Dispute Resolution & Provider Collateral

Local Protocol’s core transaction flow can require provider collateral to provide service guarantees in markets where proofs are weak (e.g., PIN exchange) and disputes are possible.

Dispute Resolution via Provider Collateral

Consider a transaction between provider and buyer with payment , network fee , and provider collateral .

See: Sampling & Slashing and Graph Value.

Transaction + collateral escrow

• Escrow setup: buyer requests service from provider . The protocol escrows and locks provider collateral .
• Completion signal: a proof of agreement (e.g., a PIN exchange) indicates both parties attest service completion.

Resolution outcomes

• No dispute (PIN exchanged): escrow releases and both and are paid out to the provider.
• Dispute (PIN withheld): the buyer refuses to exchange the PIN (claims service not provided). The protocol returns to the buyer and slashes (burns) .

This mechanism provides a service guarantee to buyers without a trusted intermediary: providers face a direct economic penalty if they fail to complete service, and a dispute is resolved on-chain by the agreed completion signal.

Collateral sizing

Collateral is modeled as a function:

where are graph values and are reputation scores. A common form is:

See: Graph Value and Trust Propagation.

with monotonically increasing, often constrained by , , and .