Cardano Launches CIP-0113 to Enable On-Chain Compliance for Regulated Assets

On October 7, 2023, the Cardano Foundation announced the launch of CIP-0113, a new programmable token standard now live on the Cardano mainnet. This standard enables issuers to integrate compliance controls such as know-your-customer (KYC) requirements, sanctions screening, and transfer restrictions directly into native Cardano assets.

CIP-0113 aims to address one of the significant challenges in blockchain adoption for regulated assets—how to maintain necessary controls while utilizing a public network. By allowing issuers to build compliance mechanisms into their tokens, Cardano is positioning itself to better serve the needs of stablecoin issuers, tokenized funds, and other financial products that require regulatory adherence.

The standard operates on Cardano's extended Unspent Transaction Output (eUTXO) model, ensuring that enforcement occurs on-chain during the processes of minting, burning, and transferring tokens. This design eliminates the need for a hard fork and maintains predictable execution costs. Additionally, the modular structure of CIP-0113 allows issuers to create custom compliance modules as needed.

Despite concerns regarding the potential for freezing or seizing tokens, it is crucial to note that the controls apply only to assets issued under the new standard, not to Cardano's native cryptocurrency, ADA. This means ADA itself remains unaffected by these compliance measures.

The launch of CIP-0113 has garnered recognition from the Swiss Capital Markets and Technology Association, which has rated the compliant tokens as comparable to its framework for on-chain equity securities certification. Several wallets and ecosystem tools, including Eternl and GeroWallet, are supporting the new standard, marking a significant step for Cardano in the realm of regulated tokenization.