Deutsche Bank develops solution to address blockchain regulatory challenges

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 a more affordable and efficient transaction.

Boon-Hiong Chan, a Deutsche Bank Asia-Pacific innovation lead, said that the bank’s Layer 2 connects to Ethereum, one of the blockchain’s busiest networks.

Deutsche Bank sees blockchain as a means to deal with margin pressures in financial services

Chan explained 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 able to 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. Deutsche Bank, among other advocates, sees blockchain as a means to deal with margin pressures in financial services. But there are still questions as to how far banks should go in the crypto world.