I. Introduction
When smart contracts were first developed, the goal was not to replace or displace traditional contract processes, but rather to streamline certain aspects of contracting. However, it is still common in Web3 to hear advocates proclaim that smart contracts will upend an industry or process. So far, however, the Courts have pushed back on those proclamations in a variety of ways, reverting back to traditional contract principles. This article examines the latest developments in smart contract enforceability and analyzes key considerations for anyone designing or engaging with smart contracts.
II. Smart Contract Basics
Smart contracts are not really contracts at all, but rather are self-executing programs deployed on a blockchain that automatically perform transactions or tasks when predetermined conditions are met. They rely on basic conditional logic—if X occurs, then do Y—to automate agreements without human intervention. The traditional analogy is a vending machine – once a user inputs the correct amount of money, it will (or should) automatically dispense the desired snack or beverage. But, as we all know, even the best programmed vending machine can suffer from an issue, resulting in a loss of cash, a spoiled snack, or any other number of issues. And, just like smart contracts, these issues continue to raise thorny legal issues that the courts have had to grapple with recently.
III. Electronic Contract Enforceability
The essential elements of any contract are offer, acceptance, and consideration, where consideration is the promise to refrain from doing something or the promise to do something in exchange for value.1 But, as any attorney will tell you, this basic formulation is fraught with nuance and exceptions. These nuances become even more pronounced when transactions occur online and at the speed of light, and are no less thorny when dealing in the Web3 space.
A. Disclosure of Terms
Although there are no widely reported cases specifically touching on what constitutes sufficient disclosure of terms in a smart contract, case law is well-developed, particularly in the Ninth Circuit, on what type of disclosure and assent to terms is considered enforceable in the Web2 context. For example, in Nguyen v. Barnes & Noble Inc., 763 F.3d 1171 (9th Cir. 2014), the court addressed the enforceability of browsewrap agreements—where terms are available via a hyperlink but do not require explicit user assent. The court held that merely placing a hyperlink to terms of use at the bottom of a webpage, without more, is insufficient to establish constructive notice.2 As the Court noted in Nguyen, a user must have actual or constructive knowledge of the terms, and there must be clear evidence of assent. Although there are exceptions for finding assent to terms in other circumstances, this is generally the accepted view of browsewrap agreements.
Conversely, clickwrap agreements, which require users to affirmatively click an "I agree" button after being presented with terms and conditions, are generally upheld by courts. The Ninth Circuit's decision in Patrick v. Running Warehouse, 93 F.4th 468 (9th Cir. 2022), reinforced this principle, emphasizing that the enforceability of such agreements hinges on the clarity and conspicuousness of the terms presented and the user's unambiguous assent.3
These precedents underscore that for any digital agreement, whether a smart contract or something else, enforceability generally depends on the particular term to be enforced having been clearly disclosed and consented to. For example, let's say a Decentralized Autonomous Organization (DAO)'s smart contract auto-withholds 1% of each transaction processed through it as a platform fee. Most of the members know this, but the logic isn't otherwise disclosed in the interface, whitepaper, or any of the user agreements – only embedded in the solidity code. If this withholding was challenged by a subsequent member of the DAO, a court might find that: (1) there was no mutual assent, making the fee unenforceable, or, (2) that the contract was procedurally unconscionable.
B. Liability for Smart Contracts: Who is Responsible? Samuels v. Lido DAO
Even if a mutual agreement isn't formed, actions carried out by a smart contract can be considered as sufficient to subject the members of a DAO to liability for violations of securities laws. In Samuels v. Lido DAO, No.23-cv-06492-VC, 2024 WL 4815022, at *4 (N.D. Cal. Nov. 18, 2024), the issue was whether the members of the DAO could be treated as a legal entity subject to suit. A DAO is an organizational structure governed by code, often operating without centralized management, where rules are embedded in and enforced by smart contracts. The court in Samuels held that the DAO, which collectively made governance decisions and had significant market impact, could potentially be held liable under certain legal theories.4 Importantly, even though the DAO operated through autonomous code, the court emphasized that human actors within the DAO contributed to decision-making—thus blurring the line between code-based automation and traditional agency or corporate liability.
