Digital Currency Risk Identification and Coping Strategies

Abstract

This paper systematically discusses the core risks (price volatility and market manipulation), investor misunderstanding, lack of regulatory framework and the double-edged effect of technological innovation. Through literature review and policy analysis, a three-dimensional regulatory framework of "risk traceability-technology enabling-cross-national collaboration" is proposed, and its effectiveness is verified based on research data. The study systematically identifies the core risks of digital currencies, including extreme price volatility, market manipulation, investor cognitive biases, regulatory gaps, and the dual-edged nature of technological innovation. Through literature review and policy analysis, a three-dimensional regulatory framework integrating "risk traceability, technology empowerment, and cross-border collaboration" is proposed. Empirical studies demonstrate that this framework significantly enhances regulatory efficiency, particularly in anti-money laundering (AML), privacy protection, and cross-border compliance. Furthermore, the dynamic sandbox regulatory model based on zero-knowledge proofs achieves a balance between fostering innovation in decentralized finance (DeFi) and mitigating systemic risks through algorithmic verification and modular design. The research underscores that investor education and international legal coordination are critical pillars for reducing market risks, while blockchain-related technological innovations require continuous optimization in security and transparency. These findings provide both theoretical and practical foundations for constructing a regulatory paradigm tailored to the unique characteristics of digital currencies.The corresponding sandbox regulatory model is proposed to provide new ideas for the regulatory level. The research results provide a theoretical basis for the optimization of digital currency regulatory policy.