Deutsche Bank is Developing a Zero-Knowledge L2 for Ethereum: Details

One of Germany’s largest banks Deutsche Bank AG is developing an Ethereum Layer 2 (L2) network using zKsync technology, according to a Bloomberg report confirmed by Matter Labs. 

The new network aims to address what a lot of layer-2s are already trying to do: improve transaction speed and scalability, but with an extra touch of regulatory compliance. 

Details on Deutsche Bank’s New L2

The L2 is public, yet permissioned (which means it’s run privately). That means it’s visible in network activity but restricts certain actions to authorized participants, enabling regulated institutions to maintain oversight.

This initiative is part of Deutsche Bank’s Project Dama 2 and linked to Singapore’s Project Guardian. Unlike earlier private enterprise blockchains, this L2 is connected to Ethereum and leverages zKsync’s ZK (zero-knowledge) Stack toolkit for custom blockchain development.

Zero-knowledge technology are designed to alleviate some of the weight in a blockchain network. They do this by offloading transactions from the mainchain (aka, the Ethereum blockchain) to a separate chain that executes and validates transactions. The protocol then bundles the transactions into a single batch and sent back to the layer-1 (aka, the mainchain.)

The L2 network is designed to help banks meet compliance needs, such as identifying transaction participants (which is critical for regulated financial institutions operating on public blockchains). 

Boon-Hiong Chan, Deutsche Bank’s Asia-Pacific innovation lead, said the network could enable banks to choose their validators and provide regulators with “super admin rights” for detailed fund movement tracking.

Using two chains, a number of these regulatory concerns should be able to be satisfied,” said Chan (…) You are not dependent on the Layer 1 for detailed transaction records anymore.

Announced on November 6 by Memento Blockchain, the project’s reception was rather poor. It’s in a test network phase and it is part of Project Guardian, an initiative by the Monetary Authority of Singapore involving 24 financial institutions exploring blockchain-based asset tokenization.

According to Boon-Hiong Chan, Head of APAC Securities Market and Technology Advocacy at Deutsche Bank, the Layer 2 solution will allow banks to safely utilize public blockchains while meeting regulatory standards. This includes the creation of bespoke validator lists and providing regulators with “super admin rights” to monitor transactions. 

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The test version of Project Dama 2, which includes an asset-servicing pilot, was unveiled in November, and the Layer 2 integration is also expected to reduce costs.