Split contracts and smart financial derivatives
Author(s)
Delgado De Molina Rius, Alfonso
Type
Thesis
Abstract
Interest in smart contracts has risen in recent years, driven by the growth of the blockchain industry. These programs automate aspects of transactions in distributed ledger technology (DLT) networks, enabling the state-contingent transfer of digital assets and data. While widely recognised as a promising innovation by public and private sector entities, the technology’s capabilities and limitations remain largely misunderstood.
This thesis advances the understanding of smart contracts in several interrelated areas. First, the thesis compares smart contracts to traditional legal contracts, using transaction cost analysis to identify important commonalities. Natural language and code are characterised as distinct mediums of expression, each suited to specific types of contractual obligations. The thesis advocates for the use of split contracts, combining the efficiency of on-chain transactions with the increased flexibility and legal certainty of natural language.
Second, derivatives are explored as a paradigmatic application in which smart contracts, and split contracts in particular, can bring benefits to transacting parties. In connection with this, a framework for on-chain options and forwards is introduced.
Third, the thesis considers the challenges emanating from governance in DLT networks. As part of this, it presents a due diligence framework to help institutions evaluate governance dynamics when considering transacting in these networks.
Finally, the thesis culminates in a practical application of on-chain derivatives, drawing from the principles and findings advanced throughout. This application aims to serve as a reference for institutions and researchers, contributing to the development of smarter financial markets.
This thesis advances the understanding of smart contracts in several interrelated areas. First, the thesis compares smart contracts to traditional legal contracts, using transaction cost analysis to identify important commonalities. Natural language and code are characterised as distinct mediums of expression, each suited to specific types of contractual obligations. The thesis advocates for the use of split contracts, combining the efficiency of on-chain transactions with the increased flexibility and legal certainty of natural language.
Second, derivatives are explored as a paradigmatic application in which smart contracts, and split contracts in particular, can bring benefits to transacting parties. In connection with this, a framework for on-chain options and forwards is introduced.
Third, the thesis considers the challenges emanating from governance in DLT networks. As part of this, it presents a due diligence framework to help institutions evaluate governance dynamics when considering transacting in these networks.
Finally, the thesis culminates in a practical application of on-chain derivatives, drawing from the principles and findings advanced throughout. This application aims to serve as a reference for institutions and researchers, contributing to the development of smarter financial markets.
Version
Open Access
Date Issued
2023-08-24
Date Awarded
01/12/2024
Copyright Statement
Creative Commons Attribution NonCommercial Licence
License URL
Advisor
Huth, Michael
Knottenbelt, William
Publisher Department
Computing
Publisher Institution
Imperial College London
Qualification Level
Doctoral
Qualification Name
Doctor of Philosophy (PhD)