Deutsche Bank Ventures Into Ethereum Layer-2

Deutsche Bank is stepping into blockchain with “Project Dama 2,” a layer-2 platform built on Ethereum. According to Bloomberg News (Dec. 17), the bank aims to address the regulatory issues that financial institutions face when using public blockchains.

The German banking giant sees this as a way to embrace blockchain’s potential while avoiding risks like accidental dealings with sanctioned entities or bad actors.

Deutsche Bank Streamlined Asset Servicing with Advanced Privacy

Launched as a pilot in November, Project Dama 2 focuses on simplifying asset servicing. It uses ZKsync’s zero-knowledge proof (zkp) technology to lower transaction costs and increase efficiency. This tech also brings enhanced privacy and customization, catering specifically to institutional users.

Deutsche Bank has partnered with Memento Blockchain and Interop Labs to develop the platform. Additionally, Project Dama 2 is part of Singapore’s Monetary Authority-led “Project Guardian,” showcasing how traditional finance is exploring blockchain-based asset servicing and tokenization.

JPMorgan, for instance, made headlines with its first public blockchain transaction in late 2022 under Project Guardian. Similarly, Visa is delving into fiat tokenization for banks. Other financial giants like BlackRock and Franklin Templeton have also jumped in, tokenizing money funds worth over $1 billion combined.

Traditional Finance Meets Blockchain

Public blockchains, especially Ethereum, are becoming the backbone for tokenizing real-world assets (RWA), with Ethereum handling 81% of these transactions. Institutions favor its efficiency and scalability.

However, challenges remain. Public networks can create uncertainty over transaction validators, expose funds to high fees reaching sanctioned parties, and face risks from blockchain hard forks. Deutsche Bank’s solution: building its proprietary layer-2 blockchain on Ethereum.

Boon-Hiong Chan, Deutsche Bank’s Asia-Pacific innovation lead, believes this approach balances blockchain’s benefits with the safeguards required by traditional finance.