Embedded Supervision: How to Build Regulation into Blockchain Finance

Abstract

How might blockchain-based financial markets be regulated and supervised? This paper argues that asset tokenisation and underlying distributed ledger technology (DLT) open up new ways of supervising financial risks. It then puts the case for "embedded supervision", ie a framework that allows compliance with regulatory goals to be automatically monitored by reading the market's ledger, thus reducing the need for firms to actively collect, verify and deliver data.