DAOrayaki Reserach |Openlaw：Automate Legal Agreements

11 min readJun 21, 2021

DAOrayaki DAO Research Grant：

Fund Address: 0xCd7da526f5C943126fa9E6f63b7774fA89E88d71

Voting Result：DAO Committee /7 Yes

Grant Amount：200 USDC

Category: OpenLaw, Legal Markup Languages, smart contracts, smart legal agreements, Smart Token Purchase Agreements, frictionless contracting

Contributor：Jones, 黑白BQ, DAOctor @Daorayaki

Chinese Version:https://daorayaki.org/openlaw-zi-dong-hua-fa-lu-xie-yi/

Launch date: OpenLaw has been launched in 2nd August from 2018 hosted for the first time in Eventbrite and firstly announced in 2017.

OpenLaw Brief Overview:

OpenLaw aims to fix different problems existed in contracts agreements, by reimagining the creation, execution, and storage of legal agreements from the ground up. Using OpenLaw, lawyers and organizations can automatically create and manage the execution of legal documents, and, if desired, embed Ethereum-based smart contracts into legal agreements, which can decrease ambiguity related to certain legal prose.

I.Background:

The first written agreements appeared in Mesopotamia thousands of years ago, pressed into clay tablets with cuneiform pens. Since these first written arrangements, the world has steadily been structured through legal prose. Contractual agreements memorialize fundamental human relationships, help people take risks and build industries, and serve as the spine for organizations that shape our everyday lives.

Yet, despite the pervasiveness of legal agreements, and despite serving as the cornerstone of the $437 billion U.S legal industry, the way contracts are created and generated has not undergone significant changes. While agreements are no longer memorialized in clay, lawyers have failed to take advantage of advances in computing to streamline and simplify their work. For most lawyers, the creation of a standard contract follows a well-trodden path. Lawyers meet with clients, assess their needs, and laboriously draft agreements using written templates derived from previous work. These agreements are customized based on the facts at hand, but much of the text from deal to deal (transaction to transaction) remains constant, they are written in legal prose, which sometimes creates ambiguities and litigation risk. Simple draftmen’s errors like failing to include an innocent Oxford comma can lead to disastrous results.

Once an agreement is revised, reviewed, and finalized, signature pages are clumsily swapped between parties and generally signed using ink. For large transactions, getting these signatures usually requires the assistance of an overqualified associate, which slows down the closing of complex transactions and wastes valuable time. From the other hand, the storage of legal agreements is fractured and insecure. Agreements sit as attachments in emails, are stored in insecure document management systems, or worse, in musty cabinets becoming forgotten relics only unearthed when a dispute arises. Legal documents act as a honeypot for ill-intentioned hackers who seek to profit from the valuable confidential information created and maintained by lawyers.

One of the greatest concerns is signing agreements which remains frozen in time, impervious to the outside world. Changing the way it works require changing the conditions of a contract which itself requires formal amendments, waivers, or renegotiation. Thus, Agreements cannot respond to real world events or update based on new circumstances. In other words, they aren’t programmable.

II.OpenLaw Core Team:

OpenLaw has an amazing team, led by Aaron Wright and Davin Roon, and the support of ConsenSys a blockchain venture production studio.

Wright — is an Associate Clinical Professor at Cardozo Law School and Director of the school’s Blockchain Project. He is char of the Enterprise Ethereum Alliance’s legal Working Group, an academic fellow at CoinCenter, an editor at Ledger, and has a forthcoming book with Primavaera DeFilippi (Blockchain Technology and the Law: The Rule of Code) under contract with Harvard University Press.

Twitter Account: https://twitter.com/awrigh01

Roon — is the creator of JVM based tools to integrate Ethereum development; creator of Cubefriendly, an open data database engine. He is a 2009 graduate of Technion.

Twitter Account: https://twitter.com/bmalaus

Mikolaj Szabo — Senior Engineer Mikolaj was previously a Scala platform engineer for Gawker Media. He also spent time as a contributor to the publishing platform, Kinja. In addition, Mikolaj has experience as an e-commerce consultant on projects at large retailers like Tesco and Shop Group.

Priyanka Desai — VP Operation and Business Development Before joining OpenLaw, Priyanka attended the Banjamin N.Cardozo School of Law. While in school, she gained experience at blockchain consortium R3 and with the NYSDFS on their virtual currency enforcement. Prior to law school, Priyanka worked for the House Committee on Foreign Affairs and a New York law firm.

