Traditional banks enter Layer 2: Deutsche Bank builds on ZKsync and has tested multiple use cases
TechFlow Selected TechFlow Selected
Traditional banks enter Layer 2: Deutsche Bank builds on ZKsync and has tested multiple use cases
Deutsche Bank is launching an Ethereum-based Layer 2 solution called Project Dama 2, whose prototype was released in November and is expected to officially launch next year following regulatory approval.
Navigating Web3 tides with focused insightsBy Weilin, PANews
Traditional financial institutions are now entering the Layer 2 space. Boon-Hiong Chan, Head of Industry Solutions Innovation for Asia Pacific at Deutsche Bank, recently revealed that the bank is launching an Ethereum-based Layer 2 solution called Project Dama 2. Its prototype was launched in November and is expected to officially roll out next year following regulatory approval.
This move not only marks further exploration by traditional financial institutions into blockchain technology but could also signal a new trend—secure and compliant blockchain solutions being integrated into core financial operations, driving higher adoption rates.
Built on ZKsync Stack, Testing Multiple Use Cases
Deutsche Bank’s Project Dama 2 is part of Project Guardian, an initiative led by Singapore’s Monetary Authority (MAS). This public-private collaboration aims to enhance liquidity and efficiency in financial markets through asset tokenization.
Project Guardian includes 27 industry participants such as Ant Group, ANZ Bank, Bank of New York Mellon, Citibank, DBS Bank, Fidelity, Franklin Templeton, HSBC, JPMorgan Chase, Moody's, UBS, Standard Chartered, and S&P Global. It also involves key associations and organizations including SWIFT, central banks from various countries, and the World Bank.
Memento Blockchain and Interop Labs are Deutsche Bank’s technical partners, supporting the development of Project Dama 2’s minimum viable product. Specifically, Memento Blockchain has developed a fully functional testnet for its public-permissioned chain, Memento ZKchain. Built on ZKsync Stack with support from Matter Labs, the testnet leverages Axelar Network for cross-chain interoperability, enabled by Interop Labs.
Key features of Memento ZKchain include:
-
Digital identity via soulbound tokens: A secure, tamper-proof identity system used for access control and facilitating KYC, AML, sanctions screening, and investor suitability assessments.
-
Paymaster functionality: Simplifies gas fee management using traditional payment channels, providing clear audit trails for gas payments.
-
Custom blockchain explorer: Designed to maintain confidentiality of on-chain transactions while preserving full regulatory oversight capabilities.
-
Tokenized fund creation and issuance: Enabled through the Domani Protocol dApp, supporting tokenized traditional investment funds, hybrid funds combining digital and traditional assets, or fully native digital funds.
In addition, Interop Labs has established full cross-chain connectivity between the Memento ZKchain testnet and Avalanche Fuji and Stellar via the Axelar Network. This enables integration with over 69 blockchain networks, enhancing accessibility, security, scalability, and customization for financial applications.
The Project Dama 2 team is currently testing multiple use cases, including issuing and distributing tokenized funds across single or multiple blockchains, interoperability between digital assets and digital cash flows, and near real-time settlement to improve asset security and operational efficiency.
Addressing Compliance Challenges of Public Blockchains for Financial Institutions
Deutsche Bank’s upcoming Layer 2 aims to address compliance challenges financial institutions face when using public blockchains—such as unclear validator identities, gas fees potentially flowing to sanctioned entities, and risks associated with hard forks.
The project lead noted that public chains like Ethereum pose significant risks for regulated lenders. These include uncertainty over "who exactly is validating these transactions," whether transaction fees might be paid to sanctioned parties, and the threat of ledger-altering hard forks due to unforeseen events.
Layer 2 components could allow banks greater freedom to experiment with public chains. Banks would be able to customize a “personalized list of validators” who process digital asset transactions and earn rewards. Another benefit includes granting regulators—exclusively—“super-admin privileges,” enabling them to monitor fund flows when necessary. “Many of these regulatory concerns can be addressed using a dual-chain architecture,” he said.
Proponents like Deutsche Bank believe blockchain offers opportunities to counter declining profit margins in financial services. However, questions remain about how deeply banks should engage with the crypto ecosystem.
AdrianoFeria.eth, a crypto industry insider, emphasized that the level of regulatory compliance demanded by institutions cannot be achieved on any Layer 1 blockchain. For organizations requiring strict oversight and interoperability, the only practical options are either running their own private, permissioned Layer 1 chains or leveraging Ethereum’s L2 ecosystem.
Deutsche Bank’s Expanding Presence in Crypto
Deutsche Bank has been actively expanding its footprint in the crypto space throughout 2024. As early as June, it provided BitPanda with an API-based account solution, granting access to German International Bank Account Numbers (IBANs)—globally recognized codes that facilitate secure international transfers. BitPanda plans to use this service to improve the efficiency and security of fund transfers.
Additionally, Deutsche Bank has offered multi-currency accounts and foreign exchange services to crypto market maker Keyrock, helping it optimize and expand market-making and over-the-counter (OTC) trading operations across EMEA, APAC, and LATAM regions. On November 27, Deutsche Bank joined Singapore-based blockchain fintech firm Partior as a strategic investor in its Series B funding round, supporting Partior’s expansion in cross-border settlement capabilities and development of instant FX swaps and multi-bank payment solutions.
On December 10, Deutsche Bank announced a partnership with Crypto.com to provide corporate banking services in Singapore, Australia, and Hong Kong, with plans to broaden cooperation in the future.
Overall, while some traditional banks were initially cautious about blockchain due to concerns over volatility and regulatory uncertainty, the maturing crypto ecosystem now presents banks with an opportunity to reimagine traditional financial services.
For example, in November this year, UBS launched and piloted a blockchain-based payment solution—UBS Digital Cash. In the same month, JPMorgan announced a major upgrade to its blockchain platform, rebranding Onyx as Kinexys. According to JPMorgan, its blockchain business has processed over $1.5 trillion in transactions since 2020—including intraday repo trades and cross-border payments—with daily volumes exceeding $2 billion. Its clients include global corporations such as Siemens, BlackRock, and Ant International.
In conclusion, as crypto insider Adriano Feria.eth pointed out, Deutsche Bank’s entry into Ethereum L2 may not be an isolated experiment but rather part of a broader trend that could bring more secure and compliant blockchain solutions into the heart of traditional finance. Other members of Singapore’s Project Guardian may follow suit, accelerating the adoption of Web3 technologies and blockchain solutions across traditional financial institutions.
Join TechFlow official community to stay tuned
Telegram:https://t.me/TechFlowDaily
X (Twitter):https://x.com/TechFlowPost
X (Twitter) EN:https://x.com/BlockFlow_News
PANews
