Arbeitspapier
Embedded Supervision: How to Build Regulation into Decentralised Finance
The emergence of so-called "decentralised finance" (DeFi) and a shadow financial system of cryptocurrency exchanges and stablecoin issuers raises the challenge of how to apply technology-neutral regulation so that similar risks are subject to the same rules. This paper makes the case for embedded supervision, ie a regulatory framework that provides for compliance in decentralised markets to be automatically monitored by reading the market's ledger. This reduces the need for firms to actively collect, verify and deliver data. The paper explores the conditions under which distributed ledger data may be used to monitor compliance. To this end, a decentralised market is modelled that replaces today's intermediary-based verification of legal data with blockchain-enabled credibility based on economic consensus. The key results set out the conditions under which the market's economic consensus would be strong enough to guarantee that transactions are economically final, so that supervisors can trust the distributed ledger's data. The paper concludes with a discussion of the legislative and operational requirements that would promote low-cost supervision and a level playing field for small and large firms.
- Language
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Englisch
- Bibliographic citation
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Series: CESifo Working Paper ; No. 9771
- Classification
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Wirtschaft
Market Structure, Pricing, and Design: General
Production and Organizations: General
Monetary Systems; Standards; Regimes; Government and the Monetary System; Payment Systems
Money Supply; Credit; Money Multipliers
Foreign Exchange
Asset Pricing; Trading Volume; Bond Interest Rates
General Financial Markets: Government Policy and Regulation
Financial Institutions and Services: Government Policy and Regulation
Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
Corporate Finance and Governance: Government Policy and Regulation
Business and Securities Law
Cyber Law
Market Structure, Firm Strategy, and Market Performance: General
Regulation and Industrial Policy: General
Accounting and Auditing: General
- Subject
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decentralised finance
DeFi
tokenisation
asset-backed tokens
stablecoins
crypto-assets
cryptocurrencies
CBDC
regtech
suptech
regulation
supervision
Basel III
proportionality
blockchain
distributed ledger technology
digital currencies
proof
- Event
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Geistige Schöpfung
- (who)
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Auer, Raphael A.
- Event
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Veröffentlichung
- (who)
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Center for Economic Studies and ifo Institute (CESifo)
- (where)
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Munich
- (when)
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2022
- Handle
- Last update
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10.03.2025, 11:44 AM CET
Data provider
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Auer, Raphael A.
- Center for Economic Studies and ifo Institute (CESifo)
Time of origin
- 2022