Deutsche Bank, Germany’s largest lender, is reportedly developing its own layer-2 (L2) blockchain on Ethereum using ZKsync technology to address compliance challenges associated with using public blockchains in regulated finance.

The L2 solution, part of Project Dama 2, looks to improve transaction efficiency and secure regulatory safeguards, integrating directly with Ethereum, according to Bloomberg.

Project Dama 2 is part of the Monetary Authority of Singapore’s Project Guardian, which brings together 24 financial institutions to explore blockchain-based asset tokenization.

Related: Crypto.com taps Deutsche Bank for Asia-Pacific markets

Implications for the financial sector

Deutsche Bank’s solution curates trusted validators and grants regulators special oversight to minimize risks such as interacting with sanctioned entities. The platform is designed to align blockchain transparency with financial compliance requirements.

Deutsche Bank’s initiative indicates a push to use blockchain technology while addressing regulatory hurdles, potentially prompting other institutions to adopt asset servicing or to follow similar paths.

If successful, Deutsche Bank’s approach may encourage financial institutions to interact more with decentralized networks, Bloomberg reported.

While the bank hopes to launch the platform as a minimum viable product in 2025, regulatory approval remains the next critical step to determining the release of its L2 blockchain.

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Why an L2 blockchain?

L2 blockchains operate on top of primary layer-1 networks like Ethereum, enabling faster and cheaper transactions.

The technology offers regulatory tools such as “super admin rights,” enabling financial regulators to monitor and audit transactions when required.

Related: Deutsche Bank and Bitpanda join forces for real-time crypto payments

Partnership with Crypto.com

On Dec. 10, Deutsche Bank partnered with crypto exchange Crypto.com to provide corporate banking services across Asian-Pacific markets, covering regions including Singapore, Australia and Hong Kong.

Deutsche Bank offers fiat-to-crypto exchange and cross-border trading services to crypto companies, among other banking services.

The German bank has hinted at future partnerships in the United Kingdom and other European countries.

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