Regulating Smart Contract Applications in China: How to Strike a Balance between Innovation and Compliance?

Abstract

Smart contract technology has revolutionized sectors like finance and supply chain management through its automated execution and decentralized nature in China.However, its rapid adoption necessitates robust regulatory frameworks to curb risks such as illegal activities and security vulnerabilities.A comparative analysis of international regulatory approaches reveals divergent policy priorities: the EU emphasizes personal data protection, the US fosters innovation in digital assets, Japan prioritizes transactional safety, South Korea safeguards investor rights, and the UK leverages regulatory sandboxes to balance innovation with control.This paper proposes a hybrid framework of community self-governance and indirect regulation to better mitigate risks while fostering the sustainable development of smart contract applications in China.A hierarchical evaluation system is also introduced, encompassing ex-ante review, interim monitoring, and ex-post audit, supported by quantifiable metrics to enhance regulatory efficacy.