Risk management as Code - Making Rules Programmable in DeFi

TradFi compliance officers rely on manuals, memos, and human interpretation. DeFi can do better; Turn risk policies into executable code.

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

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.