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.
This paper presents a conceptual architecture for a hybrid distributed ledger system designed to address challenges in cross-border payments and remittances. Current payment infrastructure suffers from high costs, slow settlement times, and limited transparency. While cryptocurrency-based public blockchains and permissioned enterprise systems have been proposed separately, a comprehensive framework integrating both approaches with traditional payment rails remains lacking. We propose a multi-layered architectural design that combines Hyperledger Fabric for inter-bank settlement, R3 Corda for bilateral agreements, and existing payment systems for retail transactions. The proposed system incorporates consensus optimization strategies, atomic cross-ledger transaction protocols, and automated regulatory compliance mechanisms. Through architectural analysis and comparison with existing systems, we identify key design principles for scalability, interoperability, and regulatory compliance. This work contributes a detailed architectural specification and identifies critical research challenges requiring future investigation, including performance optimization, security validation, and regulatory framework development. The proposed architecture serves as a foundation for future implementation and empirical evaluation.
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.
In recent years, the rapid growth of Decentralised Finance (DeFi) has revolutionised traditional financial services, with approximately $120 billion in total value locked (TVL) across various protocols. However, this expansion has been accompanied by significant security challenges, including major losses from DeFi hacks alone. The absence of centralised safety nets and the technical complexity of smart contract auditing have created substantial barriers to mainstream DeFi adoption, particularly among risk- averse users who lack the expertise to assess protocol vulnerabilities independently. This report presents the design and implementation of a decentralised insurance protocol that addresses these critical risk management challenges through an innovative tokenisation model. The proposed system introduces Insurance Tokens (ITs) and Principal Tokens (PTs) as the core mechanisms for providing insurance coverage against smart contract exploits and protocol failures in DeFi. ITs represent units of insurance coverage that can be freely traded on decentralised exchanges (DEXs) until expiration, enabling a liquid secondary market for DeFi insurance. PTs represent ownership stakes in the coverage fund, allowing underwriters to provide capital while maintaining the flexibility to exit positions through token sales or redemption at maturity. The protocol hopes to create a more accessible DeFi ecosystem by providing transparent, efficient and accessible insurance coverage, ultimately contributing to broader DeFi adoption and establishing a trustworthy framework for on-chain risk management.
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.
Purpose The purpose of this study is to identify how Ethereum transforms the concepts of power, resilience and ethics in decentralized digital systems using the theories of Michel Foucault and Nassim Taleb. Design/methodology/approach The research relies on a conceptual approach that includes a literature review and qualitative analysis of key cases, such as the decentralized autonomous organizations (DAO) hack and Ethereum’s transition to the Proof of Stake mechanism. Data synthesis is carried out through the theoretical frameworks proposed by Foucault and Taleb. Findings Ethereum alters the dynamics of power through the use of smart contracts and DAO. The platform demonstrates antifragility by successfully adapting to crises and embodies the “Skin in the Game” principle through the staking mechanism. However, ethical challenges related to privacy arise, highlighting the importance of finding a balance between transparency and privacy. Research limitations/implications The research focuses exclusively on Ethereum, which limits the generalizability of the findings. Future research should consider other blockchain platforms. Social implications The work emphasizes the need to resolve the conflict between blockchain transparency and the right to privacy in the digital environment. Originality/value This work offers a new conceptual framework for studying decentralized systems by combining Foucault’s ideas on power with Taleb’s theories on antifragility and ethical participation. Special attention is given to the ethical aspects of digital governance.
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.
