There have been various attempts at token standards on numerous blockchain platforms today to fundamentally change the way assets are traded in the traditional capital markets, but there is a lack of research and resolution on regulatory issues that become the common foundation for interoperability and reusable standards. Our proposal, Regulatory Compliance Protocol (RCP), is based on the regulations and reports of 15 global financial institutions and standardizes recommendations and guidelines involving the overall asset tokenization of TradFi and DeFi into five regulatory groups: Traceability, Privacy, Enforceability, Finality and Tokenizability, compiling them into 31 items and presenting a benchmark for technology and standards as an underlying protocol. To review the legality and effectiveness of RCP, it was validated based on three tokenization and trading scenarios, and by benchmarking existing asset-tokenization standards (ERC-20, ERC-7943, ERC-1400, and ERC-3643) against RCP, it makes explicit which regulatory requirements each standard addresses at the token level and which remain inherently off-chain.
Real-world asset (RWA) tokenization has emerged as a prominent application of blockchain technology, enabling off-chain financial and non-financial assets to be represented through blockchain-based instruments. However, deployed RWA systems remain difficult to compare because legal claims, custody arrangements, token mechanics, verification processes, and on-chain integrations are often described separately. This paper develops a systems-level taxonomy of RWA tokenization to classify how off-chain assets are legally, economically, and technically represented on-chain. Following an iterative taxonomy-development method, we organize twenty-three dimensions into five components: governance, asset structure, token properties, distributed ledger technology, and economy. We apply the taxonomy to twenty major RWA systems selected by market capitalization and compare their design choices across asset classes and implementation models. The classification shows that current RWA tokenization is predominantly implemented through hybrid architectures: blockchain tokens support representation, transfer control, redemption workflows, pricing, and composability, while core legal guarantees remain anchored in off-chain legal wrappers, custodial arrangements, compliance processes, and verification mechanisms. The analysis also reveals recurring documentation gaps concerning voting rights, dispute forums, burn mechanics, supply constraints, and reserve verification. Overall, the taxonomy provides a structured basis for comparing RWA systems, identifying design patterns and limitations, and supporting future research on blockchain-based financial infrastructure.
Smart contracts implement financial logic on public blockchains, and external code audits are a primary means of providing assurance about their security. This paper discusses Landsman, Lyandres, Maydew, Rabetti, and Zhang (Journal of Accounting and Economics, forthcoming), who describe and analyze the market for smart contract audits. I provide a brief primer on blockchains and smart contracts, explain what distinguishes blockchainbased finance from traditional finance, outline why no audit can guarantee security in an open, permissionless environment, and discuss how Landsman et al.s findings relate to financial auditing. A central result in their paper is that pre-launch audits do not predict fewer breaches, which is noteworthy and consistent with the view that a smart contract audit, like a financial audit, is a snapshot, not a shield. Beyond the conceptual and methodological parallels between smart contract and financial audits, two distinctive features merit the attention of accounting scholars: open code forking, which creates networks of common-code exposure and correlated systemic risk, and bug bounty programs, which provide a crowdsourced and potentially continuous form of assurance.
The rapid expansion of decentralised finance (DeFi) has elevated digital assets, particularly Non-Fungible Tokens (NFTs), to a prominent position within contemporary financial markets. NFTs are blockchain-based digital tokens enabled by smart contracts that facilitate verifiable ownership and authentication in decentralised environments. Despite growing international efforts to regulate NFT markets, clear legal frameworks—especially those addressing Shariah-compliant NFTs—remain underdeveloped. In Malaysia, the Islamic Financial Services Act 2013 (IFSA) and the Securities Commission Malaysia’s Digital Assets Guidelines provide only limited guidance on the classification, ownership, and enforceability of NFT-based financial products. This article examines the development of NFTs, analyses the existing Malaysian legal framework, and evaluates the readiness of Malaysia’s regulatory architecture to accommodate Shariah-compliant NFTs. Adopting a doctrinal methodology supported by case analysis, the study explores the applicability of current laws to NFT transactions and undertakes a comparative assessment of regulatory developments in the United Arab Emirates. The absence of explicit regulatory provisions raises significant Shariah compliance concerns, particularly in relation to gharar (uncertainty), riba (usury), and the recognition of māl (legitimate ownership), which may impede Malaysia’s aspiration to emerge as an Islamic DeFi hub. This study finds that Malaysia’s existing legal framework lacks specific Shariah compliance mechanisms for the legal recognition and governance of NFTs. Accordingly, targeted regulatory reforms are necessary to address the legal and Shariah complexities associated with NFTs and to facilitate responsible digital innovation within Malaysia’s Islamic DeFi ecosystem.
