Competition
Comparison with Arbitration-Type Escrows
In general, escrow refers to a service that secures a deal by having a trusted, neutral third party act as an intermediary.
Regular arbitration-type escrows are widely used in real estate deals and marketplaces such as eBay, Mercari or hodl hodl, where a trusted central authority exists.
There are also several protocols in which DAO members and others act as third parties to arbitrate disputes between players.
Specifically, the following procedure is used between the seller, buyer, and third party (arbitrator).
The buyer deposits the payment to the arbitrator.
Seller confirms the payment to the arbitrator and ships the goods to the buyer.
Buyer will check the goods sent and report the arrival of goods to the arbitrator. If the conditions of the deal differs from the original deal, the buyer may return the goods or cancel the deal.
The arbitrator remits the payment to the seller.
The advantages and disadvantages compared to DeDeal are as follows:
Advantages
・Compensation in Case of Deal Failure
In the event of a failed deal, the players may obtain compensation from the arbitrator. The source of this compensation is the arbitrator’s commission for a successful deal.
Disadvantages
・Fraud by Arbitrators
There is a need to prevent injustice, such as unfair arbitration obtained by bribing the arbitrators.
・Fees to Arbitrators
There is a need to pay fees/commissions to arbitrators.
・Censorship by Arbitrators
Arbitrators must review the deal, which violates the privacy of the players regarding the deal.
・Difficulty in Resolving Disputes
In the case of a dispute, arbitrators must investigate and make a conclusion based on biased information submitted by the players involved in the dispute. For example, if a dispute concerns whether or not an item was sent properly, it would be difficult for a third party to correctly determine which player is lying.
Comparison with Multi-Sig Lock-Up Escrow
There are multi-sig lock-up escrow protocols that generate deal enforceability among two players without the need for a third party by allowing both players to make a deposit, and later releasing the deposit only by agreement.
Specifically, the following steps are taken between the seller and buyer:
The seller transfers the deposit to the protocol.
The buyer transfers the deposit and the price of the item to the protocol.
The seller ships the goods to the buyer.
The buyer confirms reception of the goods.
Both the seller and the buyer agree to release the deposit and the price of the goods.
The protocol sends the deposit and the price of the goods to the seller and the deposit to the buyer.
The advantages and disadvantages compared to DeDeal are as follows:
Advantages
・Mitigated Losses in the Event of Deal Failure
If a trasaction fails, losses are limited to the deposit and the product itself for sellers, and the deposit and the product price for buyers.
With DeDeal, the losses for both players increases every time a saction occurs.
Disadvantages
・Sanctioning Cost in the Case of Fraud
When a seller commits fraud (such as not shipping a purchased product), the buyer can sanction the seller by not agreeing to release the deposit. However, if the seller is sanctioned, the buyer’s deposit is also not released. This higher sanctioning cost also makes the seller more likely to commit fraud.
In the case of DeDeal, the deposit made for sanctioning is returned if the other player does not sanction back, thus lowering the financial hurdle for sanctioning.
This can be explained by "A SIMPLE MODEL OF INEQUITY AVERSION." In DeDeal, if "αb (the buyer's utility loss multiplier associated with inequality against their favor)" is greater than zero, the sanction is imposed. On the other hand, in a multi-sig lock-up escrow, sanctions are not imposed unless ab is greater than a certain value corresponding to the amount of the deposit.
・Low Capital Efficiency in Day-to-Day Deals
In deals using multi-sig lock-up escrow, buyers are required to make a deposit in addition to the payment for goods. On the other hand in a DeDeal deal, the buyer only needs to pay for the goods which is more capital efficient.
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