Can Smart Contracts Fully Replace Legal Contracts for Derivatives Agreements?

Smart contracts can automate the execution and settlement of derivatives agreements, handling functions like collateral management and margin calls with deterministic certainty. However, they cannot fully replace legal contracts, as they lack the legal enforceability to handle off-chain disputes, regulatory compliance, or situations not explicitly coded.

A hybrid approach, often called a "Ricardian Contract," is typically necessary to bridge the technical automation with legal certainty.