Thread by @propelforward

Today I published "The Limits of Code Deference" papers.ssrn.com/sol3/papers.cf… Inspired by #theDao, #Dapps & #DAOs, this article explores whether #decentralizedventures can absolutely bind their users to their code’s execution. Not surprisingly, the answer is no. Why? A quick🧵:

These ventures use code to enable groups of people to act collectively to affect rights to #digital assets. We call these “decentralized ventures.” These decentralized ventures enable transactions among their participants in accordance w/rules created and enforced by their code;

human participants in these decentralized ventures interact with the venture, & sometimes with each other, using #smartcontracts. Smart contracts may break, or behave in unexpected ways. What happens when a smart contract defect /error harms a decentralized venture user?

That user might sue, seeking damages, to reverse the smart contract outcome, or to enjoin the venture’s ongoing operation. Litigation over smart contract outcomes may disrupt—if not destroy—decentralized ventures & may have negative effects upon the rights & property of others.

To avoid this problem, #decentralizedventures attempt to prevent users from suing by requiring that users defer to & agree to be bound to the outcome of smart contract execution. We call this “Code Deference"(s/o to @lex_node who AFAIK first used the term)

Code deference is critical to the orderly & predictable operation of #decentralizedventures; the article examines legal & technical attempts to impose code deference on users of certain types of #dapps and #daos including #theDao, and systems created by @lex_node and @awrigh01

It addresses strategies ranging from generalized obfuscation to on-system dispute resolution, to waivers & contractual covenants not to sue, to proposals not yet observed in practice. Many of them are very clever.

None, however, will always work. Absent significant legal reform, no approach based in code or in law can prevent a lawsuit over a #smartcontract outcome. This, however, is not cause for alarm; this is what reasonable minds should expect.

#Codedeference mechanisms can rebalance incentives by increasing the opportunity costs for a #decentralizedventure participant to sue over a smart contract outcome while providing efficient alternatives to litigation, and perhaps by providing better remedies within the venture.

Even with inherent limitations, well designd #codedeference provisions may functionally create code deference in all but a narrow set of circumstances.

Effective incentives toward #codedeference /resolution of claims within the system move users of decentralized ventures closer to the ideal of systems that allow parties to transact using rules created & enforced by code rather than rules created & enforced by a legal system./end

That user might sue, seeking damages, to reverse the smart contract outcome, or to enjoin the venture’s ongoing operation. Litigation over smart contract outcomes may disrupt—if not destroy—decentralized ventures & may have negative effects upon the rights & assets of others.

To avoid this problem, #decentralizedventures attempt to prevent users from suing by requiring that users defer to & agree to be bound to the outcome of smart contract execution. We call this “Code Deference" (s/o to
@lex_node who AFAIK first used the term.)

without such an agreement, some may say, "let the code decide." While that's appealing, it also is not a real option; code provides abilities within system contexts, while law determines powers/rights. cc: @Andrea_Tosato & @Prof_CarlaReyes, see: papers.ssrn.com/sol3/papers.cf…

#CodeDeference is critical to the orderly & predictable operation of #decentralizedventures; the article examines legal & technical attempts to impose code deference on users of certain types of #dapps and #daos including #theDao, and systems created by
@lex_node & @awrigh01

It addresses strategies ranging from generalized obfuscation (i.e. #theDao) to on-system dispute resolution (the #metacartel DAO), to clever arrangements of rights & powers (#TheLao) waivers & contractual covenants not to sue, to proposals not yet observed. Many are very clever.

None, however, are iron clad. Absent significant legal reform, no approach based in code or in law can prevent a lawsuit over a #smartcontract outcome. This, however, is not cause for alarm.

#CodeDeference mechanisms can rebalance incentives by increasing the opportunity costs for a #decentralizedventure participant to sue over a smart contract outcome while providing efficient alternatives to litigation, & perhaps by providing better remedies within the venture.

Even with inherent limitations, well designed #codedeference provisions may functionally create code deference in all but a narrow set of circumstances.

Effective incentives toward #codedeference /resolution of claims within the system move users of decentralized ventures closer to the ideal of systems that allow parties to transact using rules created & enforced by code rather than rules created & enforced by a legal system./end