Tradeoffs in automated financial regulation of decentralized finance due to limits on mutable turing machines
Abstract We examine which decentralized finance architectures enable meaningful regulation by combining financial and computational theory. We show via deduction that a decentralized and permissionless Turing-complete system cannot provably comply with regulations concerning anti-money laundering, k...
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| Format: | Article |
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Nature Portfolio
2025-01-01
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| Series: | Scientific Reports |
| Online Access: | https://doi.org/10.1038/s41598-024-84612-9 |
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| _version_ | 1832585886687035392 |
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| author | Ben Charoenwong Robert M. Kirby Jonathan Reiter |
| author_facet | Ben Charoenwong Robert M. Kirby Jonathan Reiter |
| author_sort | Ben Charoenwong |
| collection | DOAJ |
| description | Abstract We examine which decentralized finance architectures enable meaningful regulation by combining financial and computational theory. We show via deduction that a decentralized and permissionless Turing-complete system cannot provably comply with regulations concerning anti-money laundering, know-your-client obligations, some securities restrictions and forms of exchange control. Any system that claims to follow regulations must choose either a form of permission or a less-than-Turing-complete update facility. Compliant decentralized systems can be constructed only by compromising on the richness of permissible changes. Regulatory authorities must accept new tradeoffs that limit their enforcement powers if they want to approve permissionless platforms formally. Our analysis demonstrates that the fundamental constraints of computation theory have direct implications for financial regulation. By mapping regulatory requirements onto computational models, we characterize which types of automated compliance are achievable and which are provably impossible. This framework allows us to move beyond traditional debates about regulatory effectiveness to establish concrete boundaries for automated enforcement. |
| format | Article |
| id | doaj-art-f3c079cb2daa4f298e78c743c64d1732 |
| institution | Kabale University |
| issn | 2045-2322 |
| language | English |
| publishDate | 2025-01-01 |
| publisher | Nature Portfolio |
| record_format | Article |
| series | Scientific Reports |
| spelling | doaj-art-f3c079cb2daa4f298e78c743c64d17322025-01-26T12:27:01ZengNature PortfolioScientific Reports2045-23222025-01-0115111810.1038/s41598-024-84612-9Tradeoffs in automated financial regulation of decentralized finance due to limits on mutable turing machinesBen Charoenwong0Robert M. Kirby1Jonathan Reiter2INSEAD, Asia CampusKahlert School of Computing, University of UtahChainArgos, ResearchAbstract We examine which decentralized finance architectures enable meaningful regulation by combining financial and computational theory. We show via deduction that a decentralized and permissionless Turing-complete system cannot provably comply with regulations concerning anti-money laundering, know-your-client obligations, some securities restrictions and forms of exchange control. Any system that claims to follow regulations must choose either a form of permission or a less-than-Turing-complete update facility. Compliant decentralized systems can be constructed only by compromising on the richness of permissible changes. Regulatory authorities must accept new tradeoffs that limit their enforcement powers if they want to approve permissionless platforms formally. Our analysis demonstrates that the fundamental constraints of computation theory have direct implications for financial regulation. By mapping regulatory requirements onto computational models, we characterize which types of automated compliance are achievable and which are provably impossible. This framework allows us to move beyond traditional debates about regulatory effectiveness to establish concrete boundaries for automated enforcement.https://doi.org/10.1038/s41598-024-84612-9 |
| spellingShingle | Ben Charoenwong Robert M. Kirby Jonathan Reiter Tradeoffs in automated financial regulation of decentralized finance due to limits on mutable turing machines Scientific Reports |
| title | Tradeoffs in automated financial regulation of decentralized finance due to limits on mutable turing machines |
| title_full | Tradeoffs in automated financial regulation of decentralized finance due to limits on mutable turing machines |
| title_fullStr | Tradeoffs in automated financial regulation of decentralized finance due to limits on mutable turing machines |
| title_full_unstemmed | Tradeoffs in automated financial regulation of decentralized finance due to limits on mutable turing machines |
| title_short | Tradeoffs in automated financial regulation of decentralized finance due to limits on mutable turing machines |
| title_sort | tradeoffs in automated financial regulation of decentralized finance due to limits on mutable turing machines |
| url | https://doi.org/10.1038/s41598-024-84612-9 |
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