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

[Stalker22]

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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.

Spreading your funds across multiple escrow agents does not lower your risk.  It actually multiplies it.  True, the damage caused if one of them decides to exit scam will probably be smaller, but the probability of a loss increases proportionally with the number of escrow agents involved.

[Trêvoid]

Hi LoyceV

To mitigate risks, I act as an active intermediary, integrating escrow directly into the transaction workflow rather than holding funds for post-disaster distribution. Currently, I hold a $2,000 security deposit from Ghostswap (https://bitcointalk.org/index.php?topic=5585164.msg66813787#msg66813787). This model ensures the escrow acts as a live insurance policy.

To be eligible for reimbursement in the event of a scam, frozen order etc. users must contact me via SimpleX to initiate active intermediation *before* the swap. If you bypass this and interact directly with the service alone, you are not eligible for security deposit coverage. By requiring proof of engagement through SimpleX, I prevent fraudulent claims and ensure that my protection is reserved exclusively for my active intermediary users. This proactive approach allows me to monitor transactions in real-time, effectively neutralizing risks before an exit scam can occur.


Practical example:
Alice wants to swap $10,000 worth of BTC for XMR via Ghostswap but instead of sending funds directly alone, she asks us on SimpleX to act as an active intermediary.

We confirm the details and Alice sends the $10,000 to me. I split the swap into five separate Ghostswap transactions of $2,000 each and begin executing them using Alice recipient wallet. If Ghostswap suddenly goes dark or stops responding, I immediately halt further swaps. For any $2,000 that is frozen or appears lost, I claim the $2,000 security deposit from Ghostswap and refund Alice. Then make public warning for others.

Because Alice followed our protocol and used our intermediary service, she is fully reimbursed from the security deposit. A user who bypassed our intermediary and sent funds directly alone would not receive this reimbursement.

Read more: https://trevoid.com/threads/25/post-29

Best regards,
— Trêvoid

[rat03gopoh]

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To further refine this approach, it would be great if:

• The service also had an optional button on the platform like "activate escrow."
• You/the platform could display the remaining available (unactivated) escrow in real time.
• There is a processing time threshold (though I haven't considered the potential downsides of this point); if Alice exceeds the time limit from the time the instruction/approval is given, the escrow is invalidated.

[LoyceV]

Practical example:
Alice wants to swap $10,000 worth of BTC for XMR via Ghostswap but instead of sending funds directly alone, she asks us on SimpleX to act as an active intermediary.

We confirm the details and Alice sends the $10,000 to me. I split the swap into five separate Ghostswap transactions of $2,000 each and begin executing them using Alice recipient wallet. If Ghostswap suddenly goes dark or stops responding, I immediately halt further swaps. For any $2,000 that is frozen or appears lost, I claim the $2,000 security deposit from Ghostswap and refund Alice. Then make public warning for others.

Because Alice followed our protocol and used our intermediary service, she is fully reimbursed from the security deposit.

Now Alice has to trust you instead of Ghostswap, it just moves the risk to another service. At least with an "guarantee", if the first site disappears, the escrow acts as a backup. In your case, there is no backup. And worse than that, instead of 5 times sending $2k by herself, Alice now risks $10k at once.

[Trêvoid]

Practical example:
Alice wants to swap $10,000 worth of BTC for XMR via Ghostswap but instead of sending funds directly alone, she asks us on SimpleX to act as an active intermediary.

We confirm the details and Alice sends the $10,000 to me. I split the swap into five separate Ghostswap transactions of $2,000 each and begin executing them using Alice recipient wallet. If Ghostswap suddenly goes dark or stops responding, I immediately halt further swaps. For any $2,000 that is frozen or appears lost, I claim the $2,000 security deposit from Ghostswap and refund Alice. Then make public warning for others.

Because Alice followed our protocol and used our intermediary service, she is fully reimbursed from the security deposit.

Now Alice has to trust you instead of Ghostswap, it just moves the risk to another service. At least with an "guarantee", if the first site disappears, the escrow acts as a backup. In your case, there is no backup. And worse than that, instead of 5 times sending $2k by herself, Alice now risks $10k at once.

I appreciate the skepticism, as it is the foundation of a healthy ecosystem. I agree that shifting funds to an intermediary introduces a new trust requirement, but my model is designed to solve the all-or-nothing failure mode common in current exchange scams.

If Alice thinks she risks $10k at once while using our active intermediary, she can send 5 times $2k.

[LoyceV]

I appreciate the skepticism, as it is the foundation of a healthy ecosystem. I agree that shifting funds to an intermediary introduces a new trust requirement, but my model is designed to solve the all-or-nothing failure mode common in current exchange scams.

