The Crypto-Court: Resolving Disputes in Decentralized Finance (DeFi)

Abstract

It is a fictional legal case that examines the emerging field of dispute resolution and accountability in the field of decentralized finance (DeFi). This story is contextualized by a hypothetical scenario where the Aetherium Judicial Network (AJN) an arbitration machinery comes as an organic piece to blockchain designs. It is established on the background of the flash-loan scam destroying a socially minded DeFi lenders protocol, within the doctrine of Code is Law, and in comparison, to the dominant paradigms of the law of contracts, equity, and good faith. The manuscript offers a deeper question by placing the conflict in a decentralized autonomous ecosystem as such actions that can be legally represented as legally valid, but as a strategic manipulative act, are a violation of trust in systems deemed to be trustless. The story rethinks the ills committed by the DeFi participants not as code bugs or market manipulations, but as actions that weaken the socioeconomic pillars of society in general, through adopting a covenantal conception of good faith and fair dealing, and economic interference torts and using ancillary protocols. The decision of the Crypto-Court supports a new model of non-custodial resolution that can be described as reputational penalties and protocol-based restitution, thus, demonstrating the way justice can be served without violating blockchain immutability. Finally, this paper promotes a hybrid system of governance that balances algorithmic determinism and human conceptions of justice, which also preempts a future of financial law based on the decentralized adjudication.