German banking giant builds Ethereum L2 to streamline asset servicing
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German banking giant builds Ethereum L2 to streamline asset servicing
The project was launched in November as a pilot initiative aimed at streamlining asset servicing.
Navigating Web3 tides with focused insightsSource: cryptoslate
Compiled by: Blockchain Knight
According to a Bloomberg News report on December 17, Deutsche Bank is building an Ethereum-based Layer 2 (L2) blockchain to address regulatory hurdles that financial institutions face when using public blockchains.
The platform, known as Project Dama2, represents the German banking giant’s attempt to harness the potential of blockchain technology while minimizing risks associated with public ledgers, which can inadvertently facilitate transactions with sanctioned entities or criminals.
The project launched in November as a pilot initiative, aiming to streamline asset servicing.
Project Dama2 leverages ZKsync's zero-knowledge proof (ZKP) technology to enable cheaper and more efficient transactions.
In addition, the use of ZKPs offers institutional users building on Deutsche Bank’s proprietary blockchain greater privacy and customization. Crypto asset firms Memento Blockchain and Interop Labs are assisting in the platform’s development.
Notably, Project Dama2 is part of the Monetary Authority of Singapore’s (MAS) Project Guardian, signaling growing interest among traditional financial players in blockchain-based asset services and tokenization solutions.
JPMorgan executed its first transaction on a public blockchain at the end of 2022, also under Project Guardian.
Meanwhile, traditional finance giants such as BlackRock and Franklin Templeton have tokenized money market funds, collectively surpassing $1 billion in total market value.
Public blockchains offer significant efficiency benefits for regulated lenders.
Moreover, Ethereum has emerged as the preferred infrastructure for institutions, accounting for 81% of real-world asset (RWA) tokenization.
However, the report notes these advantages come with uncertainties around transaction validators, the risk of fees reaching sanctioned entities, and the potential for disruptive, unforeseen blockchain hard forks that could interrupt operations.
Deutsche Bank’s solution is to incorporate its own L2 blockchain.
"Using an L2 should be able to resolve some of the regulatory issues," said Boon-Hiong Chan, Head of Industry Applications Innovation for Asia Pacific at Deutsche Bank.
As a result, Project Dama2 connects to Ethereum while enabling the bank to circumvent some of the so-called risks inherent in public blockchains.
By creating a carefully curated list of transaction validators and providing tools that grant regulators exclusive "super-admin privileges", Deutsche Bank aims to deliver a safer and more compliant blockchain experience.
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