Deutsche Bank Develops Layer 2 Solution to Address Regulatory Concerns for Institutional Blockchain Adoption

Deutsche Bank is reportedly developing a Layer 2 solution as part of its asset-servicing pilot project called Dama 2. The project aims to address regulatory hurdles faced by institutions seeking to utilize public blockchains in their operations.

According to a recent report, the German banking giant is building a Layer 2 solution on the Ethereum network, the second-largest cryptocurrency network by market capitalization after Bitcoin. The Layer 2 solution is part of the Dama 2 project, which was released in test version last month.

Addressing Regulatory Concerns

Deutsche Bank’s Asia-Pacific industry applied innovation lead, Boon-Hiong Chan, highlighted the risks associated with public blockchains for financial institutions. Chan noted that institutions are concerned about interacting with criminals or sanctioned entities within the ecosystem, as well as the uncertainty surrounding transaction validators and the potential for hard forks.

“Using two chains, a number of these regulatory concerns should be able to be satisfied,”

Chan added that the built-in Layer 2 solution can pave the way for banks to explore new opportunities within public blockchains, allowing them to curate a “more bespoke list of validators” to process digital-asset transactions and earn rewards.

Key Features of the Layer 2 Solution

The Layer 2 solution offers several features that can address regulatory concerns, including:

  • Enabling regulators to monitor the movement of funds within the blockchain to spot illicit transactions through “super admin rights”
  • Providing detailed transaction records, reducing dependence on Layer 1
  • Allowing institutions to curate a bespoke list of validators to process digital-asset transactions

Project Dama 2 and Project Guardian

Project Dama 2 is part of a larger initiative called Project Guardian, formed by the Monetary Authority of Singapore. Project Guardian brings together 24 leading financial firms to explore ways to utilize the blockchain to tokenize assets. Dama 2 was developed in collaboration with crypto firms Memento Blockchain and Interop Labs, using ZKsync technology.

For more news on cryptocurrencies, blockchain adoption, and institutional investment, visit Global Crypto News.

Post Views: 6