Escrow funds to "guarantee a service": how to distribute funds after exit scam?

[LoyceV]

Several (new) services use an escrow as some sort of guarantee against them scamming. It's a great way to take away doubt as a new service, but it can be tricky. That happened in 2018, when the escrowed 5 BTC was returned right when they exit scammed 16 BTC. The escrow can mitigate this by adding a waiting period before returning the funds, but it's still far from perfect.

The case that got me to created this topic: a new "exchange" scammed $100k, and had escrowed $10k and another $10k. There's also a $7k scam accusation.

How should funds be distributed?

Refunds to the accuser will be processed as "first come first serve".

This isn't ideal, some users may need more time than others to figure out how to contact him.

we distribute the escrow funds among the affected parties in proportion to the amount of their losses.

This isn't ideal either:

Let's say these are the only 2 victims, and you pay out $10k the way you described. One victim receives $9346, the other victim receives $654. That means the victim who stayed under the guaranteed amount loses almost everything because someone else deposited 10 times more, and probably triggered the exit scam with that! Wouldn't a per-user distribution be better, so they both receive $5k?

It can get even worse when the exit scammer plans ahead (hypothetical scenario):

let's say an exchanger with an escrow deposit wants to exit scam. Someone deposits an amount large enough to run away. But they don't want to lose their escrow deposit, so they create a large exchange transaction on their own platform, with a signed Letter of Guarantee, and claim to be a victim. That way they get most of their escrowed amount back!

Another hypothetical scenario is that one victim claims funds from both escrows: if they're not in contact, one victim may even get paid twice. And even if they're in contact, they may not be aware of the (hypothetical) existence of a third escrow.

I think a distribution like this would be an improvement:

Another idea is to see the $10k escrow as a per-person max cap, so the $100k is treated as a $10k deposit along with the $7k one.
$100k victim receives $5,882.35
$7k victim receives $4,117.65

I'd like to mention @SFR10 (who holds this escrowed amount) and @OrangeFren (who offers their Guarantee for many different exchanges) for their input.

Warning!

I don't think it can be solved, other than being aware of the possibility. So the escrowed amount should never be considered a personal maximum for safe deposits, users should stay at least an order of magnitude under the amount to have any realistic chance of seeing their money back in an exit scam.

If an escrow holds for example $10k, and assuming you trust that escrow, you should still not trust the service with $10k. If they exit scam, they'll likely make more victims and the $10k will have to be distributed over multiple users. I'm curious how OrangeFren would handle such a case, as their website could tell a user "Your trade is fully protected against this service scamming you.", and then many different users show up with the same problem to claim the same amount.

Self-moderated against spam. Discussion is of course welcome.

[examplens]

It can get even worse when the exit scammer plans ahead (hypothetical scenario):

let's say an exchanger with an escrow deposit wants to exit scam. Someone deposits an amount large enough to run away. But they don't want to lose their escrow deposit, so they create a large exchange transaction on their own platform, with a signed Letter of Guarantee, and claim to be a victim. That way they get most of their escrowed amount back!

How much would a letter of guarantee and a record of the time it was created be of help?
Ok, probably in a planned scam, this could also be manipulated. But in this way, any warranty letter younger than the moment when the service went offline could be considered invalid.

[TryNinja]

How much would a letter of guarantee and a record of the time it was created be of help?
Ok, probably in a planned scam, this could also be manipulated. But in this way, any warranty letter younger than the moment when the service went offline could be considered invalid.

If you control the PGP key that signs the order, you can make anything look valid.

Also, if you're planning to exit scam on April 5th, you can create an order 1 day before to send your own coins, scam youself, and get the escrow to refund you while keeping the coins (since you're the scammer).

[Stalker22]

I think LoyceV is asking the right questions.  My first thought when I saw the $100k allegation was that it might be fabricated.  Just a convenient cover story for them to pull an exit scam and pocket the escrow funds.  Think about it: if they were planning an exit scam, this is exactly the card they would play to get back the funds they deposited in escrow.

