Understanding and managing blockchain protocol risks

Abstract: This paper addresses the issue of blockchain protocol risks, a foundational category of risks affecting Distributed Ledger Technology (DLT) which underpins digital assets, smart contracts, and decentralised applications. It presents a comprehensive risk management framework developed in collaboration with financial institutions, blockchain development teams and regulators that applies a traditional risk management taxonomy to address certain overlooked blockchain protocol risks. The approach offers a structured way to identify, measure, monitor and report blockchain protocol risks. The paper provides real-world use cases to demonstrate the practicality and implementation of the proposed framework. The findings of this work contribute to the evolving understanding of blockchain protocol risks and provide valuable insights on how these risks affect the adoption of DLT by financial institutions.