NFTs provided an extraordinary real-time laboratory for bubble economics: returns were exceptionally right-skewed, illiquidity pervaded even the most active platforms, and a handful of trades drove aggregate performance. Investors extrapolating from realized returns without recognizing selection bias and survivorship faced a substantial risk of disappointment. As our data and simulations confirm, successful NFT investing during the bubble required an almost perfect confluence of timing, liquidity, and luck. Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org .
We identify a core microfoundation of digital entrepreneurial ecosystems (EE): social learning in the form of information cascades. Using decentralized autonomous organizations (DAOs) as a laboratory where micro-level coordination processes are directly observable on blockchains, we trace how individual-level voting behavior aggregates into ecosystem-level outcomes. Exploring hand-collected data covering 19,450,710 votes from 924,095 unique voters in 3,317 DAO governance proposals, we estimate economically strong information cascades that run from influential through early to late voters. Several contextual factors impede social learning in DAOs, including the presence of cybercriminals in the DAO community and market sentiment, while the decentralization of token ownership is an important prerequisite for information cascades to unfold. Finally, we document a link between the potency of information cascades and the financial performance of DAOs. Stronger information cascades are associated with higher market capitalization, trading volume, and abnormal cryptocurrency token returns. Overall, we contribute to the EE literature by demonstrating how observable micro-level learning processes triggered by influential agents in the network scale into ecosystem-level financial performance.
Decentralized Autonomous Organizations (DAOs) represent a novel organizational form enabled by blockchain technology, characterized by decentralized governance, token-based incentives, and automated execution via smart contracts. This paper conceptualizes DAOs as entrepreneurial firms, examining their governance structures, incentive mechanisms, and failure dynamics. Drawing on emerging empirical studies and organizational theory, the paper argues that while DAOs reduce traditional agency costs and enhance transparency, they introduce new coordination challenges, participation inefficiencies, and systemic vulnerabilities. The analysis reveals that governance concentration, misaligned incentives, and low participation rates contribute significantly to DAO failure rates. The paper proposes a hybrid governance framework integrating decentralized mechanisms with adaptive institutional controls to improve DAO sustainability. This study contributes to entrepreneurship literature by positioning DAOs as a new frontier in digital firm formation and entrepreneurial finance.
This paper investigates how blockchain consensus mechanisms and market mechanisms of liquidity provision affect price bubble formation in cryptocurrency markets. Specifically, we compare Proof-of-Work (PoW) and Proof-of-Stake (PoS) under two trading environments: a Limit Order Market (LOM) and an Automated Market Maker (AMM). We conduct a controlled laboratory experiment following a 2×2 between-subject design, generating four treatments: PoW-LOM, PoW-AMM, PoS-LOM, and PoS-AMM. Market outcomes are evaluated using standard bubble measures, including RD, RAD, RDMAX, AMPLITUDE, and CRASH. The results show that AMM-based markets exhibit weaker bubble dynamics than LOM-based markets, with lower mispricing, smaller peak overvaluation, and less severe crashes. By contrast, the results do not support the hypothesis that bubble formation is lower under PoS than under PoW. Instead, in the experimental setting, PoS treatments display stronger bubble patterns than PoW treatments. Overall, our results show that the institutional design of cryptocurrency markets plays an important role in shaping speculative price dynamics and market stability.
Blockchain oracles combine, within a single arrangement, activities that traditional finance assigns to distinct and in part regulated entities. We develop a four-stage oracle data lifecycle framework, covering sourcing, collection and reporting, aggregation, and delivery and consumption, and compare each stage with its counterpart in traditional wholesale data markets. In traditional markets, safeguards attach at the regulated start and end points of that lifecycle, and liability for mispricing rests on identifiable contractual parties. In DeFi, no regulated end-point exists: smart contracts execute on oracle prices automatically and irreversibly, and end-users bear mispricing risk without redress. Distinguishing control-based from supply-based regulatory hooks, we classify oracles as suppliers to DeFi arrangements. Because the risks accompanying the same activities differ, transplanting benchmark regulation would be disproportionate. We identify three paths forward: DeFi literacy, public-permissioned oracle networks, and regulated benchmark administrators publishing on-chain.
Decentralized finance (DeFi) has emerged as a significant financial innovation, using blockchain technology and smart contracts to replicate and expand traditional financial services without intermediaries. This review synthesizes the literature across seven dimensions: token financing, trading and liquidity, cryptocurrency as an asset class, governance, risk, monetary system implications, and infrastructure. We identify several key findings: tokens solve coordination problems but face design trade-offs; cryptocurrency markets exhibit distinct risk factors, yet most price volatility reflects beliefs rather than fundamentals; decentralization is partial and endogenous, with concentration emerging in mining, staking, and governance; novel risks including stablecoin fragility and MEV extraction require new frameworks; and infrastructure constraints shape feasible applications. We conclude by proposing directions for future research.
