Deutsche Bank to Fix Regulatory Challenges for Institutions Using Public Blockchain

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As a seasoned analyst with over two decades of experience in the financial industry, I’ve seen my fair share of technological advancements reshaping the landscape. Deutsche Bank’s Project Dama 2, a collaborative initiative within the Monetary Authority of Singapore’s Project Guardian, is one such development that catches my attention.

German Bank Corporation, Deutsche Bank AG, is tackling a significant endeavor: dealing with regulatory hurdles that institutions encounter when utilizing public blockchain networks. This often involves handling situations where transactions might inadvertently be made with entities under sanctions or criminal elements.

In November, a trial version of Project Dama 2 – a German banking titan’s asset-servicing experiment – was unveiled. This project utilizes a Layer 2 solution within it, which capitalizes on public blockchain networks to facilitate less costly and more efficient transactions.

Deutsche Bank has connected a second-tier network platform with the Ethereum network, which is a prominent blockchain platform for commercial transactions in the cryptocurrency sector. Nevertheless, Boon-Hiong Chan, the bank’s lead for Asia-Pacific industry applied innovation, pointed out that public blockchains like Ethereum carry substantial risks for regulated banks.

Addressing issues such as ensuring transparent verification of transactions, avoiding payments to restricted parties, and mitigating the risk of unexpected splits leading to disruptions in the blockchain network, can potentially be addressed by implementing a dual-chain system, according to Chan’s statement.

Deutsche Bank Experiments with Project Dama 2

Project Dama 2 forms an essential part of the Monetary Authority of Singapore’s larger project, known as Project Guardian. This project also involves a joint effort from 24 financial entities, all working together to investigate the practical application of blockchain technology in the process of digitizing or tokenizing assets.

Deutsche Bank supports the use of blockchain technology and believes it could significantly address the issue of margin compression within the financial industry. Yet, there’s debate about how deeply banks should involve themselves in the cryptocurrency environment.

The Dama 2 platform, collaboratively created by Memento Blockchain Pte and Interop Labs, leverages the technology of ZKsync. Deutsche Bank aims to release this platform as a basic functional version (minimum viable product) next year, subject to obtaining necessary regulatory clearance.

Boon-Hiong Chan explained that the Layer 2 feature will provide banking institutions with increased freedom to delve deeper into public blockchain networks. Furthermore, this component could enable them to curate a customized group of validators who are tasked with verifying digital asset transactions and receiving compensation in return.

Additionally, Chan posits that this system might grant regulators “extensive administrative privileges,” enabling them to oversee transactions at any given moment. According to Chan, this means that they no longer require Layer 1 for comprehensive transaction details.

Conversely, Deutsche Bank has been establishing crucial alliances in the cryptocurrency sector. Recently, it was announced that Crypto.com had formed a substantial partnership with Deutsche Bank to bolster its global operations. This collaboration grants Crypto.com access to Deutsche Bank’s profound corporate banking knowledge, enabling them to manage their daily financial activities more effectively, such as payroll, supplier payments, and treasury management.

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2024-12-18 12:40