Deutsche Bank AG is addressing regulatory challenges that banks face when using public blockchains, such as the risk of unknowingly transacting with criminals or sanctioned groups.
According to a Bloomberg report, the bank launched its test version of Project Dama 2, an asset servicing pilot, in November. This platform’s layer two system relies on public blockchains to provide more affordable and efficient transactions.
Boon-Hiong Chan, a Deutsche Bank Asia-Pacific innovation lead, said that the bank’s Layer 2 connects to Ethereum, one of the busiest smart contracting blockchain networks.
Deutsche Bank sees blockchain as a means to deal with margin pressures in financial services
Chan explained in an interview that public blockchains such as Ethereum pose risks to regulated banks. The risks include uncertainty regarding who is performing the validation of transactions, the possibility of paying fees to sanctioned entities, and the possibility of unexpected changes to the blockchain.
Chan added, “Using two chains, a number of these regulatory concerns should be satisfied.”
Project Dama 2 is one of several initiatives in Singapore’s Project Guardian, where 24 major financial institutions are looking to tokenize assets via blockchain technology. Deutsche Bank, among other advocates, sees blockchain as a means to deal with margin pressures in financial services. However, there are still questions as to how far banking institutions should go in the crypto world.
The Dama 2 platform is built through a product supported by ZKsync’s technology and is based off of an alliance between crypto firms Interop Labs and Memento Blockchain Pte. The bank is waiting for the green light from financial watchdogs and plans to unveil the product’s minimum viable features sometimes next year.
Chan emphasized that the layer 2 component could free banking institutions to examine and explore public distributed ledger technologies as well as allow them to exhibit a more pronounced list of network validators that facilitate transaction approvals for crypto assets in exchange for rewards.
Deutsche Bank partners with crypto.com to offer banking solutions for the exchange
Deutsche Bank is one of the most active banking institutions in the blockchain ecosystem. On December 10th, Crypto.com, a cryptocurrency exchange, announced it had formed a strategic partnership with the German bank to expand banking and crypto services in Singapore, Australia and Hong Kong.
The agreement stipulates that the bank will provide additional banking support and increased coverage to the crypto exchange as their relationship escalates. Banking institutions are crucial for business operations in the crypto industry by helping crypto companies manage cash flow, facilitate enormous financial transactions and process payments.
Crypto companies have had prolonged challenges with the private banking sector for a long time. U.S. regulators under the Biden-Harris administration launched operation 2.0 which involved financial censorship for crypto organizations.
The litigation was first introduced by former president Barack Obama’s administration in 2013 as an operation Choke Point meant to tackle fraud and illegal activities by denying malicious individuals and entities access to banking services.
Notable crypto figures have also been denied access to the banking system. In October, Ripple’s Chief Executive Officer, Brad Gralinghouse publicly announced he was de-banked by Citibank. Gralinghouse explained in an interview that the bank terminated their years-long relationship, citing his prominence and involvement in the crypto arena. The executive said the bank gave him five days to transfer his funds to other banking institutions.
Deutsche Bank joins industry players in Web3 to investigate interoperability of public blockchains
In June, the Frankfurt based bank joined a coalition of major financial organizations and Web3 industry contributors to produce a detailed research on how tokenized assets can achieve interoperability across private and public blockchain networks as well as legacy systems.
The report titled Institutional Interoperability: “How Financial Institutions Navigate a Multichain World” highlighted a definitive role that accessibility and liquidity availability would play in facilitating financial institutions with flexibility, scalability, transparency and privacy. The contributors of the research stressed that there exists a need for network interconnecting models that connect different blockchains.
Deutsche Bank’s firsthand insights emphasized that blockchain and tokenization technologies can significantly reduce costs and provide efficient value to users in non-traditional business models.
The bank cited its insights from experimentation with the technologies from an asset servicing perspective. The bank also discussed that interoperability across blockchains, and with traditional systems, is necessary while describing its challenges.
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