Germany-based Deutsche Bank is reportedly developing a solution to the regulatory challenges financial institutions face when using public blockchains.
Bloomberg reports that the global investment bank is building a layer-2 blockchain for leading smart contract platform Ethereum (ETH) to address financial firms’ regulatory issues such as inadvertently dealing with criminals and sanctioned entities.
The layer 2 chain is included in the company’s multi-chain asset serving pilot, Project Dama 2, which is part of the Monetary Authority of Singapore’s (MAS) Project Guardian initiative, a collaboration of 24 major financial institutions that explore the tokenization of assets.
Deutsche Bank’s applied innovation leader in Asia Pacific, Boon-Hiong Chan, says public blockchains like Ethereum pose risks for regulated lenders, such as not knowing who is validating transactions, concerns about payment of transaction costs to sanctioned entities and the threat of an unforeseen hard fork. .
Chan says the layer 2 solution can help address these issues. He says the platform will allow banks to create a “more tailored list of validators” and potentially grant regulators super admin rights that will allow them to scrutinize fund movements.
“Two chains should address some of these regulatory concerns. You are no longer dependent on layer 1 for detailed transaction registrations.”
The bank launched a test version of Dama 2 in November and hopes to launch a minimum viable product next year.
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