Germany-headquartered Deutsche Bank is reportedly developing a solution for the regulatory challenges that 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 regulatory concerns of financial firms such as inadvertently dealing with criminals and sanctioned entities.
The layer-2 chain is incorporated in the firm’s multi-chain asset servicing 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 asset tokenization.
Deutsche Bank’s Asia-Pacific industry applied innovation lead, Boon-Hiong Chan, says public blockchains such as Ethereum come with risks for regulated lenders such as not knowing who validates transactions, concerns over payment of transaction fees to sanctioned entities and threats of unforeseen hard fork.
Chan says the layer-2 solution can help address these issues. He says the platform will allow banks to curate a “more bespoke list of validators” and potentially grant regulators super admin rights that will enable them to scrutinize fund movements.
“Using two chains, a number of these regulatory concerns should be able to be satisfied. You are not dependent on the layer-1 for detailed transaction records anymore.”
The bank launched a test version of Dama 2 in November and is hoping to launch a minimum viable product by next year.
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