Definition ∞ The proportionality principle in regulation dictates that supervisory measures should be balanced and appropriate to the specific risks they aim to address. This concept requires that regulatory burdens, restrictions, or interventions are not excessive relative to the potential harm or systemic risk posed by an activity or entity. It advocates for a tailored approach, ensuring that regulations are effective in achieving their objectives without unduly stifling innovation or imposing unnecessary costs. Applying this principle helps create a flexible and adaptable regulatory environment.
Context ∞ The proportionality principle is a central theme in discussions surrounding the regulation of digital assets, as policymakers seek to craft rules that are effective without impeding technological advancement. Debates frequently concern how to apply traditional financial regulations to novel crypto products and services in a balanced manner. Future regulatory frameworks are expected to increasingly adopt this principle to foster responsible innovation while mitigating new risks in the digital asset space.
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