According to Bloomberg reports, Deutsche Bank is working to address the compliance challenges faced by financial institutions when using public blockchains, such as the risk of inadvertently transacting with criminals or sanctioned entities.
The bank unveiled the test version of its asset servicing pilot project Project Dama 2 in November, which includes a Layer 2 network that offers cheaper and more efficient transactions. Boon-Hiong Chan, Head of Industry Applications Innovation for Deutsche Bank in the Asia-Pacific region, stated in an interview that this Layer 2 connects to Ethereum.
Chan stated that public chains like Ethereum pose many risks for regulated lending institutions, including the inability to determine 'who exactly is validating the transactions,' whether transaction fees are being paid to sanctioned entities, and the potential threat of hard forks, which could fundamentally alter the operation of the digital ledger. He mentioned that many regulatory issues should be resolvable by utilizing two blockchains.
Dama 2 is part of the Monetary Authority of Singapore's (MAS) collaborative industry initiative 'Project Guardian,' which involves 24 major financial institutions testing methods to tokenize assets using blockchain technology. Advocates, including Deutsche Bank, believe that blockchain presents an opportunity to address profitability pressure in the financial services sector; however, there are still questions about the extent to which banks should engage with the crypto ecosystem.
The platform in the Dama 2 project is developed in collaboration with blockchain development company Memento Blockchain Pte. and Axelar protocol developer Interop Labs, using the technology of Ethereum Layer 2 ZKsync. According to a tweet released by Memento Blockchain in November, the name of the Layer 2 network in the Dama 2 project may be called 'Memento ZKchain.'
According to reports, Deutsche Bank hopes to launch it as a Minimum Viable Product (MVP) next year, pending regulatory approval.
According to Chan, the Layer 2 network component allows banks to freely experiment with public chains, enabling them to create a 'more customized validator list' for these validators to process digital asset transactions in exchange for rewards. Other benefits may include granting regulatory authorities (also limited to regulators) 'supervisory powers' to review fund flows when necessary.
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