Marcelo Salhab Brogliato

Bruno Ramos Campana

Yan Martins

Resumo

In this paper, we propose a technical solution to implement financial regulation into secondary markets of tokenized financial assets. This solution may assist entities in transitioning their financial market infrastructures from legacy systems to DLT platforms. We conceived the solution for a context where one wants to keep the current financial regulatory framework working, and a central authority has the final word. The main design points of the solution are as follows: (i) financial regulation is implemented as an off-chain layer; (ii) the three roles of this market are token issuers, investors, and a single central authority; (iii) the core component to implement such solution is a feature of DLTs called ‘multi-signature wallet’; and (iv) using multi-signature wallets one creates a signature scheme that makes possible the financial regulation compliance of all transactions added to the ledger. After presenting the solution, we explain why we decided to use an off-chain layer rather than an on-chain layer using smart contracts. The main reason for this design decision is that because we have a central authority, most of the benefits of encoding financial regulation into smart contracts are drained. Thus, the disadvantages of an on-chain layer outpace the benefits. An offchain regulation layer allows the compliance of the solution with the current financial regulatory framework, avoids legal risks, keeps the main benefits of using DLTs, provides agility to adapt and evolve, and makes possible a smooth yet progressive movement to implement DLT into the financial market infrastructure. For all these reasons, we conclude that an off-chain regulation layer brings the optimal solution for the given context