Source-linked AI summary
Smart Contract Templates: foundations, design landscape and research directions
Christopher D. Clack, Vikram A. Bakshi, Lee Braine
TL;DR
The paper addresses how smart contracts can combine automation with enforceability while preserving the meaning of legal agreements. It develops a semantic framework and template-based approach linking legal prose and parameters to standardised code, then identifies design directions and unresolved questions about faithful automated performance. Its central conclusion is that fully confident straight-through processing of financial contracts remains an open question requiring substantial collaboration and work.
Problem
The paper addresses the lack of clear terminology and the challenge of ensuring that automated contract performance faithfully represents legally meaningful agreements.
Method
The paper defines a smart contract conceptually, develops a framework covering operational and non-operational aspects, and uses parameterised legal-document templates to connect prose with standardised code.
Results
The paper presents Smart Contract Templates as a framework for complex financial-instrument agreements, with parameters connecting legal prose to corresponding computer code for legally-enforceable smart legal contracts.
Takeaways & Limitations
The design landscape includes more sophisticated parameters, greater use of common standardised code, support for multiple execution platforms, and long-term research challenges.
Takeaways & Limitations
Fully confident straight-through processing of financial contracts, with automated code faithful to the entire contract semantics, remains an open question requiring substantial work and collaboration.
Abstract
from arXiv · showhide
In this position paper, we consider some foundational topics regarding smart contracts (such as terminology, automation, enforceability, and semantics) and define a smart contract as an automatable and enforceable agreement. We explore a simple semantic framework for smart contracts, covering both operational and non-operational aspects, and describe templates and agreements for legally-enforceable smart contracts, based on legal documents. Building upon the Ricardian Contract, we identify operational parameters in the legal documents and use these to connect legal agreements to standardised code. We also explore the design landscape, including increasing sophistication of parameters, increasing use of common standardised code, and long-term research.
1 Introduction
Smart Contract Templates support the lifecycle of smart legal contracts, from template creation and negotiation through automated performance and dispute-related access to legal documentation. The paper makes a practical, accessible contribution by examining contract writing, enforcement, and fidelity between automated performance and legal meaning.
- Smart Contract Templates support legal-contract lifecycle management, including template creation, negotiation, agreement, automated performance, and links to relevant legal documentation during disputes.Templates may be created by standards bodies and used by counterparties in negotiating and agreeing contracts.
- The templates and agreements may be agnostic or non-agnostic to automation methods, depending on choices by issuers, counterparties, or networks.Potential implementation platforms include AxCore, Corda, Digital Asset Platform, Ethereum, and Fabric.
- The paper targets financial institutions while presenting its discussion of contract writing, enforcement, and semantic fidelity in language accessible to legal, regulatory, standards, and policy audiences.The authors intend the issues and views to stimulate debate among these communities.
2 Foundations
The paper defines smart contracts as automatable and enforceable agreements, then distinguishes smart contract code from smart legal contracts and examines how legal meaning, automation, and enforcement relate.
- Terminology: Smart contract code denotes operational software agents, whereas smart legal contracts also address how legal contracts are written and interpreted.The distinction separates computer-executed obligations and rights from legal prose and its interpretation.
- Terminology: The paper adopts “smart contract” as an automatable and enforceable agreement, encompassing both smart legal contracts and smart contract code.Automation may involve human input, while enforceability may rely on legal rights and obligations or tamper-proof code execution.
- Automation: Automation is computer-based but need not use a shared ledger, and Ricardian Contracts connect legal prose to code through parameter name-value pairs.A software agent can be instantiated on a shared ledger to perform transfers specified by the legal prose, while future designs may target multiple platforms.
- Enforceability: Smart legal contracts can be enforced through traditional dispute resolution or non-traditional tamper-proof network execution.Traditional methods include arbitration and courts; network consensus instead assumes that wrong-performance or non-performance can become impossible in a perfect implementation.
- Enforceability: The paper prefers legally enforceable smart legal contracts because tamper-proof systems cannot easily accommodate dynamic variation, physical-world actions, or fully automated payments.The cited concerns include absent executive overrides, limited network control over physical events, and collateral requirements that may reduce leverage and liquidity.
- Semantics: Smart contract code addresses coded operational aspects, while smart legal contracts encompass both operational and non-operational aspects of legal contracts.The framework supports comparing legal and code semantics for operational parts and analyzing risks associated with non-operational parts.
3 Smart Contract Templates
Smart Contract Templates connect customised legal agreements to standardised smart-contract code through operational parameters. Their design landscape spans parameter sophistication, shared code, long-term language research, and requirements for interoperable legally enforceable contracts.
- 3 Smart Contract Templates: Smart Contract Templates use operational parameters to connect complex legal documentation with standardised code whose behaviour is controlled by parameter inputs.The framework is intended to support legally enforceable smart legal contracts.
- 3.1 Templates and Parameters: Templates contain legal prose and named, typed parameters, while agreements are negotiated, customised instantiations whose signed parameter values are mandatory.Parameters may be defined, valued, and used across different documents in a multi-document agreement.
- 3.1 Templates and Parameters: Deriving code parameters requires identifying parameters embedded in prose, excluding non-operational values, and resolving definitions, values, and uses across documents.The resulting code parameters are those that influence automated contract operation.
- 3.2.1 Increasing the sophistication of parameters: Parameter development can progress from primitive values such as dates to higher-order expressions that encode business logic and may rely on named parameters or oracle data.An expression can be represented as a function that accepts unknown quantities and returns its computed result.
- 3.2.1 Increasing the sophistication of parameters: Formally structured expressions embedded in legal prose could reduce ambiguity and errors, conditional on acceptance by courts as evidence of contractual intention.The paper presents this as a possible far-future development rather than an established capability.
- 3.2.2 Increasing the use of common standardised code: Shared code may evolve from separate bank codebases to common utility functions and eventually standardised common business logic, driven by potential economic benefits and maturing technology.The paper describes this as a possible evolutionary route.
- 3.2.3 Long-term research challenges: Long-term research could produce formal languages that automatically identify code parameters, generate or invoke code, and translate legal documents into code and court-admissible prose.The paper identifies court admissibility of computer-like legal language as a central challenge.
- 3.2.4 Future developments and initial requirements: Initial requirements include structured multi-document storage, cross-document parameter handling, higher-order types, code-parameter extraction, shared code, legal-prose/code interaction, multiple platforms, and Ricardian signing.The authors also identify a subsequent paper as the planned venue for reporting essential requirements and storage/transmission design options.
4 Summary and Further Work
The paper consolidates its foundational framework, design landscape, and roadmap for linking legally enforceable agreements to standardised code. It identifies current practical applications and substantial future work on interoperable storage, transmission, semantics, and fidelity.
- The paper defines smart contracts as automatable and enforceable agreements, distinguishing operational automation from non-operational aspects.
- Smart Contract Templates represent legal documents with prose and parameters, linking standardised agreements to standardised code through operational parameters.
- The design landscape extends from complex higher-order parameters and admissible business logic toward broader sharing of common utility functions and business logic.
- Existing infrastructure may support near-term deployment, while shared ledgers are identified as a longer-term possibility.
- Further work examines storage and transmission formats for smart legal agreements, including possible extensions to FpML for derivatives.
- Achieving straight-through processing with full confidence that automated code faithfully represents entire contract semantics remains an open question requiring substantial cross-disciplinary collaboration.