How do you resolve disputes from smart contracts?

1 Arbitration Services

One option to resolve disputes from smart contracts is to use arbitration services that provide a third-party mechanism to review and settle the conflict. For example, Kleros is a decentralized arbitration platform that uses a network of jurors who stake tokens and vote on the outcome of the dispute. The parties involved in the smart contract can agree to use Kleros as a dispute resolution layer and submit their evidence and arguments to the platform. The jurors are randomly selected and incentivized to vote honestly based on the Schelling point principle. The winning party can claim the reward and the losing party can appeal the decision.

2 Oracle Networks

Another option to resolve disputes from smart contracts is to use oracle networks that provide external data and verification to the blockchain. Oracles are services that connect smart contracts to real-world information, such as prices, events, or outcomes. They can also act as validators or witnesses for the execution of the smart contract. For example, Chainlink is a decentralized oracle network that allows smart contracts to access reliable and secure data sources, such as APIs, web services, or other blockchains. The oracle nodes are rewarded for providing accurate and timely data and penalized for providing false or delayed data.

3 Escrow Contracts

A third option to resolve disputes from smart contracts is to use escrow contracts that hold the funds or assets until certain conditions are met. Escrow contracts are a type of smart contract that act as a trusted intermediary between the parties, ensuring that both sides fulfill their obligations before releasing the funds or assets. For example, OpenBazaar is a decentralized marketplace that uses escrow contracts to facilitate peer-to-peer transactions. The buyers and sellers can choose a mutually trusted escrow agent who can release or refund the funds in case of a dispute or a successful delivery.

4 Governance Protocols

A fourth option to resolve disputes from smart contracts is to use governance protocols that allow the community to vote and decide on the rules and parameters of the smart contract. Governance protocols are a way of managing and updating the smart contract code and logic, as well as resolving any conflicts or issues that arise from its execution. For example, MakerDAO is a decentralized lending platform that uses governance tokens (MKR) to enable the holders to vote on the stability fee, collateral ratio, and risk parameters of the system. The governance token holders can also vote on proposals to upgrade or fix the smart contract code.

5 Legal Frameworks

A fifth option to resolve disputes from smart contracts is to use legal frameworks that recognize and enforce the validity and enforceability of the smart contract. Legal frameworks are the laws and regulations that govern the creation, interpretation, and execution of contracts, both online and offline. They can also provide remedies and sanctions for breach of contract, fraud, or negligence. For example, some jurisdictions, such as Malta, Switzerland, or Wyoming, have enacted specific laws or regulations that define and regulate smart contracts as a form of contract, and provide legal certainty and protection for the parties involved.

6 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?