TL;DR
We introduce the conceptual framework for an Informational EIP proposal based on the Regulatory Compliance Protocol (RCP). This proposal standardizes 31 core requirements from 15 global financial regulatory bodies into five essential regulatory groups for tokenized capital markets.
- Traceability: Complete traceability of transactions and assets
- Privacy: Balance between privacy protection and regulatory compliance
- Enforceability: Effective enforcement authority for regulatory agencies
- Finality: Legal completeness and irreversibility of transactions
- Tokenizability: Effective tokenization of diverse asset classes
This framework aims to establish new standards for regulatory compliance in the Ethereum ecosystem, enabling true interoperability between TradFi and DeFi.
One of the most fundamental challenges facing the blockchain industry today is finding the balance between innovation and regulatory compliance. As the tokenized asset market grows rapidly, the gap between traditional decentralized philosophy and conventional financial regulatory requirements becomes increasingly apparent.
The extensive regulatory research conducted by the Oraclizer team presents a new approach to this dilemma. Rather than simply avoiding or ignoring regulations, we have sought ways to internalize regulatory compliance as a core principle of system design.
Today, we discuss the framework for proposing the Regulatory Compliance Protocol (RCP), the result of this research, as an informational document for Ethereum Improvement Proposals (EIPs).
Fundamental Limitations of Current Token Standards
Security token standards widely used in the current Ethereum ecosystem, such as ERC-1400 and ERC-3643, have certainly shown innovative progress. However, they have significant limitations in meeting the level of regulatory compliance required by actual financial institutions.
“Current security token standards were designed from the perspective of digital native assets and failed to consider complete compatibility with traditional financial regulatory frameworks.”
According to our analysis, ERC-1400 meets only 16 out of 31 core regulatory requirements, while the relatively newer standard ERC-3643 satisfies only 15 requirements[1]. This falls short of even half of the total requirements.
A more serious problem is that these standards take a fragmented approach. Each ERC has different goals and implementation methods, making it difficult to build an integrated regulatory compliance framework.
🔍 Important Note: This is not meant to diminish the value of existing standards. Rather, it emphasizes the need to build a more comprehensive regulatory compliance framework on the foundation they have laid.
Five Core Principles of RCP
Our proposed Regulatory Compliance Protocol is the result of comprehensive analysis of recommendations and financial product guidelines from 15 global financial regulatory bodies. Through this process, we standardized the identified 31 core regulatory requirements into the following five groups.
1. Traceability
Systematic tracking mechanisms for financial safety
Traceability is a core attribute for meeting Know Your Customer (KYC) regulations and Anti-Money Laundering (AML) requirements. This goes beyond simple transaction record keeping to include system-wide identity integration and management.
- Customer Identity Verification: Continuously track and verify the identities of transaction parties
- Suspicious Transaction Monitoring: Real-time detection and reporting of abnormal patterns
- Transaction History Exploration: Provide complete transaction history by asset type
- External Audit Support: Maintain transparent records to respond to regulatory audit requirements
According to Financial Action Task Force (FATF) recommendations, “All suspicious transactions should be reported regardless of amount, and continuous risk-based monitoring is required”[2].
2. Privacy
Balance between privacy protection and regulatory compliance
Privacy presents a complex challenge of protecting sensitive financial information while meeting regulatory requirements in a fully public blockchain environment. This must harmonize modern privacy requirements such as GDPR’s ‘right to be forgotten’ with blockchain’s immutability.
- Personal Information Privacy: Protect identity information of transaction parties
- Financial Transaction Privacy: Selective disclosure of transaction details
- Code Security: Maintain Privacy of smart contract source code
- Need-to-know Principle: Grant information access rights only to necessary parties
3. Enforceability
Effective enforcement authority for regulatory agencies
Enforceability is one of the most innovative elements of RCP. It provides mechanisms for regulatory agencies to make direct and immediate interventions when necessary.
