Traditional banks have entered Layer 2. Deutsche Bank is based on ZKsync and has tested multiple use cases.

Here is the English translation of the text, with the specified terms translated as requested: The traditional financial institutions have also started to get involved in Layer2. Boon-Hiong Chan, the Head of Industry Application Innovation for the Asia Pacific region at Deutsche Bank, recently revealed to the public that Deutsche Bank is launching an Ethereum-based Layer 2 solution, named Project Dama 2, with the test version already launched in November and expected to be officially launched next year after regulatory approval. This move not only marks the further exploration of traditional financial institutions in the blockchain field, but may also open up a new trend where secure and compliant blockchain solutions are introduced into the core of traditional finance, leading to a further increase in adoption.

Constructed based on the ZKsync Stack, currently testing multiple use cases

Project Dama 2 by Deutsche Bank is also part of the Monetary Authority of Singapore (MAS) "Project Guardian" initiative. This is a collaboration initiative between policymakers and the financial industry, aimed at enhancing the liquidity and efficiency of financial markets through asset tokenization. Project Guardian has 27 industry participants, including Ant Group, ANZ, BNY Mellon, Citi, DBS Bank, Fidelity, Franklin Templeton, HSBC, JPMorgan, Moody's, UBS, Standard Chartered, S&P Global, and more. It also includes a series of associations and collaborative organizations, such as SWIFT, as well as central banks and the World Bank as policymaking institutions. Memento Blockchain and Interop Labs are the technical partners of Deutsche Bank, helping to develop the minimum viable product for Project Dama 2. Specifically, Memento Blockchain has developed a fully functional testnet for its permissioned public Memento ZKchain, which is built on the ZKsync Stack with the support of Matter Labs, and achieves cross-chain interoperability through the Axelar network, with support from Interop Labs. The main features of Memento ZKchain include: - Soulbound Token-based digital identity: A secure and tamper-proof identity system for access management and to facilitate KYC, AML, sanctions screening, and investor suitability testing. - Paymaster functionality: Aimed at simplifying gas fee management through traditional payment channels, providing a clear audit trail for gas fee payments. - Customized blockchain explorer: Designed to manage on-chain transaction confidentiality while retaining full regulatory oversight capabilities. - Tokenization of funds: Enabled through the Domani Protocol decentralized application (dApp), supporting the creation and distribution of tokenized traditional investment funds, hybrid funds combining digital and traditional assets, or fully native digital funds. Furthermore, Interop Labs, through the Axelar network, has established comprehensive cross-chain connectivity between the Memento ZKchain testnet and Avalanche Fuji and Stellar. This functionality supports integration with over 69 blockchain networks, enhancing the accessibility, security, scalability, and customizability of financial applications. Currently, the Project Dama 2 team is testing multiple use cases, including issuing and distributing tokenized funds on single or multiple blockchains, interoperability between digital assets and digital cash flows, and near-instant settlement to enhance asset security and operational efficiency.

Exploring the compliance challenges for financial institutions using public blockchains

The upcoming Layer2 solution from Deutsche Bank aims to address the compliance challenges that financial institutions face when using public blockchains, such as the unclear identity of transaction validators, the potential for transaction fees to be paid to sanctioned entities, and the risk of significant ledger changes due to unforeseen hard forks. The project lead believes that public chains like Ethereum pose significant risks for regulated lending institutions. This includes the inability to determine "who exactly is validating these transactions", the possibility of transaction fees being paid to sanctioned entities, and the threat of major ledger changes due to unpredictable hard forks. The Layer 2 components may allow banks to freely experiment with public chains. This would enable banks to customize a "more personalized list of validators" to handle digital asset transactions and earn rewards. Other benefits include the potential to grant "super-admin privileges" to regulators - and only regulators - meaning they could review fund flows when necessary. "By using a dual-chain architecture, many of these regulatory concerns should be addressable," he said. Advocates, including Deutsche Bank, believe that blockchain provides an opportunity to address the profit pressures facing the financial services industry. However, there are still some questions about the extent to which banks should deeply engage with the crypto ecosystem. Crypto insider AdrianoFeria.eth believes that the level of regulatory compliance required by these institutions cannot be achieved on any Layer 1 blockchain. For institutions that require strict oversight and interoperability, the only practical choice is to run their own private, permissioned Layer 1 chain or leverage the Ethereum L2 ecosystem.

Deutsche Bank continues to expand its presence in the crypto sector

Deutsche Bank has been very active in the crypto sector in 2024. As early as June, Deutsche Bank provided BitPanda with an API-based account solution, allowing it to access German international bank account numbers (IBANs), which are internationally recognized codes that help banks securely handle international transfers. BitPanda plans to use this service to improve the efficiency and security of fund transfers.

In addition, Deutsche Bank has also provided multi-currency accounts and foreign exchange services to the crypto market maker Keyrock, helping it to optimize and expand its market making and over-the-counter (OTC) services in the EMEA, APAC and LATAM regions. On November 27, Deutsche Bank joined the B-round financing of the Singapore blockchain fintech company Partior as a strategic investor, supporting Partior's expansion of cross-border settlement capabilities and the development of real-time foreign exchange swaps and multi-bank payment functions.

On December 10, Deutsche Bank also announced a partnership with Crypto.com to provide corporate banking services in Singapore, Australia and Hong Kong. The two parties plan to further expand their cooperation in the future.

Currently, although some traditional banks were initially cautious about blockchain technology, concerned about its instability and regulatory uncertainty, the increasing maturity of the cryptocurrency ecosystem now provides banks with an opportunity to rethink traditional financial services.

For example, in November this year, UBS announced the establishment and pilot of a blockchain-based payment solution - UBS Digital Cash, and in the same month, JPMorgan Chase announced a major upgrade to its blockchain platform, which was renamed from Onyx to Kinexys. According to JPMorgan Chase, its blockchain business, which was established in 2020, has executed over $1.5 trillion in transactions, including intraday repurchases and cross-border payments, with a daily average of over $2 billion. Its users include global enterprises such as Siemens, BlackRock and Ant International.

In general, as the crypto insider Adriano Feria.eth pointed out, Deutsche Bank's foray into Ethereum L2 may not be a standalone experiment, but rather part of a broader trend, where more secure and compliant blockchain solutions may be introduced into the core of traditional finance in the future. Other members of the Singapore Project Guardian may also follow suit, driving more traditional financial institutions to embrace Web3 technology and blockchain solutions.