Deutsche Financial institution is constructing a layer-2 blockchain primarily based on Ethereum to unravel the regulatory hurdles monetary establishments face utilizing public blockchains, Bloomberg Information reported on Dec. 17.
The platform, dubbed Challenge Dama 2, represents the German banking large’s try and harness blockchain know-how’s potential whereas minimizing dangers related to public ledgers, which might usually inadvertently transact with sanctioned entities or criminals.
The undertaking, unveiled in November as a pilot, is designed to streamline asset servicing. It leverages ZKsync’s zero-knowledge proof (zkp) know-how to supply cheaper and extra environment friendly transactions.
Furthermore, utilizing zkp will allow enhanced privateness and customization for institutional customers growing on Deutsche Financial institution’s proprietary blockchain. Crypto companies Memento Blockchain and Interop Labs are aiding the platform’s growth.
Notably, Challenge Dama 2 is a part of the Financial Authority of Singapore’s Challenge Guardian, which alerts a rising curiosity amongst conventional monetary gamers in blockchain-based asset servicing and tokenization options.
JPMorgan executed its first transaction on a public blockchain in late 2022, additionally as a part of Challenge Guardian, whereas Visa is exploring the tokenization of fiat currencies for conventional banks.
In the meantime, conventional finance giants similar to BlackRock and Franklin Templeton have tokenized cash funds with a mixed market cap of over $1 billion.
TradFi leveraging blockchain
Public blockchains provide immense effectivity for regulated lenders. Ethereum is the favored infrastructure by establishments, because it dominates 81% of the tokenization of real-world belongings (RWA).
Nonetheless, the report identified that these advantages include uncertainty over who validates transactions, the opportunity of transaction charges reaching sanctioned entities, and the danger of unexpected blockchain exhausting forks that might disrupt operations.
The answer discovered by Deutsche Financial institution was including its personal layer-2 blockchain to the combo. Boon-Hiong Chan, Deutsche Financial institution’s Asia-Pacific trade utilized innovation lead, said:
“Utilizing two chains, plenty of these regulatory issues ought to be capable to be glad.”
In consequence, Challenge Dama 2 connects to Ethereum whereas permitting the financial institution to sidestep among the alleged dangers inherent in public blockchains. By making a curated record of transaction validators and providing instruments to present regulators unique “tremendous admin rights,” the financial institution hopes to supply a safer and compliant blockchain expertise.