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Deutsche Bank to develop Ethereum layer-2 blockchain to tackle TradFi compliance issues

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Deutsche Financial institution is constructing a layer-2 blockchain primarily based on Ethereum to resolve the regulatory hurdles monetary establishments face utilizing public blockchains, Bloomberg Information reported on Dec. 17.  

The platform, dubbed Undertaking Dama 2, represents the German banking big’s try to harness blockchain know-how’s potential whereas minimizing dangers related to public ledgers, which may typically inadvertently transact with sanctioned entities or criminals.

The venture, unveiled in November as a pilot, is designed to streamline asset servicing. It leverages ZKsync’s zero-knowledge proof (zkp) know-how to supply cheaper and extra environment friendly transactions. 

Furthermore, utilizing zkp will allow enhanced privateness and customization for institutional customers creating on Deutsche Financial institution’s proprietary blockchain. Crypto companies Memento Blockchain and Interop Labs are aiding the platform’s growth.

Notably, Undertaking Dama 2 is a part of the Financial Authority of Singapore’s Undertaking Guardian, which indicators a rising curiosity amongst conventional monetary gamers in blockchain-based asset servicing and tokenization options.

JPMorgan executed its first transaction on a public blockchain in late 2022, additionally as a part of Undertaking Guardian, whereas Visa is exploring the tokenization of fiat currencies for conventional banks.

In the meantime, conventional finance giants similar to BlackRock and Franklin Templeton have tokenized cash funds with a mixed market cap of over $1 billion.

TradFi leveraging blockchain

Public blockchains supply immense effectivity for regulated lenders. Ethereum is the favored infrastructure by establishments, because it dominates 81% of the tokenization of real-world property (RWA).

Nevertheless, the report identified that these advantages include uncertainty over who validates transactions, the opportunity of transaction charges reaching sanctioned entities, and the chance of unexpected blockchain laborious forks that might disrupt operations.

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The answer discovered by Deutsche Financial institution was including its personal layer-2 blockchain to the combo. Boon-Hiong Chan, Deutsche Financial institution’s Asia-Pacific trade utilized innovation lead, said:

“Utilizing two chains, numerous these regulatory considerations ought to be capable of be glad.”

In consequence, Undertaking Dama 2 connects to Ethereum whereas permitting the financial institution to sidestep a few of the alleged dangers inherent in public blockchains. By making a curated listing of transaction validators and providing instruments to offer regulators unique “tremendous admin rights,” the financial institution hopes to offer a safer and compliant blockchain expertise.

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