> For the complete documentation index, see [llms.txt](https://docs.fairway.global/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://docs.fairway.global/learn/compliance-and-risk-management-guides/risk-management-as-code-making-rules-programmable-in-defi.md).

# Risk management as Code - Making Rules Programmable in DeFi

#### *In TradFi, compliance lives in binders. In DeFi, it should live in smart contracts.*

#### The Risks

* **Inconsistent KYC**: Different pools, different processes.
* **Manual approvals**: Slows down liquidity flows.
* **Jurisdictional confusion**: “Accredited” means one thing in the U.S., another in the EU.

#### Why This Matters

Institutions need **predictability**. If compliance can’t be automated, scale is impossible.

#### The Policy Engine Model

```mermaid
flowchart TD
    A[Policy Engine] --> B{Rule: Accredited only?}
    B -->|Yes| C[Allow deposit to RWA Pool]
    B -->|No| D[Reject tx]

```

* Codify rules as **on-chain eligibility checks**.
* Example: “Only wallets with Accredited Investor token may deposit in RWA Pool.”
* Rules are transparent, testable, and enforceable.

#### Tools

* **Policy Engine contracts** (eligibility as a function).
* **Trust Registries** (who counts as an issuer of credentials).
* **Identity Adapters** (bridge ERC-5484 SBTs / CIP-113 tokens into policy checks).

**Risk management as Code**

* [ ] Define policy in natural language.
* [ ] Translate into smart contract conditions.
* [ ] Connect to proof/identity tokens.
* [ ] Test rules with edge cases.