Article source: Weilin
Author: Weilin, PANews
Traditional financial institutions are also entering the Layer 2 space. Boon-Hiong Chan, head of industry application innovation for Deutsche Bank in the Asia Pacific region, recently revealed that Deutsche Bank is launching an Ethereum-based Layer 2 solution named Project Dama 2, with its beta version already launched in November and expected to be officially launched next year after receiving regulatory approval.
This initiative not only marks further exploration by traditional financial institutions in the blockchain space but may also open a new trend, integrating secure and compliant blockchain solutions into the core of traditional finance, with increasing adoption rates.
Built on the ZKsync Stack, testing multiple use cases.
Deutsche Bank's Project Dama 2 is also part of the Singapore Monetary Authority's (MAS) 'Guardian Program' Project Guardian. This is a collaborative initiative between policymakers and the financial industry aimed at enhancing liquidity and efficiency in financial markets through asset tokenization.
Project Guardian includes 27 industry institutions, including Ant Group, ANZ Bank, BNY Mellon, Citibank, DBS Bank, Fidelity, Franklin Templeton, HSBC, JPMorgan, Moody's, UBS Group, Standard Chartered, S&P Global, and more. It also includes a number of associations and collaborative organizations, such as SWIFT, as well as policymakers such as central banks and the World Bank.
Memento Blockchain and Interop Labs are technology partners of Deutsche Bank, helping Project Dama 2 develop its minimum viable product. Specifically, Memento Blockchain has developed a fully functional testnet of the public permissioned chain Memento ZKchain. This testnet is built on the ZKsync Stack, supported by Matter Labs, and achieves cross-chain interoperability through the Axelar network, supported by Interop Labs.
Key features of Memento ZKchain include:
· Soulbound Token-based digital identity: A secure and tamper-proof identity system used for access management and facilitating KYC, AML, sanctions checks, and investor suitability testing.
· Paymaster Function: Aimed at simplifying gas fee management through traditional payment channels, providing a clear audit trail for gas fee payments.
· Customized Blockchain Explorer: Designed to manage the confidentiality of on-chain transactions while retaining full regulatory review capabilities.
· Creation and issuance of tokenized funds: Achieved through the Domani Protocol decentralized application (dApp), supporting the creation and distribution of tokenized traditional investment funds, hybrid funds combining digital and traditional assets, or fully native digital funds.
In addition, Interop Labs has achieved comprehensive cross-chain connectivity between the Memento ZKchain testnet and Avalanche Fuji and Stellar through the Axelar network. This feature supports integration with over 69 blockchain networks, enhancing the accessibility, security scalability, and customization capabilities of financial applications.
Currently, the Project Dama 2 project team is testing multiple use cases, including issuing and distributing tokenized funds on a single or multiple blockchains, interoperability between digital assets and digital cash circulation, and achieving near real-time settlement for enhanced asset security and operational efficiency.
Exploring compliance challenges faced by financial institutions using public blockchains.
Deutsche Bank's upcoming Layer 2 aims to address compliance challenges faced by financial institutions when using public blockchains, such as the anonymity of transaction validators, the flow of fees to sanctioned entities, and the risk of hard forks.
The project head believes that public chains like Ethereum are fraught with risks for regulated lending institutions. These include the inability to determine 'who exactly is validating these transactions', whether transaction fees could potentially be paid to sanctioned entities, and the threat of significant changes to the ledger due to unforeseen hard forks.
Layer 2 components may allow banks to freely experiment with public chains. This would enable banks to customize a 'more personalized validator list' to handle digital asset transactions for rewards. Other benefits include the possibility of granting regulators—restricted to regulatory agencies—'super administrator permissions', meaning they can review fund flows as necessary. 'By using a dual-chain architecture, many of these regulatory concerns should be able to be addressed,' he said.
Advocates, including Deutsche Bank, believe that blockchain offers opportunities to address the profit compression faced by the financial services industry. However, there are still some doubts about the extent to which banks should delve deep into the crypto ecosystem.
Crypto insider AdrianoFeria.eth believes that it is crucial that the level of regulatory compliance required by these institutions cannot be achieved on any Layer 1 blockchain. For institutions that require strict supervision and interoperability, the only pragmatic option is to run their own private, permissioned Layer 1 chain or leverage Ethereum's L2 ecosystem.
Deutsche Bank is continuously laying out its strategy in the crypto field.
Deutsche Bank has been active in the crypto field in 2024. As early as June, Deutsche Bank provided API-based account solutions for BitPanda, enabling it to access German International Bank Account Numbers (IBAN), an internationally recognized code that helps banks securely handle international transfers. BitPanda plans to leverage this service to enhance the efficiency and security of fund transfers.
In addition, Deutsche Bank has also provided multi-currency accounts and foreign exchange services to Keyrock, a market maker for the crypto market, to help optimize and expand its market-making and over-the-counter (OTC) services in the EMEA, APAC, and LATAM regions. On November 27, Deutsche Bank joined the B round financing of Singapore blockchain fintech company Partior as a strategic investor, supporting Partior in expanding cross-border settlement capabilities and developing features such as instant foreign exchange swaps and multi-bank payments.
On December 10, Deutsche Bank also announced a partnership with Crypto.com to provide corporate banking services in Singapore, Australia, and Hong Kong. The two parties plan to further expand the scope of cooperation in the future.
At present, although some traditional banks initially took a cautious stance toward blockchain technology, fearing its instability and regulatory uncertainty, the maturing cryptocurrency ecosystem now provides banks with an opportunity to reimagine traditional financial services.
For example, in November of this year, UBS announced the creation and pilot of a blockchain-based payment solution—UBS Digital Cash. In the same month, JPMorgan announced a major upgrade to its blockchain platform, which was renamed from Onyx to Kinexys. According to JPMorgan, its blockchain business has executed over $15 trillion in transactions since its inception in 2020, including overnight repos and cross-border payments, with a daily processing amount exceeding $2 billion. Its users include global companies such as Siemens, BlackRock, and Ant International.
Overall, as crypto insider Adriano Feria.eth pointed out, Deutsche Bank's foray into Ethereum L2 may not be a standalone experiment but part of a broader trend that could bring more secure and compliant blockchain solutions into the core of traditional finance. Other members in Singapore's Project Guardian may also follow suit, promoting more traditional financial institutions to embrace Web3 technologies and blockchain solutions.
