Integrating legally enforceable penalty clauses into smart contracts is a developing area that combines blockchain technology with traditional contract law principles. While the concept is promising, it introduces complexities regarding enforceability and alignment with existing legal frameworks. The article “The Law and Legality of Smart Contracts” explores how smart contracts can autonomously execute predefined actions, such as imposing penalties for breaches, by examining changing environmental conditions in conjunction with the contract’s embedded rules. However, the paper also discusses the regulatory uncertainties and technological shortcomings that must be addressed before smart contracts can fully replace traditional contractual agreements.

https://www.researchgate.net/publication/330626140_Smart_Contracts_Legal_Considerations