C. Mutable vs. Immutable Smart Contracts: Van Loon v. Department of the Treasury
A critical distinction emerging in court decisions is between mutable and immutable smart contracts. The U.S. Court of Appeals for the Fifth Circuit addressed this in Van Loon v. Department of the Treasury, 122 F.4th 549 (5th Cir. 2024), a case arising from the federal government's sanctions against Tornado Cash—a decentralized protocol that uses smart contracts to facilitate private crypto transactions.5
In Van Loon, the court highlighted a fundamental legal question: can immutable smart contracts—those not owned, operated, or alterable by any person or entity—be subject to sanctions as "property" under federal law? The court examined the distinction between mutable contracts, which can be updated or controlled by a party, and immutable contracts, which are autonomous and not capable of being modified once deployed.6
The Fifth Circuit ultimately held that Tornado Cash's immutable smart contracts were not "property" under the relevant sanctions laws because they were not capable of being owned or controlled by any identifiable party.7 This distinction has major implications: if smart contracts cannot be tied to a legal actor or entity, enforcement—both private and regulatory—becomes difficult or impossible.
This case illustrates the legal gray area surrounding decentralized technologies. While mutable smart contracts may satisfy traditional contract formalities (e.g., control, assent, modification), immutable ones challenge foundational assumptions of contract law and ownership, as well as who is carrying out the conduct, if anyone.
D. Courts Still Have Control In Determining Enforceability
Ultimately, courts still have control when determining what terms in inconsistent contracts offered by a particular party are enforceable. This concept was reinforced in Coinbase, Inc. v. Suski, 602 U.S. 143 (2024), where the U.S. Supreme Court held that where Coinbase users had entered into two separate agreements (a User Agreement containing an arbitration clause with a delegation provision, and a Sweepstakes Agreement containing a forum selection clause designating California courts), it is for a court–not the arbitrator—to decide what terms govern.8 This reaffirms that traditional contract formation and interpretation principles apply even in complex, multi-layered digital arrangements but that complicated legal terms, such as arbitration provisions or choice of law designations, should be clearly conveyed and legible as they may be put to a court to determine.
V. Current Uses of Smart Contracts and Conclusion
These concepts are continuing to rear their head across industries. For example, decentralized physical infrastructure networks (DePINs) have disrupted sectors like telecommunications, energy, and data storage by enabling users to build, contribute to, and monetize infrastructure directly through a peer-to-peer model—removing the need for centralized operators.9 Similarly, in real estate, smart contracts are being used to streamline escrow and rental payment processes, ensuring that payments are automatically disbursed when pre-defined conditions are met, reducing administrative burdens and opportunities for delay or dispute. But, these benefits of increased transparency and efficiency must be weighed against the traditional contract principles of enforceability by ensuring adequate disclosure, and the risks of liability associated with operating in Web3 at all.
Footnotes
1. Hennessey v. Kohl's Corporation, 571 F.Supp.3d 1060 (E.D. Mo. 2021).
2. Nguyen v. Barnes & Noble Inc., 763 F.3d 1171, 1175 (9th Cir. 2014); but, cf. Bryant v. JPMorgan Chase Bank, N.A. No. 2:24-CV-01912-SPG-SK, 2025 WL 313204 (C.D. Cal. Jan. 27, 2025) (distinguishing Nguyen and recognizing that assent can be found in conduct that manifests acceptance of the terms).
3. Patrick v. Running Warehouse, 93 F.4th 468, 476 (9th Cir. 2022)
4. Samuels v. Lido Dao, No.23-cv-06492-VC, 2024 WL 4815022, at *4, *11, *12 (N.D. Cal. Nov. 18, 2024).
5. Van Loon v. Department of the Treasury, 122 F.4th 549, 549 (5th Cir. 2024).
6. Van Loon, 122 F.4th at 555.
7. Van Loon, 122 F.4th at 550.
8. Coinbase, Inc. v. Suski, 602 U.S. 143, 145 (2024).
9. Tobias Vilkenson, Decentralized Physical Infrastructure Network (DePIN), Explained, Cointelegraph (Oct. 1,2024), https://cointelegraph.com/explained/decentralized-physical-infrastructure-network-depin-explained (last visited April 14, 2025).
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
