Can a Smart Contract Be Legally Binding in Traditional Finance?
The legal status of smart contracts is still evolving and varies by jurisdiction. While the code itself is the ultimate executor on-chain, many jurisdictions are recognizing them as valid contracts if they meet traditional contract requirements like offer, acceptance, and consideration.
For integration into traditional finance (TradFi), "hybrid" legal/smart contracts are being developed to bridge the gap, ensuring both on-chain execution and off-chain legal enforceability.
Glossar
Traditional Finance
Comparison ⎊ Traditional Finance refers to the established, regulated global system of financial intermediation, including centralized exchanges, custodians, and clearinghouses, which provides the conceptual and structural backdrop against which novel crypto derivatives markets are often compared.
Legally Binding
Condition ⎊ A financial agreement or transaction is Legally Binding when it creates enforceable rights and obligations between the parties under the relevant legal framework.
Smart Contracts
Function ⎊ Smart contracts are self-executing agreements with the terms of the agreement directly written into lines of code, residing on a decentralized ledger.
Contract Requirements
Specification ⎊ Contract requirements define the precise parameters and obligations of a derivative agreement, detailing the underlying asset, strike price, expiration date, and settlement methodology.