As decentralized finance (DeFi) continues to bloom, the traditional arbitration process is increasingly burdened by needing identifiable parties and contractual agreements. A majority of disputes where parties engage in DeFi involve pseudonymous users or secondary market intermediaries or a lack of a clear contractual relationship, which limits the utility of traditional arbitration. In the meantime, Kleros and other blockchain uses for online forms of Development and Resolution (ODR) systems provide an appealable way of producing and enforcing self-executing decisions fast but raise legal and procedural questions of fairness, enforceability and legitimacy (Ali, A, 2025; Kadioglu Kumtepe, 2025). In this context, significant knowledge gaps are identified regarding how dispute resolution frameworks must change to remain meaningful or relevant with the decentralized digital economy.
Legal Reform: Desirable rule change proposals which could amend procedural arbitration rules to accommodate forms of pseudonymity and relationships based on smart contracts.
Regulatory Design: Identification guidance for regulators on how to reconnect on-chain dispute processes with off-chain enforcement.
Access to Justice: A further understanding of sufficient low-cost and scalable options to resolve small-value DeFi disputes.
Ali, A. (2025). Advancements and Transformative Applications of Blockchain Technology. Journal of Engineering and Computational Intelligence Review, 3(1), 36-51.
Kadioglu Kumtepe, C. C. (2025). Blockchain and Smart Contracts for Avoiding and Resolving Construction Disputes and Enforcing Dispute Adjudication Board Decisions. Journal of Legal Affairs and Dispute Resolution in Engineering and Construction, 17(3), 04525023.
Smart contracts can be praised for their facility for automating financial contracts/transactions, potentially providing some form of relief or eliminating disputes later on. But in the context of complicated DeFi transactions, contracts/features terms or phrases (for example, “best efforts” or “good faith”) can be notoriously slippery at best (Akinsola & Mary, 2025). This raises some challenging questions both about how much automation is possible and whether smart contracts can actually avoid disputes in decentralised financial spaces.
What are the technical and legal limitations of fully automating DeFi contracts using smart contracts?
What types of DeFi financial relationships are most conducive to dispute avoidance via automation?
How could smart contracts be partnered with oracles and legal clauses to more effectively set down discretionary or contingent terms in a smart contract?
Enhanced Legal Drafting: To better identify contract types or clauses that are the most amenable for automation.
Tech-Law Language Integration: To develop frameworks for leveraging human decision-making in
executing a smart contract.
Contractual Efficiency: Improved design of DeFi platforms that take a user-friendly approach and minimise the potential for disputes.
Akinsola, O. K., & Mary, B. J. (2025). Smart Contracts and Corporate Governance: Automation, Legal Risks, and Benefits.
Kothandapani, H. P. (2025). AI-Driven Regulatory Compliance: Transforming Financial Oversight through Large Language Models and Automation. Emerging Science Research, 12-24.
DLT transactions also have no borders. When there are no borders there is uncertainty as to which jurisdiction can adjudicate a dispute. The parties could be anonymous (or pseudonymous), the digital assets are fungible, and courts do not know how to take jurisdiction (McCarthy, 2025) The muddled legal jurisdiction around disputes with crypto assets adds to uncertainty and confusion and ultimately impacts trust in the DeFi markets, if this is not already clear (Mienert, 2025)
Harmonisation Proposals: Contribution to global harmonisation and conflict of law reform discussions that deal with digital finance generally.
User Protection: Greater legal certainty for retail and institutional consumers of DeFi.
Court reform proposals: Proposals that create realistic suggestions for how courts may manage disputes involving digital assets.
McCarthy, S. (2025). Transforming Arbitration: Exploring the Impact of AI, Blockchain, Metaverse and Web3.
Mienert, B. (2025). Managing cross-border DeFi DAOs in the EU: legal complexities and regulatory perspectives. In Decentralized Autonomous Organizations in the Legal Landscape (pp. 293-310). Edward Elgar Publishing.
Some writers have argued that were requested about offer and acceptance arbitration should be viewed as the default dispute resolution process for all business-to-business crypto contracts, unless stated otherwise (Delacruz & Olanrewaju, 2025). However, this position provides a new challenge for the existing principle of consent relating to arbitration.
Arbitral Innovation: As a potential next step in relation to existing ‘default arbitration’ theories, as it relates to DeFi commerce.
Regulatory Contribution: Indication of preference for national law reform or the rejection of consent erosion.
Procedural Efficiency: As a potential method to allow increased throughput of B2B smart contracts in processing.
Delacruz, M. & Weber, S. (2025). Default Arbitration in the Age of Decentralisation. International Arbitration & Business Law Review, 17(1), 60–91.
Olanrewaju, A. G. (2025). Harnessing Decentralized Finance (DeFi) protocols for institutional asset securitization in cross-jurisdictional banking ecosystems.
While anonymity is fundamental to many DLT platforms, most legal regimes impose full identification of parties involved, which is especially important to satisfy anti-money laundering (AML) regulations (López, 2025). There seems to be considerable tension between anonymity and enforcement.
1. Can pseudonymous arbitration meet lex arbitri AML, KYC, and public policy requirements?
2. What possible mechanisms can be utilized to ensure anonymity while complying with the AML regulations?
3. How do arbitral institutions deal with verifying identities in disputes related to DLT?
Policy frameworks: Frameworks for anonymised arbitration that satisfy AML at law.
Encouraging privacy where possible through legal mechanisms that balance objectives of enforcement and the protection of identities of the parties.
Possible institutional reforms or changes to policies and procedures impacted by institutional frameworks when administering arbitration of disputes of crypto transactions.
López Rodríguez, A. M. (2025). Location, Location, Location! Virtual Real Estate Disputes in the Metaverse and Blockchain Dispute Resolution. Willamette Journal of International Law & Dispute Resolution, 32(1), 44-67.
Bhardwaj, H., Chukwuebuka, O. J., Masilo, M. A., & Guglani, P. Arbitration in Cryptocurrency and Forum Shopping.