- Asset Freezing: Immediately block asset movement upon detecting suspicious activity
- Asset Recovery: Forced return of illegally acquired assets
- Trading Restrictions: Allow/block transactions under specific conditions
- Blacklist Management: Real-time updates of sanctioned addresses
“Countries should immediately freeze and prohibit transactions with designated individuals and entities to prevent terrorist financing and money laundering” – FATF Recommendation 6[3].
4. Finality
Legal completeness and irreversibility of transactions
Finality serves as a bridge connecting blockchain’s technical immutability with legal certainty. It leverages Distributed Ledger Technology (DLT) consensus mechanisms to ensure the legal validity of transactions.
- Ledger Immutability: Ensure unchangeability of recorded data
- Transaction Finality: Legally recognized final settlement status
- Legal Document Attachment: Connect legal basis documents for tokenized assets
- Dispute Resolution: Provide clear dispute resolution mechanisms
5. Tokenizability
Effective tokenization of diverse asset classes
Tokenizability refers to the RCP framework’s ability to effectively represent various forms of real-world assets on the blockchain.
- Token Expiration Time: Support for financial products with maturity dates
- Transfer Restrictions: Token movement restrictions according to regulatory requirements
- Tokenized Cash/Securities Issuance: Specialized tokenization for various asset classes
- Asset Class Management: Differentiated regulatory application by asset type
💡 Key Insight: These five principles do not operate independently but are closely interconnected to form one integrated regulatory compliance ecosystem.
Strategic Significance of Informational EIP
The reason we propose RCP as an Informational EIP is clear. Rather than forcing technical implementation, it presents a conceptual framework for regulatory compliance that the entire Ethereum ecosystem can share.
Building Standardized Regulatory Language
One of the biggest problems in the current blockchain industry is the lack of common understanding about regulatory compliance. As each project interprets and implements regulations differently, the interoperability of the entire ecosystem is being compromised.
RCP as an Informational EIP provides a common language to solve this problem. This enables developers, regulatory agencies, and financial institutions to communicate using the same standards and terminology.
Laying the Foundation for Future Standards
More importantly, this framework becomes the foundation for specific implementation standards to be developed in the future. We are already planning a Standards Track EIP series based on RCP, all of which will reference this conceptual framework.
🎯 Strategic Roadmap:
- Informational EIP: Establish conceptual framework (current stage)
- Standards Track EIP: Propose specific implementation standards
- Reference Implementation: Develop actual working prototypes
- Ecosystem Adoption: Integration with major DeFi protocols
Compatibility with Global Regulatory Environment
One of the greatest strengths of the RCP framework is its design based on actual regulatory environments. We built this framework based on systematic analysis of real regulatory requirements, not theoretical abstractions.
Comprehensive Regulatory Mapping
Our research team comprehensively analyzed recommendations from the following major regulatory bodies:
- International Financial Regulatory Bodies: IMF, BIS, FATF, FSB
- Financial Market Regulatory Bodies: ISDA, IOSCO, ICMA, GFMA
- National Regulatory Bodies: SEC, ESMA, FCA, MAS, FINMA, etc.
Through this extensive analysis, we were able to derive universal regulatory principles that transcend regional specificities.
“Tokenized assets can be allies to regulation rather than means to bypass it, by increasing transparency, automating compliance, and enabling transaction tracking” – Nasdaq Regulatory Compliance Analysis Report[4].
Adaptability to Future Regulatory Changes
Another important characteristic of the RCP framework is its adaptability to evolving regulatory environments. The five core principles have an appropriate level of abstraction that can maintain the validity of the entire framework even when specific regulatory content changes.
📋 Important Consideration: Regulation is a continuously changing field. RCP reflects the current regulatory environment while having a structure that can flexibly respond to future changes.
Design Considerations for Technical Implementation
Although this is an Informational EIP, we believe this framework should provide technically implementable foundations. Therefore, we want to present specific technical approaches for each core principle.