III.OpenLaw working tools and utilities:

1. OpenLaw Legal Markup language:

OpenLaw offers “legal templates” enhanced using the OpenLaw “Legal Markup” language, which is akin to Wikipedia’s “wiki text” with greater functionality and enables anyone to wrap logic and other contextual information around traditional legal prose. The OpenLaw legal markup language makes the once painful process of preparing legal agreements a snap and drastically reduces the time necessary to generate and execute a range of contracts and not just simple agreements. Users can create a legal template, often in a matter of minutes and rapidly identify an agreement’s key variables optional terms. Once a legal template is created, OpenLaw interface walks a user through areas that are generally customized in that agreement and automatically regenerates documents in real time depending on the user input.

For example, using OpenLaw’s Legal Markup language it becomes possible to collapse the four different versions of the Simple Agreement for Future Equity (SAFE), a common financing document into one legal template, flipping between the different standard variations in real time with several clicks. Furthermore, various tools are provided through the OpenLaw language which are necessary to create truly programmable legal agreements. Currently, it supports if-then, aliasing, multi-variable expressions, hidden variables, and can even perform basic calculations.

OpenLaw is the first project to actually enable the creation of “smart” legal agreements, by providing an easy way for anyone to reference and trigger an Ethereum-based smart contract to manage contractual promises. Using OpenLaw, any Ethereum smart contract can be embedded into a legal agreement in a few lines and automatically triggered once the agreement is digitally signed by all parties. As a result, using OpenLaw, a user can create agreements and commercial relationships that simply were not possible before. For example, a user can build a simple employee offer letter, with the ability to pay the employee either in real time (every minute). There is no payroll processor or other intermediary intimately involved in the creation and execution of the agreement, and the employee can watch his or her account increase in value as the day goes on.

One way to view OpenLaw is as the glue for the emerging blockchain-based stock. Assets and other digital tokens are generated and secured by blockchains like Ethereum, and OpenLaw provides a seamless user experience to structure and govern transactions involving those assets in a way that is familiar to today’s world.

2. Agreements:

All agreements on OpenLaw can be digitally signed with ease. Once an agreement is finalized, it can be sent for signature via email. Signing simply requires a click of a button, and signatures are stored on the Ethereum blockchain, providing them with a degree of permanence for future reference. Once signed by all relevant parties, each party and the sender receives an executed copy for their records.

Because they are stored on IPFS and the Ethereum blockchain, legal agreements generated via OpenLaw are more private and secure. None of the legal templates or generated agreements are stored on our centralized servers or the centralized servers of Amazon, IBM, or Google, so the information is less susceptible to cyber security threats. Right now, we require that you create a user account with OpenLaw, we aim to minimize the information we store and manage. as time goes on, lawyers will be able to generate and manage documents in a way that truly resembles the paper-based world, without the need for these agreements to pass through third-parties who are not privy to a contract.

3. Smart Token Purchase Agreements:

OpenLaw is a blockchain-based protocol that enables parties to create traditional legal agreements that interact with Ethereum smart contracts, which means that a user can quickly transform any legal agreement into one that incorporates and manages assets on a blockchain, using OpenLaw one can generate a basic token purchase agreement to manage the sale and transfer of any Ethereum-based token with a few clicks. OpenLaw has markedup a Token Purchase Agreement, one that has been widely used as part of token sales, which, when signed by both parties, triggers a mart contract that manages payment and the transfer of tokens for the purchase.

The followed blockchain-based approach provides certainty to the party selling the token that the sale is governed by a traditional legal agreement, reducing risks related to the transaction. Parties can enter into a familiar legal agreement and know that the sale will occur by relying on a smart contract. In other words, a smart contract can govern payment for and transfer of a token, but the parties’ arrangement can be backed by a familiar written agreement in case of a dispute at some point down the line. If such an eventuality comes to pass, a court or other administrative body will be able to understand the context of any arrangement and administer its resolution.

What’s more, the smart contract can prevent unauthorized parties from attempting to purchase tokens during the sale. The smart contract is programmed to only transfer tokens to parties that have signed an agreement based on our template Purchasers cannot purchase more than what is provided for in a signed agreement, providing sellers of tokens with more control over a token sale.

4. Complex Transactions:

Commercial arrangements are often shrouded in complexity. Basic arrangements like NDAs, leases, services agreements, and short financing documents account for a large volume of commercial transactions. However, they are a mere silver of the existing transactional legal market in the United States. As any lawyer says, many transitions are a bundle of documents a “deal”, that work hand-in-hand to manage the risks and allocate relevant rights for a given transaction.