O estudo analisa o cenário de investimento no ecossistema de startups Web3 entre os anos de 2024 e 2025, identificando um processo de maturação e consolidação setorial. Observa-se a transição de um modelo de financiamento especulativo para uma abordagem estratégica, com foco em infraestrutura crítica e modelos de negócio sustentáveis. Embora os dados apontem uma redução quantitativa no volume de transações — exemplificada pela queda de 34% no primeiro trimestre de 2025 em comparação ao período anterior —, constata-se um aumento no valor médio por investimento. Conclui-se que o mercado atravessa uma fase de ajuste pós-volatilidade, na qual a sofisticação dos investidores prioriza a robustez tecnológica e a viabilidade comercial de longo prazo em detrimento do volume de operações.<br>
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Decentralized finance (DeFi) promises cheaper, faster and more accessible financial services by replacing traditional regulated intermediaries with software protocols and smart contracts. But removing those intermediaries also removes the practical chokepoints for implementing modern financial regulation: customer identification and screening, disclosure, recordkeeping, operational safeguards and incident reporting. This paper argues that the core compliance challenge in DeFi is therefore a governance problem: regulators should focus less on DeFi’s underlying computer code and more on the control points where compliance duties could realistically be assigned, supervised and enforced. Identifying those control points could be challenging, however, because DeFi responsibilities are dispersed across software developers, governance structures, parties that interface with investors and third-party service providers. To address that challenge, the paper proposes a layered regulatory strategy comprising four complementary approaches: identifying and regulating gateway intermediaries that facilitate access to DeFi services; prescribing the compliance obligations those intermediaries should assume; establishing targeted governance standards for smart contracts and the oracle and data inputs on which they depend; and applying shadow-banking-type safeguards to constrain spillover channels between DeFi and the traditional financial system. No single approach would be sufficient on its own; their combined effect would reconstruct, at workable control points, the most critical accountability and oversight functions that DeFi displaces. Properly designed and implemented, this strategy could help to preserve DeFi’s efficiency benefits while cost-effectively restoring regulatory protection and accountability.
Hong Kong Institute for Monetary and Financial Research
This paper is written by Evgeny Lyandres (Tel Aviv University) and Alexander Zaidelson (SCRT Labs). This paper performs a comprehensive empirical investigation of liquidity provision into concentrated liquidity (Uniswap V3) pools on the Ethereum blockchain. To examine the performance of liquidity provision strategies and their determinants, we reverse-engineer each liquidity pool’s history and measure every liquidity position’s return. We also decompose each position’s return into components, including core elements—non-concentrated liquidity provision and liquidity concentration. Returns to the core components of liquidity provision are negative on average but are mildly positive within the sample of frequent liquidity providers. Some liquidity providers seem to possess skill, as evidenced by persistence in performance, by learning from past experience, and by associations between several position and liquidity provider characteristics on one hand and performance on the other hand. We compare quantitative and discretionary liquidity provision strategies and their performance and find that quant liquidity providers significantly underperform discretionary ones. This underperformance cannot be fully traded to measurable differences in strategies of the two types of liquidity providers. Successful quant liquidity providers employ strategies that are largely similar to those of successful discretionary liquidity providers.
The rapid evolution of cryptocurrency, blockchain technology, and Web3 ecosystems has significantly transformed global financial systems and digital economies. India has emerged as one of the largest cryptocurrency adoption markets due to increasing internet penetration, fintech innovation, digital payment infrastructure, and a young technology-oriented population. Simultaneously, the rise of decentralized finance (DeFi), tokenized assets, Central Bank Digital Currencies (CBDCs), and artificial intelligence integration with blockchain has redefined the scope of digital assets beyond speculative investment instruments. This research paper examines the emerging trends, regulatory developments, opportunities, and challenges associated with cryptocurrency and blockchain adoption in India in 2026. The paper also analyses government policies, taxation frameworks, investor behavior, cybersecurity risks, and institutional participation. The findings suggest that India possesses strong potential to become a global blockchain innovation hub if supported by balanced regulation, improved investor awareness, and sustainable technological development.
The intermediated holding of investment securities through tiered custody chains undermines the rights of investors. Distributed ledger technology offers potential solutions through direct investor-issuer connections, but emerging regulatory frameworks paradoxically recreate intermediation while providing weaker safeguards than for traditional securities. This article examines how current legal approaches to tokenised securities risk creating worse outcomes for investors, particularly retail participants.
