Contracts are the cornerstone of financial services. These include loans, securities, bonds, mortgages, and much more. Financial contracts are agreements between parties to exchange cash flows. In traditional financial systems, these agreements are written by different legal experts in different parts of the world, each with their own laws, terminology and implications. The essence of these contracts, however, can be distilled down based on the cash flow obligations. Abstracting financial contracts out to this flow of value reveals that they follow a smaller number of standardized patterns.
Categorizing Financial Contracts & Potential for Cardano’s Plutus
The ACTUS project is an initiative to define all financial contracts into a small number of groups by distilling them down into their core essence.
“The goal of ACTUS is to break down the diversity in financial instruments into a manageable number of cash flow patterns – so called Contract Types (CT).” - ACTUS. Within this goal, ACTUS defines two different standards for viewing contracts on their website:
① ACTUS Data Standard:
The Data Standard defines a universal set of legal terms – or CT (Contract Type) Attributes – used as parameters throughout the different financial agreements. It is implemented in form of a Data Dictionary with Attribute Applicability by Contract Type.
② ACTUS Algorithmic Standard:
The Algorithmic Standard defines the logic embedded in legal agreements that eventually turn the contract terms into actual cash flows, or more generally business events.
Under these two standards, it is possible to model the majority of financial contracts. Financial contracts defined under these standards have the potential to be created within Plutus, Cardano’s smart contract programming language which will be released with the upcoming launch of Goguen. Creating financial contracts defined within the standards defined by ACTUS brings many exciting possibilities for Plutus and the Cardano smart contracts that can be modelled on the Plutus platform.
How Could Cardano Carry Out Financial Services?