2 is testing multiple use cases, including the issuance and distribution of tokenized funds on a single or multiple blockchains, the interoperability of digital assets and digital cash circulation, as well as for improving asset security and Near real-time settlement for operational efficiency.

Explore compliance challenges for financial institutions using public

blockchains

Deutsche Bank’s upcoming Layer 2 is designed to address the compliance challenges faced by financial institutions when using public blockchains, such as unclear identities of transaction validators, fees flowing to sanctioned entities, and hard fork risks.

Its project leader believes that public chains such as Ethereum are full of risks for regulated lending institutions. These include the inability to determine "who is actually validating these transactions," whether transaction fees may be paid to sanctioned entities, and the threat of significant changes to the ledger due to unforeseen hard forks.

And Layer 2 components may allow banks to freely experiment with public chains. This will enable banks to customize a “more personalized list of validators” who process digital asset transactions to earn rewards. Other benefits include the possibility of giving regulators – and regulators only – “super admin rights”, meaning they can scrutinize fund flows if necessary. “By using a dual-chain architecture, many of these regulatory concerns should be able to be addressed,” he said.

Advocates including Deutsche Bank see blockchain as an opportunity to combat margin compression in the financial services industry. However, some questions remain about how deeply banks should be involved in the crypto ecosystem.

Crucially, crypto industry insider AdrianoFeria.eth believes that the level of regulatory compliance required by these agencies is impossible to achieve on any Layer 1 blockchain. For institutions that require strict oversight and interoperability, the only pragmatic options are to run their own private, permissioned Layer 1 chain, or to leverage Ethereum’s L2 ecosystem.

Deutsche Bank is continuing to expand in the encryption field

Deutsche Bank will make frequent moves in the crypto field in 2024. Back in June, Deutsche Bank provided BitPanda with an API-based account solution, giving it access to the German International Bank Account Number (IBAN), an internationally recognized code that helps banks securely process international transfers. BitPanda plans to use this service to improve the efficiency and security of fund transfers.

In addition, Deutsche Bank also provides crypto market maker Keyrock with multi-currency accounts and foreign exchange services to help it optimize and expand market making and over-the-counter (OTC) services in the EMEA, APAC and LATAM regions. On November 27, Deutsche Bank joined Partior, a Singapore-based blockchain financial technology company, in its Series B financing as a strategic investor, supporting Partior in expanding its cross-border settlement capabilities and developing functions such as instant foreign exchange swaps and multi-bank payments.

On December 10, Deutsche Bank also announced a partnership with Crypto.com to provide corporate banking services in Singapore, Australia and Hong Kong. Both parties plan to further expand the scope of cooperation in the future.

For now, while some traditional banks were initially wary of blockchain technology, concerned about its instability and regulatory uncertainty, the maturation of the cryptocurrency ecosystem now provides banks with the opportunity to reimagine traditional financial services. Opportunity.

For example, in November this year, UBS announced the creation and piloting of a blockchain-based payment solution, UBS Digital Cash. In the same month, JP Morgan announced its blockchain The platform underwent a major upgrade, and the platform was renamed Kinexys from Onyx. According to JPMorgan, JPMorgan’s blockchain business has executed more than $1.5 trillion in transactions since its inception in 2020, including intraday repurchases and cross-border payments, with an average daily processing volume of more than $2 billion. Its users include global enterprises such as Siemens, BlackRock and Ant International.

In general, as crypto industry insider Adriano Feria.eth pointed out, Deutsche Bank’s entry into Ethereum L2 may not be a separate experiment, but part of a broader trend that may make it more secure and compliant in the future. Blockchain solutions introduce the core of traditional finance. Other members of Singapore’s Project Guardian may also follow this initiative and push more traditional financial institutions to embrace Web3 technology and blockchain solutions.