Carlos Alberto Durigan, Fernando José Barbin Laurindo
Blockchain is a Distributed Ledger Technology (DLT) which supports cryptocurrencies, Decentralized finance (DeFi) is a blockchain-based financial infrastructure, the term generally refers to an open, permissionless, and highly interoperable protocol stack built on public smart contract platforms, such as the Ethereum blockchain. DeFi does not rely on intermediaries and centralized institutions. Instead, it is based on open protocols and decentralized applications (Dapps). Considering that there are many digital coins, stablecoins and recently the advent of central bank digital currencies (CBDCs by Central Banks) and tokenized assets it is important to observe that these protocols may interact among themselves. These IT protocols interactions may be complex and there should be effective IT governance frameworks to guide points like interoperability and interconvertibility of digital assets based on DLTs protocols. IT governance framework based on these technologies is still a challenge in the literature. Considering these points, this paper seeks to explore literature through a Systematic Literature Review methodology in order to find the state of the art about this theme. Results show that Literature explore DLT governance as a whole, including information technology (IT) aspects. However, there is a lack in the literature about IT governance for interoperability and interconvertibility among complex DLT protocols interactions. Discussions, future research, limiting factors and conclusions are fully stated. Keywords: Distributed Ledger Technology (DLT), IT Governance, Central Bank Digital Currency (CBDC), Tokenization, Decentralized Finance (DeFi).
Blockchain-based financial systems: Trust, transparency, and the future of decentralized financeBlockchain technology is increasingly recognized as one of the most transformative innovations in contemporary finance (Andronie et al., 2024).By embedding verification, trust, and transparency into decentralized digital infrastructures, it challenges conventional assumptions regarding the organization, regulation, and governance of financial systems (Turek et al., 2023;Balcerzak & Valaskova, 2024).The conceptual foundations and practical implications of blockchain-based financial systems are examined, with particular emphasis on three interrelated dimensions: the reconfiguration of trust, the emergence of transparency as a systemic aFribute, and the evolving architecture of decentralized finance (Lzroiu et al.,
This study systematically reviews scientific research on predicting cryptocurrency markets. A total of 790 articles obtained from the Web of Science database were included in the analysis, and the structure of the literature was evaluated using bibliometric methods. The preliminary investigation indicated that studies examining the prediction of cryptocurrencies have undergone a substantial increase since 2016. While a significant proportion of the extant literature pertains to Bitcoin, the first cryptocurrency, it is evident that other cryptocurrencies, such as Ethereum, have also attracted the attention of researchers over the years. The analysis yielded four primary categories: machine learning-based prediction methods, financial risk and volatility analyses, behavioral and technical determinants, and finally, advanced deep learning methods. In the context of cryptocurrency prediction, studies have underscored the significance of attributes, emphasizing their role in enhancing the efficacy of prediction models. These studies have also highlighted the impact of integrating machine learning and deep learning-based models with conventional methods in enhancing the performance of established models. The study emphasizes the necessity to direct future research towards the integration of behavioral indicators and the examination of multiple market relationships.
Autonomous financial agents, powered by the convergence of artificial intelligence and blockchain technology, represent a paradigm shift in decentralized finance. These self-operating entities now possess capabilities to hold cryptocurrency wallets, execute complex transactions, and even launch tokens without human oversight. The architectural framework supporting these agents integrates specialized language models, secure wallet management systems, and persistent on-chain identities. From market-making to yield optimization, these agents demonstrate remarkable efficacy across various financial operations, creating novel market dynamics when interacting with both human participants and other autonomous systems. Essential to mainstream adoption are sophisticated reputation frameworks combining algorithmic assessment with social consensus mechanisms. However, significant challenges exist, including market manipulation vulnerabilities, spam production, and regulatory complexity. As these autonomous agents continue evolving, appropriate governance models tailored to agent characteristics become critical for balancing innovation with market integrity in this emerging financial landscape.
