RegTech Empowerment in Decentralized Finance: From Rule Engines to Automated Compliance Supervision

Abstract

Decentralized finance has rapidly developed through smart contracts and distributed infrastructure, enabling lending, trading, liquidity provision, and other financial activities. However, this rapid development has also led to increasing contradictions with regulatory requirements related to anti-money laundering, sanctions compliance, market integrity, and investor protection. Against this backdrop, this paper explores how RegTech can empower compliance governance in DeFi, focusing particularly on the transition from rule engines to automated compliance regulation. This paper argues that rule formalization cannot be effortlessly translated into code without loss or ambiguity; it can only be achieved to a certain extent. The effectiveness of automated regulation depends on data observability, the structure of protocol governance, and the machine enforceability of legal requirements. Research shows that RegTech can improve the traceability, transparency, and regulatory efficiency of DeFi. Considering these limitations, further research is needed on the legal, technological, and governance boundaries of automated compliance in DeFi systems.