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Recently, smart contracts have been used in association with platforms and blockchain technology. The blockchain platform, which acts as a type of digital ledger, ensures that the encryption used to develop the contract remains well protected and executed. When a smart contract code is copied to a new block within the blockchain, it has the effect of executing a disposition in the contract.
For example, Chen describes how smart contracts could be used in earnout payment deals that are becoming a more frequent feature of M&A deals during the pandemic, as volatile markets and the economy often make deals riskier for buyers.
Earnouts are payments made to the seller by the buyer following a transaction, if the purchased asset meets certain financial parameters agreed by both parties. It is an incentive for the company to continue doing well after the transaction.
Chen says a smart contract could be used to manage earnout payments, using scheduled metrics and the agreed payment schedule, eliminating the potential for human and third-party error, while still providing secure blockchain technology.
Prior to the pandemic, Chen says the combination of using blockchain technology and smart contracts was becoming increasingly popular, and this trend is likely to continue as markets look to new platforms to address future global pandemics and crises.