The rapid expansion of cryptocurrencies and decentralized finance (DeFi) has redefined global financial systems, creating new challenges in asset pricing, risk measurement, and systemic stability. This study conducts a comprehensive review of 93 peer-reviewed articles published between 2019 and 2024 to consolidate the fragmented literature on mathematical models applied to cryptocurrencies and DeFi platforms. Using a mixed bibliometric–systematic approach based on the Preferred Reporting Items for Systematic Reviews and Meta-Analyses (PRISMA) framework, the review integrates performance indicators, conceptual mapping, and qualitative synthesis to identify methodological advances and research trends. The findings reveal a progressive convergence between econometric models, such as the Generalized Autoregressive Conditional Heteroskedasticity (GARCH), stochastic volatility, and Lévy processes, and data-driven approaches based on machine learning (ML), deep learning (DL), and reinforcement learning (RL). These hybrid frameworks enhance predictive accuracy and adaptability in high-frequency and non-linear blockchain markets. The review also highlights optimization-based decision models that integrate Conditional Value-at-Risk (CVaR), network theory, and portfolio analytics for decentralized finance operations. However, interpretability, governance, and environmental sustainability remain underexplored dimensions. The study contributes by classifying mathematical approaches to pricing, volatility, and risk propagation, identifying methodological gaps, and recommending future research on explainable artificial intelligence (AI), environmental and cyber-risk modeling, and real-time validation for transparent and resilient decentralized financial ecosystems. • Review 93 studies analyzing mathematical models in cryptocurrency and digital finance systems. • Identify emerging methods for pricing, risk, and portfolio decisions under high volatility. • Compare deep learning models to traditional methods for forecasting and risk evaluation. • Evaluate decision models that include environmental, risk, and governance factors. • Recommend future research on interpretable tools for real-time decision-making.
Anisa Nasib, Siti Nadiah Mohd Salim, Nurul Ain Othman
The incorporation of tawarruq mechanisms within digital ar-rahnu systems signifies a pivotal transformation in the architecture of Shariah-compliant financial services. This mini-review critically investigates the convergence between tawarruq-based financing frameworks and emerging digital technologies namely artificial intelligence (AI), mobile applications, and blockchain infrastructure through the lenses of operational potential, regulatory complexity and Shariah alignment. Technological advancements such as ChatGPT and other AI-driven models are evaluated for their capacity to streamline operational efficiency, facilitate automated Shariah compliance screening and enhance consumer interaction. However, the implementation of these tools also introduces critical concerns related to citation reliability, jurisprudential depth and adherence to Islamic legal ethics. Major challenges encompass disparities in digital literacy, the commodification of personal data under surveillance capitalism, and threats to digital sovereignty. On the contrary, digital innovations like decentralized autonomous organizations (DAOs) and inclusive blockchain-based financial platforms offer promising avenues for expanding access to Islamic financial services. The review further assesses the efficacy of AI-generated content in Islamic finance, recognizing its value in preliminary knowledge dissemination while highlighting its deficiencies in scholarly rigor. This paper contributes to the evolving discourse on digital Islamic finance by emphasizing the necessity of rigorous Shariah governance to ensure ethical and effective integration of technology in tawarruq-driven financial instruments.
This study aims to analyze the volatility spillovers between Bitcoin and Ethereum, the two main actors in the cryptocurrency market, and altcoins across sectoral and financial groups. Using data from January 1, 2021, to March 6, 2023, the study applied the VAR-based method developed by Diebold and Yılmaz (2012) and measured both directional and total volatility spillovers. The findings show that Bitcoin's volatility largely stems from internal dynamics and spreads to other cryptocurrencies to a limited extent. In contrast, Ethereum is more affected by external shocks and exhibits a stronger volatility spillover across the market. Among altcoin categories, Gaming, Analytics, and DeFi groups were found to be the most influential in volatility transmission, while thematic tokens such as NFT, Web3, and Metaverse were more sensitive to external volatility. In contrast, stablecoins and tokens in the identity and healthcare sectors were found to have relatively low volatility and a more stable structure. These results offer important insights for investors and regulators regarding risk management strategies and portfolio diversification. The study provides a valuable framework for understanding the systematic volatility dynamics within the cryptocurrency ecosystem
This paper examines the recurring dynamics of financial crises through a comparative case study of the Dotcom bubble, the 2008 global financial crisis, and the ongoing cryptocurrency era. The objective is to investigate whether cryptocurrencies represent a genuine financial revolution or a repetition of past speculative manias. Using a qualitative methodology, the study applies a behavioral finance framework to analyse biases such as herding, overconfidence, and FOMO, and combines this with the evaluation of market data, including IPO trends, interest rates, and volatility indices. The results reveal strong equivalents across all three cycles. In each case, investor sentiment amplified volatility, and speculative assets obscured true risk. Weak regulation left markets vulnerable to collapse. Today’s ICOs are a reflection of IPOs in the Dotcom bubble, meanwhile the regulatory faults in 2008 find similarities in decentralized finance (DeFi). Moreover, the evidence challenges the Efficient Market Hypothesis, which markets illustrate collective perceptions instead of objective fundamentals. The findings suggest that financial markets repeat inefficiencies in new forms. Cryptocurrencies risk becoming another phase in the history of financial instability without coordinated regulation, investor education, and macroprudential monitoring.
