Automated Execution of Financial Contracts on Blockchains

Authors

Benjamin Egelund-Müller, University of Copenhagen, Denmark
Martin Elsman, University of Copenhagen, Denmark
Fritz Henglein, University of Copenhagen, Denmark
Omri Ross, University of Copenhagen, DenmarkFollow

Document Type

Research Paper

Abstract

The paper investigates financial contract management on distributed ledgers and provides a working solution implemented on the Ethereum blockchain. The system is based on a domain-specific language for financial contracts that is capable of expressing complex multi-party derivatives and is conducive to automated execution. The authors propose an architecture for separating contractual terms from contract execution: a contract evaluator encapsulates the syntax and semantics of financial contracts without actively performing contractual actions; such actions are handled by user-definable contract managers that administer strategies for the execution of contracts. Hosting contracts and contract managers on a distributed ledger, side-by-side with digital assets, facilitates automated settlement of commitments without the need for an intermediary. The paper discusses how the proposed technology may change the way financial institutions, regulators, and individuals interact in a financial system based on distributed ledgers.

Recommended Citation

Egelund-Müller, Benjamin; Elsman, Martin; Henglein, Fritz; and Ross, Omri (2017) "Automated Execution of Financial Contracts on Blockchains," Business & Information Systems Engineering: Vol. 59: Iss. 6, 457-467.
Available at: https://aisel.aisnet.org/bise/vol59/iss6/6