Deutsche Bank is working to address the regulatory challenges financial institutions face when using public blockchains

Deutsche Bank is working to address the regulatory challenges that financial institutions face when using public blockchains, such as the risk of inadvertently transacting with criminals or sanctioned entities.

In November, the bank unveiled a test version of its asset servicing pilot project, Dama 2. The platform includes a so-called "Layer 2," which is a tool that uses public blockchains to provide cheaper and more efficient transactions. Boon-Hiong Chan, head of industry application innovation for Deutsche Bank in the Asia-Pacific region, said in an interview that Deutsche Bank's Layer 2 is connected to Ethereum, the busiest commercial channel in the cryptocurrency field.

Chan said that for regulated lending institutions, public blockchains like Ethereum are full of risks. These include not knowing "who is actually validating the transaction," whether transaction fees will be paid to sanctioned entities, and the threat of unpredictable hard forks, which can fundamentally alter digital ledgers. "Using a dual-chain approach, these regulatory concerns should be addressed," Chan said.