Lawyers toil away managing the complexity of these deals, spending time ensuring that definitions, clauses, and basic information related to the parties remain consistent within these documents. The process for managing a deal currently is time consuming, cumbersome, tedious, and created additional costs; costs that ultimately hurt clients, pad the pockets of law firms, and decrease access to basic legal services for large swaths of the population.

OpenLaw begun to solve thse problems by streamlining the creation of complex sets of legal documents using blockchain technology, where the team aims to drive down the cost (and tedium) of performing complex legal work, while increasing access to legal services across the world. With the legal markup language as the core component of OpenLaw, lawyers can structure their agreements, or entire deals in a matter of minutes. Below, several key functionalities of the markup language are mentioned:

-Helps lawyers identify and incorporate optional legal provisions, what we call “conditionals”.

-Handles logical expressions (if-thens; if (Conditional A && Conditional B) -> [actions], etc);

-Structures key parts of legal agreements (like dates, numbers, and signatories);

-Groups variables;

-Performs basic calculations; and

- Helps contracting parties pass variables and make calls to smart contracts running on the Ethereum network.

Through this approach, OpenLaw transform legal agreements from static documents to dynamic systems that manage complex commercial tasks. Simply put, each legal agreement on OpenLaw is turned into an object. These legal agreements, in turn, each contain their own set of objects, which can be manipulated by users at will. As a result, legal agreements become increasingly computable: people can define and set variables, modify the text of an agreement (or sets of agreements) on the fly, and calculate payment amounts, distributions, and other obligations automatically.

The object-based approach allows an easy bundling for a set of documents and create a “deal” with interdependent relationship. Common variables between these documents can be set at the same time, and the language of multiple agreements can be changed automatically through a simple click of a button. Furthermore, the “deal” architecture helps users of OpenLaw build and execute complex transactions in a matter of minutes. Using OpenLaw a person can have an employee digitally sign an offer letter, an arbitration agreement, a confidentiality and invention assignment agreement, grant the employee restricted stock on a straight vesting schedule, and also generate a unanimous action of a board of directors in a matter of minutes and with few clicks. More than that, these agreements can call and execute multiple smart contract programs on execution, transferring payment and transferring tokenized stock on a vesting schedule to employees. Tasks that would take lawyers hours, and would involve multiple intermediaries, now take minutes and are all managed via a blockchain.

5. Real Property digitalizing:

By using OpenLaw to create a standardized legal agreement that governs the sale of property between two parties, “a Sale of Land Contract” is created. This Sale of Land Contract contains standard terms that a person would come to expect in such a transaction, including a description of the property, purchase price terms, and financing conditions.

Thanks to the OpenLaw markup language a frictionless contracting has been enabled, this agreement is transformed into a dynamic object that interacts with an Ethereum smart contract, enabling a buyer and seller to efficiently negotiate, manage, and execute the agreement. As part of that interaction, the call to the smart contract from the Sale of Land Contract includes key parameters that were entered by the parties:

-The Ethereum addresses of the seller and buyer (to facilitate distribution of the tokenized property and the escrow funds);

-The purchase price, deposit amount, and loan amount (if any); and

-The string identifier that is unique to the property based on its physical address (which enables tokenization).

The call to the smart contract is made after the Sale of Land Contract is executed (signed by both parties) using the OpenLaw protocol. The buyer may then transfer the deposit amount to be held in escrow by that smart contract. In turn, and immediately prior to settlement, the lender can send the loan amount to the smart contract escrow. After the total purchase price is sent to the smart contract, the seller may finalize the transfer and trigger the smart contract to disburse the funds to its account and transfer the tokenized property to the buyer. The transfer is recorded to the Ethereum blockchain and the state of title ownership is updated.

One important practical consideration is how the Ethereum blockchain might account for other kinds of property interests not recorded using the ERC721 token (which, so far, only represents mere title to the underlying property). For example, we are still working through how to record and deal with easements, caveats, security interests, and other covenants. This issue could be addressed if those things could be registered and recorded with the title, using for example, the newly proposed ERC994 delegated non-fungible token standard. For simplicity’s sake, we have not modeled these kinds of interests.

IV.Contact information:

Official website: https://www.openlaw.io/

Twitter: https://twitter.com/openlawofficial

Github: https://github.com/openlawteam

Slack: https://openlaw-community.slack.com/

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