Deutsche Bank’s Ethereum L2 Solution Aims to Minimize Risks for Banks
Deutsche Bank, Germany’s largest bank, has developed its own Ethereum Layer 2 (L2) solution to help banks minimize the risks associated with interacting with public blockchains. The solution, called “Dama 2,” utilizes ZKsync technology and is part of a Singapore tokenization project.
Addressing Regulatory Challenges
Deutsche Bank’s L2 solution is designed to address the regulatory challenges that financial institutions face when trying to use public blockchains. According to Boon-Hiong Chan, Asia-Pacific applied innovation leader at Deutsche Bank, public blockchains like Ethereum pose risks for regulated lenders, including not knowing who exactly is validating transactions. This could lead to transaction fees ending up in the hands of sanctioned entities.
Minimizing Risks and Ensuring Compliance
The bank’s solution provides regulators with special oversight to minimize risks such as interaction with sanctioned entities, aligning with financial compliance requirements. The L2 component allows for a more personalized list of validators, which can help satisfy regulatory concerns.
Collaboration and Technology
The “Dama 2” platform was developed in collaboration with cryptocurrency firms such as Memento Blockchain and Interop Labs, and utilizes ZKsync technology, an L2 scalability solution for Ethereum based on zero-knowledge rollups (ZK-Rollups). ZK-Rollups work by bundling multiple transactions outside of the main blockchain, preserving privacy and optimizing resource use to increase speed and reduce transaction costs.
Part of the Singapore Tokenization Program
The initiative is part of the Guardian Project, led by the Monetary Authority of Singapore, a program that explores ways to use blockchain technology to tokenize assets. Deutsche Bank joined the program in May, along with other renowned entities such as JPMorgan and BNY Mellon.
Launch and Regulatory Approval
Deutsche Bank is expected to launch its L2 solution as a minimum viable product next year, pending regulatory approval. The bank is not new to the world of cryptocurrencies, having provided services to the digital asset market maker Keyrock and partnering with Digital Galaxy to create a euro-linked stablecoin.