A new possibility is emerging in the game between regulatory agencies and innovative enterprises—embedding compliance requirements directly into the protocol layer.

Traditional compliance processes have a fundamental problem: they rely heavily on manual intervention and post-hoc audits. Institutions need to invest substantial resources in document review, transaction monitoring, and periodic reporting, making the entire process lengthy and costly. Some projects are attempting to overhaul this process entirely—by implementing real-time, automated regulatory supervision mechanisms that make compliance an intrinsic feature of on-chain protocols.

The core technology of this approach is the "Regulatory Smart Key" (RSK), which can verify the compliance of on-chain activities through zero-knowledge proofs. Specifically, regulatory bodies can confirm that all transaction participants have completed identity verification without knowing their specific identities; they can monitor the overall systemic risk exposure without inspecting each position individually. This seems to solve a classic dilemma—protecting privacy while satisfying regulatory transparency requirements.

In cross-border scenarios, the advantages of this model are particularly evident. The GDPR in the EU, the US SEC’s regulatory framework, and even diverse requirements across Asian regions can all be simultaneously met through composable verification rules. When a transaction is confirmed on-chain, it can automatically comply with multiple jurisdictions’ requirements, enabling global liquidity to flow freely without being fragmented by local regulations.

From a cost perspective, this innovation could fundamentally change the economic ledger of financial institutions. Currently, compliance costs typically account for 3-5% of revenue, mainly covering personnel, systems, and penalties. If this ratio can be reduced below 1%, the profit margins would be significantly increased. Moreover, a substantial reduction in regulatory penalty risks also translates into cost savings.

In the longer term, this could give rise to a new paradigm of "programmable regulation"—regulatory rules themselves becoming composable smart contract modules that can dynamically adapt to market evolution. Rules would no longer be static legal texts but flexible, responsive code logic. If this approach proves feasible, it could represent the most profound innovation in financial regulation in a century.

Of course, this model still needs practical validation—how to handle emergencies, coordinate across different legal systems worldwide, and prevent exploitation of technical vulnerabilities. But the direction is clear: regulation and innovation do not have to be mutually exclusive; through technological reconstruction, a new balance can be achieved.