Deutsche Bank Plans to Develop Layer 2 Solution on Ethereum

Deutsche Bank is building a Layer 2 blockchain called “Project Dama 2” to help financial institutions overcome regulatory challenges linked to public blockchain usage. The Layer 2 network, built on Ethereum, aims to offer a more secure and compliant way for banks to engage with decentralized technology.

A test version of Project Dama 2 launched in November 2024, with plans to secure regulatory approval and release a minimum viable product (MVP) by next year. The initiative is part of Singapore’s broader “Project Guardian,” a regulatory sandbox led by the Monetary Authority of Singapore (MAS) that includes 24 financial firms, such as JPMorgan Chase, DBS Group, and Ant International.

Boon-Hiong Chan, Deutsche Bank’s head of innovation for Asia-Pacific, highlighted key regulatory concerns for financial institutions, such as exposure to sanctioned entities, unknown validators, and potential disruptions from “hard forks.” Project Dama 2 addresses these issues by enabling banks to customize their own “list of validators” and granting regulators “super admin rights” to track fund flows and prevent illicit transactions.

The Dama 2 platform is being developed in collaboration with crypto firms Memento Blockchain and Interop Labs. It uses zero-knowledge proof (ZKSync) technology to offer faster, cheaper, and more private transactions. This feature is crucial for financial institutions aiming to maintain confidentiality and control within a public blockchain environment.

Deutsche Bank aims to launch the MVP for Project Dama 2 in 2025. It could serve as a model for other banks looking to interact with public blockchains while ensuring compliance with regulatory standards. The initiative also aligns with the bank’s broader efforts to tokenize assets and offer blockchain-based fund services.

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