Why not change it so that Alice can temporarily "call dips" on the $2k guarantee, make the transaction herself with Ghostswap, and if all goes well, her claim on the guarantee expires so it's available for the next person. At least that way there's an additional level, instead of just moving the trust to another party.

[Trêvoid]

I appreciate the skepticism, as it is the foundation of a healthy ecosystem. I agree that shifting funds to an intermediary introduces a new trust requirement, but my model is designed to solve the all-or-nothing failure mode common in current exchange scams.

Why not change it so that Alice can temporarily "call dips" on the $2k guarantee, make the transaction herself with Ghostswap, and if all goes well, her claim on the guarantee expires so it's available for the next person. At least that way there's an additional level, instead of just moving the trust to another party.

I appreciate the suggestion LoyceV, but the 'call dips' model I think introduces a critical vulnerability. The lack of oversight. In my current model, I am not just a bystander holding a deposit; I am the active executor of the trade. Here is why that is fundamentally different from a 'call dips' reservation system...

Verification of State, in a 'call dips' system, Alice performs the trade herself. If she claims she was scammed, how do we verify if it was a genuine failure by the exchange, a user error, or a false claim to trigger the insurance? In my model, because I execute the trades in batches of $2,000, I have objective, real-time data on whether the exchange failed. I don't have to take the user's word for it or wait here and see newly registered user scam accusation.

Mitigation vs. Compensation, call dips is a restitution model it only triggers after the damage is done. My model is a prevention model. By breaking the 10,000 to five 2,000 tranches, I limit the 'blast radius. If the first swap fails, the remaining $8,000 is still under user control and never reaches the exchange.

Also if Alice 'calls dips' herself, she could potentially coordinate with a malicious exchange to fake a scam and claim the guarantee. By acting as the intermediary, I act as an independent gatekeeper. I am the one who initiates the swap with the exchange, making it much harder for a user and an exchange to collude to drain the escrow fund.

The 'call dips' approach sounds more user-friendly, but it shifts the burden of proof and verification onto a system that, by design, cannot verify the truth without a human intermediary like me.

[LoyceV]

Verification of State, in a 'call dips' system, Alice performs the trade herself. If she claims she was scammed, how do we verify if it was a genuine failure by the exchange, a user error, or a false claim to trigger the insurance?

A signed Letter of Guarantee would prove whether or not a transaction was completed.

[Trêvoid]

Verification of State, in a 'call dips' system, Alice performs the trade herself. If she claims she was scammed, how do we verify if it was a genuine failure by the exchange, a user error, or a false claim to trigger the insurance?

A signed Letter of Guarantee would prove whether or not a transaction was completed.

A 'Letter of Guarantee' is just a digital file. If a user and an exchange are colluding to drain the security deposit, the exchange can easily issue a signed letter or a fake proof of failure. By acting as the intermediary, I am an independent observer who isn't incentivized by the transaction itself.

[LoyceV]

If a user and an exchange are colluding to drain the security deposit, the exchange can easily issue a signed letter or a fake proof of failure.

That's where "calling dips" comes in: nobody else would think there's a guarantee for them if they don't call dips, so it would be futile for the exchange to try to get back the security deposit that way, they could simply ask it back.

[Trêvoid]

If a user and an exchange are colluding to drain the security deposit, the exchange can easily issue a signed letter or a fake proof of failure.

That's where "calling dips" comes in: nobody else would think there's a guarantee for them if they don't call dips, so it would be futile for the exchange to try to get back the security deposit that way, they could simply ask it back.

I appreciate the perspective.

Please don't think I'm digging in my heels here I’m genuinely enjoying the brainstorming. This is the kind of discussion that pushes these models to be better.

Let see what also other users thinks.

Best regards,
— Trêvoid

[LoyceV]

Please don't think I'm digging in my heels here I’m genuinely enjoying the brainstorming. This is the kind of discussion that pushes these models to be better.

That's what this topic is for

Let's put it this way: I don't know you, but from what I've seen, your service seems okay. Let's say I trust you 99%. That doesn't make me want to trust you with $10k.
Let's say there's another service, an exchange. I don't know the one you mentioned, but let's assume I also trust it 99%. That again doesn't make me want to trust it with $10k.
Now let's combine the two: if you can guarantee my trade on the exchange in case they scam me, that largely improves the combined trust. I won't say it's 99.99%, as there's always the chance of collusion, but let's say it's 99.9% now. That's a huge improvement! I still wound't trust it with $10k, because I'm paranoid, but it will increase the amount I'm willing to send.

That is of course the reason those "guarantees" exist:

It's a great way to take away reduce doubt as a new service

I also realize manually "calling dips" with a third party doesn't really scale for large numbers of users.