Blockchain, originally devised for Bitcoin, has evolved beyond cryptocurrencies to become a transformative technology in banking and finance. Its decentralized, secure, and transparent characteristics promise improved efficiency, reduced fraud, and cost savings. However, challenges such as scalability, regulatory uncertainty, and cybersecurity risks persist. This paper explores the benefits, risks, and future prospects of blockchain adoption in the financial sector. The study includes a review of existing literature, real-world applications, and an analysis of ongoing challenges and potential future developments.
Sara Antinozzi, Liliana Cecere, Francesco Colace, Angelo Lorusso · 6 authors
The integration of Building Information Modelling (BIM), blockchain technology, and smart contracts presents a significant opportunity to fundamentally reevaluate the administration of information and contracts in construction projects. This article introduces a distributed system that amalgamates BIM models, decentralized storage via IPFS, semantic oracles, and smart contracts to automate essential procedures such as versioning, design verification, and payment issuance contingent upon execution milestones. This proof of concept, built on a Proof-of-Authority blockchain using actual IFC models, demonstrates the technical viability of the method and evaluates its performance, constraints, and operational implications. The applications of SAL automation and design review demonstrate that integrating off-chain verification with on-chain documentation can reduce uncertainty, enhance accountability, and enable hitherto unattainable forms of contract automation. The suggested framework acknowledges the need for improved information standards and Oracle governance, demonstrating that integrating BIM and distributed technologies can significantly transform the digitalisation of the construction sector.
ABSTRACT This study investigates the impact of environmental attention on cryptocurrency market volatility by introducing the Crypto Environmental Attention Index (CEAI), a new metric inspired by Wang et al. (2022) and constructed using daily web search data. Environmental concerns can significantly impact the popularity and volatility of cryptocurrencies, influencing risk perceptions, and shaping market dynamics. Using vector autoregression (VAR), vector error correction models (VECM), and Granger causality tests on data from 2014 to 2022, the study finds that Ethereum's volatility is strongly influenced by the CEAI in both the short and long‐term, whereas Bitcoin volatility has a short‐term unidirectional effect on environmental attention and a bidirectional relationship in the long term. This study is situated within a broader economic framework of sustainable finance, the transition to greener blockchain technologies, and regulatory responses to environmental issues. It offers actionable insights for risk management, policy formulation, and cryptocurrency valuation using environmental, social, and governance (ESG) criteria.
This edition advances our scholarly mission to explore how frontier technologies—ranging from artificial intelligence, blockchain, tokenization, digital identity systems, and decentralized finance to advanced econometric modeling—are reshaping global financial ecosystems while addressing pressing social, economic, and environmental challenges. Building upon the intellectual foundation established in previous issues, this volume brings together empirically rigorous and conceptually innovative contributions that illuminate the dynamic interplay between digital transformation, ethical governance, institutional capacity, and sustainable development. The manuscripts featured in this issue employ a wide spectrum of analytical methods, including bibliometric mapping, qualitative case study design, and ARDL cointegration modeling, enriching our understanding of how next-generation financial technologies influence real-world socioeconomic outcomes.