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What is a Contract?

In Luna, a Contract is an agreement that serves as the actual implementation of a financial transaction or series of transactions. If a Template is the architectural plan for a house, a Contract is the house itself, built according to that plan but with specific details filled in. When converting from a Template into a Contract, you will be able to fill in the details of aspects that change for each implementation, or automatically fetch these from somewhere.

Why is the Concept of a Luna Digital Contract Needed?

Financial Contracts are the operational units that make financial transactions possible and enforceable. In the realm of private credit, they serve as the backbone for various financial products like loans, lines of credit, or asset-backed securities. Luna Contracts automate the execution of these financial agreements, making the process more efficient and less prone to errors.

 Example 1: Invoice Financing

Consider a scenario where a firm offers invoice financing to suppliers. Each financed invoice would be managed as an individual Contract within Luna. The Contract would automate the process of advancing funds to the supplier and collecting repayments once the invoice is paid by the buyer. This ensures that the terms are adhered to and that the financial transactions are executed smoothly, reducing the need for manual oversight.

Example 2: Interest Rate Swaps

Imagine two parties entering into an interest rate swap agreement to hedge against interest rate risks. The Contract would automate the periodic exchange of interest payments between the parties based on the agreed-upon fixed and floating rates. This automation ensures that payments are made on time and according to the terms, minimizing the risk of default or errors.

Linked Contracts

What are Linked Contracts?

In Luna, you use Linked Contracts to share data between contracts. When moving a contract template to the execution stage, its linked counterparts activate as Linked Contracts, sharing data and conditions as defined in the template.

Why are they useful?

Data sharing between Linked Contracts can include financial details, participant information, or other relevant data. The template design phase determines the nature of the shared data and the relationship type.

You can link contracts during the contract creation process in Luna while creating the template. As you execute Linked Templates, they transition into Linked Contracts, maintaining their predefined relationships.

Example: Linked Contracts for Corporate Loan Agreement Imagine a series of Linked Contracts for a corporate loan agreement. The primary loan contract links to collateral agreements and guarantor contracts. If the loan terms change, such as a change in the loan amount or duration, these changes automatically propagate to the linked collateral and guarantor contracts, ensuring all related agreements stay up-to-date and consistent.