How to Integrate Supervision into Blockchain Finance 1

Nowadays, governments all over the world are working hard to cope with the rise of distributed ledger technology (DLT) in the financial field. The challenge they are confronted with is how to effectively implement technology-neutral supervision so that similar risks are under the same regulation. The spread of DLT in the financial field has improved the quality and efficiency of supervision. However, how to better promote the realization of low-cost supervision is the core purpose of technology application.

DLT enables the decentralized exchange of asset-backed tokens and the decentralized financial engineering based on these tokens through automatically executed (“smart”) contracts. The most fundamental innovation is that it establishes data credibility with a decentralized data structure based on economic consensus, promoting the development of financial markets. Besides, the embedded supervision can also alleviate conflicts between data availability, the cost of data collection and verification, and privacy. Compliance expenditures place a heavy burden on financial institutions and have a greater impact on smaller companies. The embedded supervision can use encryption tools to report the financial risks of the organization to the supervisor, without revealing the underlying individual transactions, thereby maintaining the confidentiality of the company and its customers.