Governance in Systems Based on Distributed Ledger Technology (DLT): A Comparative Study

51 Pages Posted: 1 Jul 2021

See all articles by Ellen Naudts

Ellen Naudts

affiliation not provided to SSRN

Timothy Aerts

Autoriteit Financiële Markten (AFM)

leonard franken

affiliation not provided to SSRN

Aimo Pieterse

Autoriteit Financiële Markten (AFM)

Date Written: June 28, 2021

Abstract

The (experimental) use of DLT is growing, also in the financial sector. DLT systems themselves advocate the fact that they use (consensus) algorithms and cryptography to create a leaderless system (horizontal). How is it possible to ensure that decisions in these DLT systems are in the interest of all stakeholders and the public interest, including supervisory authorities? Given the popularity of the Bitcoin and Ethereum blockchains, for example, it is not inconceivable that a part of the FMI will be based on a public DLT system in the future. It is therefore important to gain a better understanding of the governance of such DLT systems, and what the risks are for FIs when using DLT. This paper compares the governance of financial institutions (FIs) and financial market infrastructures (FMIs) on the one hand with the governance of systems based on distributed ledger technology (DLT systems), on the other, to discover how they differ, and where potential risks and benefits lie for their future use, also in the financial markets. We answer two questions: i) What are the differences in governance between traditional FIs, FMIs and DLT systems? and ii) What are the consequences of decentralized governance of DLT systems for supervisory authorities?

Keywords: Comparative study of governance in DLT systems, Managerial and operational governance, Horizontal and vertical governance, tipping point, Public DLT Systems and Private DLT Systems

JEL Classification: G3, M15, M4

Suggested Citation

Naudts, Ellen and Aerts, Timothy and franken, leonard and Pieterse, Aimo, Governance in Systems Based on Distributed Ledger Technology (DLT): A Comparative Study (June 28, 2021). De Nederlandsche Bank Working Paper No. 718, Available at SSRN: https://ssrn.com/abstract=3876116 or http://dx.doi.org/10.2139/ssrn.3876116

Ellen Naudts (Contact Author)

affiliation not provided to SSRN

Timothy Aerts

Autoriteit Financiële Markten (AFM) ( email )

Vijzelgracht 50
Amsterdam, NE 1017 HS

Leonard Franken

affiliation not provided to SSRN

Aimo Pieterse

Autoriteit Financiële Markten (AFM) ( email )

Vijzelgracht 50
Amsterdam, NE 1017 HS

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