Of course I dont want to turn this into a witch hunt, but has anyone seen concrete evidence of the multiple high-amount swaps that 85pandora claimed to have made in the past?

[rat03gopoh]

I support the proportional distribution method (TryNinja's suggestion), extending the claim period to at least a month from the time the scam was indicated, plus a minimum loss requirement for recovery.
However, victims cannot expect a truly fair recovery, especially if the scammer involves multiple parties escrwing their funds, who may apply different recovery methods.

[BitMaxz]

let's say an exchanger with an escrow deposit wants to exit scam. Someone deposits an amount large enough to run away. But they don't want to lose their escrow deposit, so they create a large exchange transaction on their own platform, with a signed Letter of Guarantee, and claim to be a victim. That way they get most of their escrowed amount back!

This is what I've been thinking about for the past few days as a possible scenario: the scammer could act as a victim in order to obtain escrow funds. Since they can immediately make a deposit on their own platform, use that letter of guarantee and transaction TXID as proof that they made a deposit from that platform.

I believe this needs to be filtered out because others who deposited and had a successful trade on the platform may do the same and pretend as a victim, even if they had already made a successful trade two weeks before the exit scam happened.

So, I think this needs some verification or something to make sure the victim is a legit customer, not the scammer itself. We do not have data, but only the letter of guarantee is the proof that they are customers that the scammer can also produce if they want to.

[LoyceV]

others who deposited and had a successful trade on the platform may do the same and pretend as a victim, even if they had already made a successful trade two weeks before the exit scam happened.

I assume the escrow checks the receiving address from the Letter of Guarantee, to see if the transaction was completed. That's the basics of any escrow job.

I think this needs some verification or something to make sure the victim is a legit customer, not the scammer itself.

That's impossible. The only thing I can think of, and maybe that's something OrangeFren can automate, is making a reservation on the escrow money per trade, so no other user can feel protected until the first reservation is completed. But that's a lot of complications to add.

[KycNotList]

I think LoyceV is asking the right questions.  My first thought when I saw the $100k allegation was that it might be fabricated.  Just a convenient cover story for them to pull an exit scam and pocket the escrow funds.  Think about it: if they were planning an exit scam, this is exactly the card they would play to get back the funds they deposited in escrow.

Of course I dont want to turn this into a witch hunt, but has anyone seen concrete evidence of the multiple high-amount swaps that 85pandora claimed to have made in the past?

I agree with the theory that an exchange operator who is deliberately committing fraud could pull off a scheme like this, but I think that in this case, the victim who lost $100,000 is a real person-after all. It's unlikely that Tomboy would have committed fraud involving $7,000.

I’ll change my mind if it turns out there were more victims, but if there were only two, then judging by how the Tomboi was marketed, the $7,000 scam wouldn’t have covered the cost of the marketing.

I think this needs some verification or something to make sure the victim is a legit customer, not the scammer itself.

That's impossible. The only thing I can think of, and maybe that's something OrangeFren can automate, is making a reservation on the escrow money per trade, so no other user can feel protected until the first reservation is completed. But that's a lot of complications to add.

Unfortunately, this method isn't technically feasible for all services. This approach is only possible for aggregators that work with exchange platforms via API, but not all exchange platforms have their own API. At OrangeFren, transactions aren't processed via API either. Instead, users are redirected to the exchange platform itself to complete the transaction.

Additionally, forum participants acting as escrow agents cannot monitor every transaction if they accept deposits from an exchange.

We are currently finalizing the terms of service for our platform to ensure they are as fair as possible, and we hope to identify points from this discussion that need to be added to these rules.

The exchange’s deposit will be distributed among the affected parties according to the following scheme:
1) The deposit will be distributed to the affected parties in proportion to the amount of their losses.
2) If a victim’s loss exceeds the exchange’s deposit on our platform, we will calculate the amount based on the deposit amount rather than the victim’s actual loss, as our service clearly states that users must not exchange amounts exceeding the exchange’s deposit per transaction.
3) The victim may claim a portion of the exchange’s deposit only if they provide substantial evidence of the completed transaction.
4) The exchange is given 7 days to resolve the issue if it turns out to be a technical error. If the exchange fails to resolve the issue with the affected parties within 7 days, its deposit will be distributed.

