Law-focused blockchain platform OpenLaw announced earlier today that it is teaming up with Rohmbus to launch automate standardized derivatives contracts. These derivatives contracts would be enforceable in court and function similar to traditional contracts, but in a faster, cheaper, and more accessible way.
In a blog post announcing the news, OpenLaw showcased an example of how the partnership will work, featuring an automated standard call option contract based on the current price of ETH to gold.
“One of the visions of Ethereum is to build an open financial system, one that is more efficient, fair, and globally accessible,” explains OpenLaw.
OpenLaw is using the Ethereum ecosystem to build the future of law, including legally-binding smart contracts and other legal agreements built on the blockchain.
Thanks to the partnership with oracle provider Rhombus, OpenLaw will now feature certain derivatives contracts on its marketplace.
“At OpenLaw, we’ve been fascinated with the derivatives marketplace and blockchains are rapidly maturing to the point where we can begin to automate the creation and execution of these agreements in a legally compliant and familiar way.”
Rhombus is an oracle provider that offers multiple ways to securely deliver real-world computational data into a smart contract.
Like other oracles, Rhombus’s oracles allow smart contracts to use real-world data to execute the smart contract. OpenLaw’s options contracts will use these oracles to retrieve real world data on, for example, the price of commodities like gold.
“Using our tools and the oracle services provided by Rhombus, we have the capability to streamline the creation, execution, and settlement of a derivative using blockchain technology and in a format that is compatible with the legacy world. Specifically, we automated a standard call option contract and integrated it with a custom Rhombus oracle based on the current price of ETH to Gold.”
You can view a video highlighting the Ethereum-based derivatives smart contract here:
In that video, we see how Rhombus deployed its oracle contract. Then, OpenLaw wrote a smart contract that relies on this oracle. The oracle was cryptographically tied to the underlying agreement. This allows the smart contract to execute based on the price of the given commodity pair – in this case, ETH and gold.
Once the smart contract is executed and available on the Ethereum network, parties can execute the option in seconds. Here’s how it would work from the customer’s point of view:
“For example, if the oracle displays a current price of 10 ETH to Troy Ounce, the customer could generate an option contract whereby the option holder has the right to purchase 1 Troy Ounce for 11 ETH, 24 hours from the present time.”
In this smart contract, the user has a choice to make after 24 hours. After 24 hours passes, if the ETH/gold price is more than 11 ETH, the user has the option (not the obligation) to complete their purchase. If the user decides to exercise the option, however, then 11 ETH is transacted and the user automatically receives a token representing one ounce of gold held in a vault.
OpenLaw’s Contracts Are Enforceable in Court
Smart contracts aren’t just a nifty digital plaything: they’re legally-binding contracts that are enforceable in court.
Contracts are useless if they’re not legally binding. The whole point of a contract is to create a legally-binding agreement between two parties. OpenLaw recognizes that if smart contracts and decentralized governance systems are going to take off, then smart contracts need to be legally enforceable in traditional courtrooms.
The Future of Finance: OpenLaw, using the @RhombusNetwork oracle, is opening the derivatives market. We've streamlined the creation and execution of a legally enforceable option contract, lessening the need for intermediaries. https://t.co/tr03ezNoGl#ethereum #fintech pic.twitter.com/KA0kofbnbH
— OpenLaw (@OpenLawOfficial) December 5, 2018
That’s why OpenLaw’s smart contracts are legal agreements. With this latest options call, the customer is legally entitled to get paid out through the options contract.
The ultimate goal of this system is to create a system of legal documents, smart contracts, and oracles to create a more transparent financial ecosystem. The ETH/gold example listed above is just the tip of the iceberg. In the future, more options contracts can be created using OpenLaw’s smart contract platform and Rhombus’s oracles, ultimately leading to a cheaper and faster financial ecosystem.
Today, OpenLaw continues to build “the future of law” using blockchain technology. The partnership with Rhombus now allows OpenLaw to create options contracts that connect with real-world commodity prices. In the future, this partnership could lead to the creation of an entire options ecosystem built on the OpenLaw blockchain.