The advancement of blockchain technology has introduced new digital economic instruments, notably Non-Fungible Tokens (NFTs), which function not only as representations of digital asset ownership but also as investment vehicles with highly volatile values. This development has sparked debates within Islamic law, particularly regarding the presence of gharar (excessive uncertainty) and maisir (speculative gambling) in NFT investment practices. This study examines the legal status of NFT investment from the perspective of ḥadīth-based muʿāmalah and analyzes the extent to which gharar and maisir are inherent in its transactional mechanisms. Employing a qualitative library research approach, this study uses descriptive-analytical methods to examine Prophetic ḥadīths prohibiting gharar and maisir, and contextualizes them within the technical characteristics and transaction structures of NFTs. Data sources include classical ḥadīth collections, ḥadīth commentaries, fiqh al-muʿāmalah literature, and relevant contemporary scholarly works. The findings indicate that NFTs, as digital assets, possess definable objects, ownership clarity, and verifiable delivery through blockchain technology, and therefore do not inherently constitute gharar. However, the use of cryptocurrency, extreme price volatility, and short-term speculative behavior may introduce elements of gharar and maisir if not accompanied by clear valuation, utility, and investment objectives. Consequently, the permissibility of NFT investment cannot be generalized but must be assessed contextually to uphold justice and the protection of wealth (ḥifẓ al-māl).
Qian'ang Mao, Jiaxin Wang, Liu Ya, Li Zhu · 6 authors
The decentralized architecture of Web3 technologies creates fundamental challenges for Anti-Money Laundering and Counter-Financing of Terrorism compliance. Traditional regulatory technology solutions designed for centralized financial systems prove inadequate for blockchain's transparent yet pseudonymous networks. This systematization examines how blockchain-native RegTech solutions leverage distributed ledger properties to enable novel compliance capabilities. We develop three taxonomies organizing the Web3 RegTech domain: a regulatory paradigm evolution framework across ten dimensions, a compliance protocol taxonomy encompassing five verification layers, and a RegTech lifecycle framework spanning preventive, real-time, and investigative phases. Through analysis of 41 operational commercial platforms and 28 academic prototypes selected from systematic literature review (2015-2025), we demonstrate that Web3 RegTech enables transaction graph analysis, real-time risk assessment, cross-chain analytics, and privacy-preserving verification approaches that are difficult to achieve or less commonly deployed in traditional centralized systems. Our analysis reveals critical gaps between academic innovation and industry deployment, alongside persistent challenges in cross-chain tracking, DeFi interaction analysis, privacy protocol monitoring, and scalability. We synthesize architectural best practices and identify research directions addressing these gaps while respecting Web3's core principles of decentralization, transparency, and user sovereignty.
Bitcoin’s price dynamics are influenced by both internal factors (e.g., supply shocks, investor sentiment) and external drivers, among which the stability of stablecoins has attracted increasing academic and regulatory attention. This paper investigates the effect of stablecoin peg deviations (USDT and USDC) on Bitcoin returns using daily data from January 2020 to August 2025. Based on a vector autoregression (VAR) framework, we conduct unit root tests, lag order selection, model estimation, Granger causality tests, and impulse response analysis. Results show that both Bitcoin returns and stablecoin deviations exhibit strong short-term inertia. USDT and USDC deviations significantly Granger-cause Bitcoin returns, whereas the reverse causality is weaker. Impulse responses indicate that stablecoin deviations first produce positive shocks to Bitcoin returns, followed by negative corrections that gradually stabilize. The effect of USDT is more pronounced and persistent, underscoring its central role in cryptocurrency markets. These findings highlight the importance of monitoring stablecoin market stability, especially USDT, for investors and regulators seeking to manage systemic risks in crypto markets.
The global expansion of Bitcoin and cryptocurrencies brings unanswered questions of the Islamic finance that are legal in nature. The existing research is divided into two camps, namely, total prohibition, or conditional acceptance. It is a thematic analysis of 32 public fatwas (2014-2024) of 12 Islamic jurisdictions in the first systematic analysis. The application of cryptocurrencies and their Shariah acceptability are analyzed. This paper applies the six-stage model offered by Braun and Clarke and it establishes five key jurist themes. The former theme is the ambiguity of the issue of whether cryptocurrencies are to be treated as mal (property) or thamaniyyah (money). The second theme talks about gharar, i.e., excessive uncertainty that is caused by volatility, lack of transparency and regulatory instability. The third theme concerns speculation by trading which is similar to maysir (gambling). The fourth theme is about mafsadah, which is harm to society and includes illicit use, environmental costs and inequality. Lastly, the fifth theme is on interpretations and deviations which form conditional permissibility in the presence of regulation and transparency, which minimises the risks of jurisprudence. The findings indicate that juristic disagreement is not an issue of inconsistency but the use of the various kinds of reasoning on novel financial technologies. The study paves the way in the study of Islamic-finance, by transforming the disjointed textual load of fatwa into a juristic map, which articulates the reasons behind the variance of rulings, as opposed to how they vary. This paper can be used by Shariah boards, regulators, and developers of digital assets to take action on implementing maqasid al-Shari, in the regulation of digital assets.