I would appreciate it if you could suggest some points to add.

****************************************************
I’ll also include a quote from my post in the thread that preceded this one, so that the context of the current situation involving the victims who lost $7,000 and $100,000 is clear.

@TryNinja @LoyceV

You’ve raised a very important point.

We already responded to both affected users yesterday, explaining that compensation amounts will be paid in proportion to their losses, and it would be unfair of us to change the terms now and pay less than promised. But on the other hand, you are right: our website includes a warning advising users not to make individual transactions exceeding the amount of their deposit.

Your theory makes perfect sense, but I think that in this case, the victim who lost $100,000 is a real person-after all. It's unlikely that Tomboy would have committed fraud $7,000.

I think it would be fair this time to contribute a little of our own funds so that the victim’s payout of $7,000 is slightly higher-perhaps we could increase it to $4,100.

But, of course, we can’t keep doing this indefinitely, since this is no small amount for us, and by making this contribution out of our own funds, we’re sacrificing the development of our project. That’s why we need to clearly define the payment rules and post them on our website, so that in situations like this, everything is transparent and clear to everyone.

But here, too, we need to understand that a scammer might not create one large sum, but rather many small ones, so that after the scam, they can request a withdrawal from different accounts.

I would be very grateful for the continuation of this discussion so that you can help us draft more effective rules for distributing deposits in the future.

[examplens]

I would appreciate it if you could suggest some points to add.

The Tomboy case points to another potential scenario for which a correct solution model should be set up.
They left funds in escrow with several different platforms or forum members. Requests for refunds, as well as the refund itself, would have to be synchronized in order to treat everyone fairly and to avoid potential double compensation.

So, for example, this user claims to have been scammed by Tomboi for 10k USDC, and that he got $100 (It may be unclear whether he actually received this money) worth of compensation from antikyc escrow

They fraudulently took 10,000 USDC from me; they had a $1,000 deposit on Antikyc.io, but their team decided to keep the money for themselves and give me $100. I told them to go to hell. I do not recommend contacting them or exchanging through their referral link. There is also a chat log where they said I wasn’t their referral and that they wouldn’t send me anything—just the $100 they were able to.

[85pandora]

You know what? Forget it. I don't even want a single cent back anymore. Take everything sitting in escrow and donate it all to Stalker22 and LoyceV — congratulations, you've earned it with your paranoia and your pathetic accusations.

I literally just lost $100k and you people are out here treating ME like the scammer. I can't even think straight right now and this is what I have to deal with? Are you kidding me? This forum is a joke.

[LoyceV]

You know what? Forget it. I don't even want a single cent back anymore. Take everything sitting in escrow and donate it all to Stalker22 and LoyceV — congratulations, you've earned it with your paranoia and your pathetic accusations.

I literally just lost $100k and you people are out here treating ME like the scammer. I can't even think straight right now and this is what I have to deal with? Are you kidding me? This forum is a joke.

It looks like the scenario I mentioned hit a nerve. I can't know for sure if it applies to you or not, but you can't deny it's a possibility, and if not now, then in the future. That's what this topic is about: clarify escrow best practices for future cases.

[examplens]

You know what? Forget it. I don't even want a single cent back anymore. Take everything sitting in escrow and donate it all to Stalker22 and LoyceV — congratulations, you've earned it with your paranoia and your pathetic accusations.

I literally just lost $100k and you people are out here treating ME like the scammer. I can't even think straight right now and this is what I have to deal with? Are you kidding me? This forum is a joke.

Maybe it seems that way to you now, but it's just a matter of extra caution. We have seen many more complex scam schemes here.
There is a difference between this forum and Discord, for example, where it is obviously on "trust me bro". Your example itself shows, because you lightly sent an excessive amount to a still insufficiently proven exchange. Insufficiently proven even for large amounts.

Everything is still between you and those holding the escrow in this case. They are not obliged to take anyone's advice into account.