On-chain and Off-chain Hybrid Approach
One of the most important design decisions in implementing RCP is what information to store on-chain versus off-chain. We propose the following principles:
// On-chain: Compliance status and core metadata
struct ComplianceStatus {
bool isCompliant;
uint256 lastVerificationTime;
bytes32 regulatoryHash; // Hash of off-chain detailed information
}
// Off-chain: Sensitive personal information and detailed documents
// Encrypted and stored in IPFS or permissioned storage
Modular Architecture Design
RCP should be implemented in a modular fashion. This allows each project to selectively implement only the modules that fit their requirements.
- Core Compliance Module: Basic regulatory compliance interface
- Identity Management Module: KYC/AML related functionality
- Enforcement Module: Direct regulatory intervention capabilities
- Privacy Module: Privacy protection mechanisms
- Asset Lifecycle Module: Asset-specific specialized features
🔧 Developer Tip: This modular approach allows existing projects to gradually adopt RCP while keeping development complexity at a manageable level.
Collaboration Process with the Community
In proposing RCP as an Informational EIP, we recognize that extensive collaboration with the Ethereum community is essential. This is not simply presenting our ideas, but a process of creating better standards through collective wisdom.
Expected Challenges and Concerns
We anticipate that this proposal will raise various perspectives and concerns within the Ethereum community:
Decentralization vs Regulatory Compliance: Some may argue that regulatory compliance goes against the decentralized spirit of blockchain. We believe this is not a zero-sum game. Appropriate regulatory compliance can actually facilitate mainstream adoption and enhance ecosystem sustainability.
Implementation Complexity: There may be concerns about complexity due to RCP’s comprehensive nature. To address this, we plan to provide phased implementation guidelines and reference implementations.
Performance and Costs: Concerns about the impact of additional regulatory compliance logic on gas costs and transaction speed are also expected. We are already researching Layer 3 architecture and optimization strategies to solve these problems.
Open Development Process
RCP development will proceed as a completely open process:
- GitHub: All code and documentation publicly available as open source
- Community Meetings: Regular online workshops and AMA sessions
- Feedback Integration: Actively collect and reflect community opinions
- Testnet Experiments: Verification and improvement in real environments
Conclusion: A New Paradigm for Regulatory Compliance
The RCP proposal as an Informational EIP represents a philosophical shift beyond simple technical standards. Instead of viewing regulation as an obstacle to technological innovation, we seek to redefine it as an opportunity to achieve both innovation and stability simultaneously.
If this framework is accepted by the Ethereum ecosystem, we will be able to create an environment where traditional financial institutions can confidently adopt blockchain technology. At the same time, existing DeFi protocols will also be able to access broader markets through regulatory compliance.
RCP is not a completed solution but a starting point. Through the collective intelligence of the Ethereum community, we can together create a new model where innovation and regulatory compliance achieve harmony.
“True innovation does not come from ignoring existing rules, but from the process of creating better rules.”
We hope that the entire Ethereum community will participate together in this journey. We look forward to the RCP Informational EIP developing not as a simple proposal document, but as a living document that becomes the foundation of future financial infrastructure.
References
[1]. Horizen Korea, Oraclizer Core Team. (2024). Regulatory Compliance Protocol (RCP) for Tokenized Capital Markets. https://www.slideshare.net/slideshow/embed_code/key/kAZFXrBLjtkinq
[2]. Financial Action Task Force. (2021). Updated Guidance for a Risk-Based Approach for Virtual Assets and Virtual Asset Service Providers. https://www.fatf-gafi.org/en/publications/fatfrecommendations/documents/guidance-rba-virtual-assets-2021.html
[3]. Financial Action Task Force. (2023). FATF Recommendations: International Standards on Combating Money Laundering and the Financing of Terrorism & Proliferation. https://www.fatf-gafi.org/en/publications/fatfrecommendations/documents/fatf-recommendations.html
[4]. Nasdaq. (2024). Tokenized Assets: An Ally to Regulatory Compliance. https://www.nasdaq.com/articles/tokenized-assets-an-ally-to-regulatory-compliance
[5]. Cointelegraph. (2023). Implementing tokenized securities for regulatory compliance. https://cointelegraph.com/innovation-circle/implementing-tokenized-securities-for-regulatory-compliance
