ENFORCING PERSISTENT “SMART CONTRACTS”: ADMIN KEYS AND THE MYTH OF DECENTRALIZED FINANCE?May 17, 2023
“The only way that you can truly feel secure while using these DeFi products currently is to trust in the competency of the team and their ability to secure their admin key.”-DeFi Watch
This Article discusses the possible practical legal enforcement of disputes on an Ethereum blockchain. It contains two key ideas that may help courts to enforce smart contract dispute determinations. First, it begins by discussing how smart contacts work on the Ethereum network, noting they are less like legal contracts and more like lines of self-executing computer code known as “persistent scripts.” They are designed to be “legal.” This is the important starting distinction for understanding the possible enforcement of so-called “smart contracts.” As persistent scripts have self-executory capabilities, this idea is important to understanding how a court may actually resolve a dispute that is likely more transactional than contractual, Crucially, this concept of persistent scripts explains why admin keys exist.
Secondly, and relatedly, the private keys, known as “admin keys,” held by blockchain platform administrators could potentially be used for legal enforcement. Admin keys are connected to their persistent script conception, as they are often created for blockchain platforms to modify the rules of a transaction. For example, they can be utilized if a hack or coding error occurs. While, in a decentralized world, no “admin” may ever want to hand over their private keys, a multi-signuatre arrangement could lead to some admins turning over keys to remove another admin with whom conflict exists. This is a plausible-but still problematic-scenario. Critically, the challenges of legal enforcement through admin keys and other options such as governance tokens are explained in this Article. The Article is purely theoretical as of early 2023.
Author: Max Parasol
Volume 24, Issue 4