I'm sorry if this anomaly (which you are also involved in by an unfortunate accident) reflects badly on you, because it is used in analysis and finding solutions in order to reduce the damage of confusion in future similar cases to a minimum.

[85pandora]

You know what? Forget it. I don't even want a single cent back anymore. Take everything sitting in escrow and donate it all to Stalker22 and LoyceV — congratulations, you've earned it with your paranoia and your pathetic accusations.

I literally just lost $100k and you people are out here treating ME like the scammer. I can't even think straight right now and this is what I have to deal with? Are you kidding me? This forum is a joke.

It looks like the scenario I mentioned hit a nerve. I can't know for sure if it applies to you or not, but you can't deny it's a possibility, and if not now, then in the future. That's what this topic is about: clarify escrow best practices for future cases.

Of course it "hit a nerve." I just lost $100,000. I came to this topic looking for updates, and instead i found people building hypothetical scenarios where I'm the scammer. How exactly did you expect me to react?

[KycNotList]

I would appreciate it if you could suggest some points to add.

The Tomboy case points to another potential scenario for which a correct solution model should be set up.
They left funds in escrow with several different platforms or forum members. Requests for refunds, as well as the refund itself, would have to be synchronized in order to treat everyone fairly and to avoid potential double compensation.

I agree with you. In this case, I contacted Little Mouse to find out how many victims have reached out to him, but before making any payments, I’ll also ask him how he plans to distribute the funds so we can take that into account as well.

I hope he’ll get back to us so we can distribute everything more effectively, but for the future, we need to think carefully about how to regulate all this, since some have more than two escrow accounts, and the largest deposits are usually held on dark web resources-especially if the exchange is No KYC or provides mixing services-which makes coordination between multiple escrow accounts even more difficult.

So, for example, this user claims to have been scammed by Tomboi for 10k USDC, and that he got $100 (It may be unclear whether he actually received this money) worth of compensation from antikyc escrow

They fraudulently took 10,000 USDC from me; they had a $1,000 deposit on Antikyc.io, but their team decided to keep the money for themselves and give me $100. I told them to go to hell. I do not recommend contacting them or exchanging through their referral link. There is also a chat log where they said I wasn’t their referral and that they wouldn’t send me anything—just the $100 they were able to.

I may be mistaken, but it seems this user mentioned that he fell victim to a scam on other websites, which he associates with Tomboi’s activities.
1) He did not contact us regarding being a victim of the Tomboi website in order to be eligible for a payout from the deposit.
2) He stated that the scammer’s deposit on Antikyc.io was $1,000. But on Tomboi, the deposit on Antikyc.io was $500, not $1,000.
3) Based on the user’s nickname and the text, it seems more likely that he fell victim to a scam by the Byware exchange, and in this context, he suspects that Tomboi is connected to those sites.

I could be wrong, so just in case, I sent a private message to this user to clarify the situation.

You know what? Forget it. I don't even want a single cent back anymore. Take everything sitting in escrow and donate it all to Stalker22 and LoyceV — congratulations, you've earned it with your paranoia and your pathetic accusations.

I literally just lost $100k and you people are out here treating ME like the scammer. I can't even think straight right now and this is what I have to deal with? Are you kidding me? This forum is a joke.

We understand your loss and sincerely sympathize, but please be more respectful toward the forum members. The discussion here is less about the current situation and more about possible future scenarios and how to properly allocate deposits in such cases. As I understand it, there are currently only two victims: you and the person who lost $7,000. If no other victims come forward, it stands to reason that it wouldn’t be in Tomboi’s interest to scam the project $7,000, and your claim of a $100,000 exchange is likely legitimate.

You also made a mistake by transferring an amount five times greater than the exchange’s total deposit balance—and if you include the deposit on our service, ten times greater. Our website includes a warning: “We strongly recommend that a single transaction does not exceed the exchanger’s deposit amount.”
The problem is that users who follow these rules end up with practically nothing if everything is distributed on a percentage basis, although the greater blame lies with whoever set an exchange amount that was too high and exceeded the deposit.

