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How can parties enforce arbitration clauses embedded within smart contracts?

Under U.S. law, the implementation of arbitration clauses in smart contracts presents challenges that have been subject to scrutiny that considers traditional contract principles and the interplay of blockchain technology. U.S. contract law generally provides that arbitration agreements are not going to be enforceable unless a written arbitration agreement exists under the Federal Arbitration Act (FAA) and similar state law. Parties can consider incorporating a hybrid contract (using both natural language and code) to meet the legal requirements of a clear and accessible arbitration agreement and ensure the arbitration clause’s enforceability in a smart contract setting. A hybrid approach would make it easier to conclude the existence and validity of an arbitration clause, compared to code-only agreements that may not be readily identifiable as legal contracts. Moreover, there are some U.S. courts that have recognized smart contracts as legitimate contracts as long as they meet the standard contract formation requirements of mutuality, capacity, and legality. To enhance the likelihood of enforceability, the arbitration clause, and clear and accessible, must be clearly incorporated into the smart contract and reflected both the parties’ intention and U.S. law requirements.

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