[Trêvoid]

Let's put it this way: I don't know you, but from what I've seen, your service seems okay. Let's say I trust you 99%. That doesn't make me want to trust you with $10k.
Let's say there's another service, an exchange. I don't know the one you mentioned, but let's assume I also trust it 99%. That again doesn't make me want to trust it with $10k.
Now let's combine the two: if you can guarantee my trade on the exchange in case they scam me, that largely improves the combined trust. I won't say it's 99.99%, as there's always the chance of collusion, but let's say it's 99.9% now. That's a huge improvement! I still wound't trust it with $10k, because I'm paranoid, but it will increase the amount I'm willing to send.

That 99.9% math is spot on. Trust doesn't have to be absolute to be useful it just needs to be high enough to unlock utility. My service acts as that extra 0.9% layer, essentially turning individual paranoia into a structured, manageable risk for the user.

[LoyceV]

My service acts as that extra 0.9% layer, essentially turning individual paranoia into a structured, manageable risk for the user.

This is the part we seem to disagree on: you'd only add this 0.9% if you're acting on top of another service. By moving the entire transaction to yourself, you're still stuck at 99% (in this hypothetical scenario).

[Trêvoid]

My service acts as that extra 0.9% layer, essentially turning individual paranoia into a structured, manageable risk for the user.

This is the part we seem to disagree on: you'd only add this 0.9% if you're acting on top of another service. By moving the entire transaction to yourself, you're still stuck at 99% (in this hypothetical scenario).

To actually achieve that 99.9% security, my service needs to act as a bonded guarantor where I provide my own collateral alongside the exchange’s deposit. This would create a dual-security layer that neither party can withdraw without the other, effectively forcing the '0.9%' improvement you’re looking for.

I’m currently exploring ways to stake my own funds against these trades to make this a reality. Do you think a multi-signature escrow between the exchange, the user, and a neutral validator would be the best way to enforce that 'bonded' trust?

[examplens]

This is an unnecessary complication and does not add much to safety. In fact, on the contrary, instead of one $10k transaction, or 5x $2k, you have at least 10 transactions, all manual. What can go wrong... 
Also, in the end, how much will all this raise the total fee? For Alice, such an exchange will be more expensive with additional layers in the process.
In the end, 10 transactions will require additional duration, and it is no longer 'instant'. Do people really want to spend half a day on such transactions?

[LoyceV]

I’m currently exploring ways to stake my own funds against these trades to make this a reality. Do you think a multi-signature escrow between the exchange, the user, and a neutral validator would be the best way to enforce that 'bonded' trust?

That still doesn't prevent collusion between the exchange and yourself, but it adds the possibility of either 2 out of the 3 parties colluding, so I'm not sure if this will be better.

In the end, 10 transactions will require additional duration, and it is no longer 'instant'. Do people really want to spend half a day on such transactions?

With $10k on the line, I don't mind spending a couple of hours to be safe.

[uchegod-21]

~
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.

Spreading your funds across multiple escrow agents does not lower your risk.  It actually multiplies it.  True, the damage caused if one of them decides to exit scam will probably be smaller, but the probability of a loss increases proportionally with the number of escrow agents involved.

I rarely see where escrow agents scams or abscond with the funds.  I mean for someone to act as an escrow agent, they should be overly trusted to do that and they should have a clear track record of holding even funds bigger than what is to be escrowed.

@Emitdama, your suggestion is even creating more failure points and shouldn't be implemented. However, a more technical approach is using the multi-sig wallet to hold large escrow funds between different escrow agents.

[LoyceV]

I rarely see where escrow agents scams or abscond with the funds.

I've seen a few cases in which the experienced escrow couldn't protect their client against a smart attacker (like this case).

I mean for someone to act as an escrow agent, they should be overly trusted to do that and they should have a clear track record of holding even funds bigger than what is to be escrowed.

One risk could be an increasing number of long-term escrow amounts: as amounts grow, an exit scam can become more and more appealing, especially if the escrow lives in a country where the total amount is life changing money. And there's the possibility something happens to the escrow, like this 250 Bitcoin forum treasurer.

[uchegod-21]

I mean for someone to act as an escrow agent, they should be overly trusted to do that and they should have a clear track record of holding even funds bigger than what is to be escrowed.

One risk could be an increasing number of long-term escrow amounts: as amounts grow, an exit scam can become more and more appealing, especially if the escrow lives in a country where the total amount is life changing money. And there's the possibility something happens to the escrow, like this 250 Bitcoin forum treasurer.

I have gone through the thread and the stories were not match up. From being dead to owning restaurants and all.

But was the Paraipan user really dead?

Did he later pay the BTC? Because there's nothing like negative trust in his profile.