And this is no longer specifically about you, but rather about the fact that, in theory, an exchange preparing to scam users could initiate such a transaction itself in order to seize the majority of the deposit. This discussion is more about what rules should be established in the future to distribute the deposit more effectively among the victims.

As I already mentioned in my private message, I will make a payment equal to a percentage of the losses incurred by those affected, and that is exactly what I will do-we value our reputation and keep our word. But in this case, there is a person who lost $7,000 and followed the rules by not exceeding the exchange’s deposit limit when creating the trade, and if calculated as a percentage of his total amount, he will receive only $654, which does not seem entirely fair. Given this situation, we have decided to add an amount from our own funds to the compensation for this affected user so that they receive $4,100, as if your loss had matched the deposit amount rather than exceeding it by 10 times.

This time we are covering the difference, but we cannot do this indefinitely. That is precisely why this discussion is crucial for the community-to establish fairer and more transparent rules for the future and post them on the website. Furthermore, this will help other escrow services understand how to operate correctly and define their own rules to prevent further manipulation by scammers.

[SFR10]

How should funds be distributed?
[...]
I'd like to mention @SFR10 (who holds this escrowed amount) and @OrangeFren (who offers their Guarantee for many different exchanges) for their input.

AFAIK, governments follow KycNotList's approach when they successfully seize funds from scammers and try to refund verified scam victims ^{[this is the standard that I would've probably applied without the existence of these two threads]}, but after reading TryNinja's comment ^{[per-person max cap based on the deposited amount]}, I think this is the better approach since it's more fair to those who transacted within the escrowed amount ^{[IMO, others shouldn't be paying the price for those who acted irresponsibly]}.
- Concerning the first hypothetical scenario, I still need more time to think if there's even a way to tackle this issue, but as things stand, it doesn't look good ^{[unfortunately]}.

[TryNinja]

AFAIK, governments follow KycNotList's approach when they successfully seize funds from scammers and try to refund verified scam victims ^{[this is the standard that I would've probably applied without the existence of these two threads]}

Governments require full KYC before sending anything, so there is less abuse. I think it's something to consider.

[LoyceV]

Governments require full KYC before sending anything, so there is less abuse. I think it's something to consider.

That'll make the "guarantee" utterly useless for anyone who cares about their privacy.

[TryNinja]

Governments require full KYC before sending anything, so there is less abuse. I think it's something to consider.

That'll make the "guarantee" utterly useless for anyone who cares about their privacy.

Yes, to be clear, I didn't mean we should require full KYC. Bad wording on my part.

"I think it's something to consider" = recognize that we can't just do the same as the government because they ask for KYC.

[The Cryptovator]

For the exit scam, the situation is quite complicated; I don't see any option except proportional distribution. Though there is a chance they exchange themselves and manipulate the situation to get their escrowed funds, it's unverifiable. There would be true victims as well who lost big funds. But exchanging like $100K for such an instant exchange doesn't make sense to me. They might do it from various reputed exchanges or use multiple methods to reduce the risk.

However, it seems quite hard to give advice about the distribution. So there should be prior notice about escrow distribution during the exit scam. It would be proportional or with some other conditions. Also, the escrow holder should declare that holding $10K doesn't mean your funds are fully protected in case of an exit scam. For me, if I were an escrow for an exit scam, I would have to distribute through a proportional strategy. I don't see any other legit way for the distribution.

[Emitdama]

While you are caring about end-users, I worried about exit scam of escrow agents and started few initiative to monitor/ to bring transparency with escrow services in recent back:

1. Reference thread for escrowed funds
2. [Escrow Reference Thread] Need of Escrow? Post here your requirement.
3. How about the idea of requesting escrow providers to be more transparent

But, like @Vod once mentioned, this community has got riched out and no more caring about anything until it happens to them.

Basically my idea was, not pouring all escrow funds to be with one or two escrow agents but spreading with multiple escrow agents so the probability of exit scam or lose of funds would get lower.


Here is the topic on notorious escrow's exit scam happened in our community (in case if you have forgot):
Master-P SCAMMER. I lost complete faith in this forum now.