Transaction Binding Security for Policy-Bound Authorization Tokens

Authorization tokens in distributed systems are typically context-free: a cryptographically valid token carries no binding to the specific transaction for which it was issued. This enables reuse and cross-context presentation attacks that are undetectable at the cryptographic layer. In regulated financial infrastructure, cross-border payments, and autonomous agent systems, transaction-scoped enforcement is a hard requirement that existing standards leave unaddressed. We introduce the first formal security model for policy-bound transaction tokens. We define the syntax of a policy-bound transaction token scheme over a formal transaction context space and introduce three game-based security notions: transaction binding (TB), which simultaneously resists forgery and cross-context reuse; existential unforgeability under chosen-context attack (EUF-CCA); and unlinkability (UNL). We prove that TB strictly implies EUF-CCA, establish a formal separation between TB and UNL, and identify the inherent tension between unlinkability and auditability. We construct a scheme parameterized by any EUF-CMA-secure signature scheme and a random oracle, and prove that it achieves transaction binding security with a tight reduction requiring no rewinding. We then address the complementary privacy problem by formalizing zero-knowledge compliance privacy (ZK-CP) and constructing an enhanced scheme that augments transaction-binding tokens with a non-interactive zero-knowledge proof of policy compliance. We prove that the enhanced scheme simultaneously achieves TB security and ZK-CP, and show how it integrates with decentralized identity (DID) systems to enable fully privacy-preserving authorization where the verifier learns only whether compliance is satisfied. We give a concrete instantiation using Ed25519 and SHA-512, derive bit-security parameters, analyze performance costs, and discuss deployment considerations including regulatory alignment with PSD2, MiCA, DORA, the GENIUS Act, SEC token taxonomy, and FinCEN BSA requirements.