PAID Network’s platform to bring trustless over-the-counter transactions to crypto
PAID Network will make it possible for two parties who do not trust one another to complete legal agreements with each other. It achieves this through SMART Agreements, which are standardized contract templates that are transparent, easy to understand, and enforceable. These contracts — and the wider network — will give users of the platform peace of mind when doing business with anyone, anywhere. It will also save costs, resources, and time when compared with traditional legal contracts. Through this, we aim to bring legal services to everyone.
One example of how this service will work is in providing a template for parties to use when completing over-the-counter (OTC) transactions. OTC transactions, which is when two parties exchange assets directly between one another rather than buying or selling on an exchange, are commonplace in crypto. There are three main methods that these deals follow to ensure both parties receive the funds or assets they are expecting:
- An intermediary acts as escrow for the deal. Through this, a trusted middleman receives funds from both parties, and subsequently sends those funds on to each user
- Users use a decentralized exchange (DEX) that facilitates OTC transactions
- Users trust one another and simply send the assets across to each other
Each method brings risks or inefficiencies. Although there are OTC groups that are popular and have been operating for years without issues, there are many more that have suffered losses. Many formerly trusted admins or escrows have simply disappeared, taking substantial assets with them. There is no recourse in these situations. Using OTC groups also exposes users to other potential issues, such as malicious actors impersonating admins.
Furthermore, trusted OTC intermediaries such as trading firms introduce an additional layer of fees and time. These OTC desks must vet the parties involved, and typically charge a percentage fee of the transaction taking place. As the transaction is usually a relatively simple one — a simple exchange of one asset for another — this is far from ideal. It also means that only those who are transacting significant amounts can utilize these services, as it is not economically viable for smaller transactions.
DEXs that facilitate OTC transactions are an improvement, but they are not suitable for all types of OTC deals. In particular, they can only facilitate unlocked token transfers. Many OTC transactions involve locked tokens, and as such render this route unfeasible. Furthermore, users must set up or review the transactions themselves. It is easy, for example, for malicious actors to create new tokens with the same name that purports to be the real token. It also prevents OTC transactions that involve assets based on a different blockchain; for example, an Ethereum based DEX would not be able to facilitate a swap of XRP for BTC.
The third option relies on trust, which is not something any user should have to put trust in.
Trustless OTC transactions
There is an appetite for trustless OTC transactions, to make the process more secure, quicker, and cheaper. The first SMART Agreement template we are producing is for OTC crypto transactions. This will work as such:
- Alice wishes to sell 10 BTC to Bob for $180,000. The two users do not know one another. As they do not trust each other, they decide to use PAID Network to complete the transaction.
- Alice logs into her PAID Network account and selects the already created OTC transaction template. This template auto-fills her information. She subsequently puts in additional details, such as the amount of each asset to be transacted, and generates the agreement. This is now sent to Bob.
- Bob logs into his account and sees the proposed agreement. He can also review Alice’s reputation score to have increased confidence the transaction will complete. Because of PAID Network’s escrow services, he also knows he will be guaranteed to receive the funds. Bob completes his details and signs the agreement.
- Both parties receive an escrow address to which they send their assets. Once both parties have done so, the escrow then automatically releases the funds to the respective party.
- Alice and Bob can now review one another on the ease of doing business, which adjusts their respective reputation scores.
We can also facilitate non-crypto transactions. For example, Bob may wish to purchase BTC from Alice by bank transfer instead of using crypto. In this scenario, Alice and Bob would set up and sign the agreement in the same way as above. Alice would then send the 10 BTC to the escrow. Bob, however, would directly transfer the money to Alice’s bank account. Alice would then signal she received the money, in which case the BTC would be released to Bob.
If Alice claimed that she had not received the funds, then Bob could raise a dispute. This would begin the arbitration process, in which three randomly selected arbitrators from across the network would decide who was in the right, and whether the BTC should be released back to either Alice or Bob. Both sides would submit their evidence, such as the proof of the bank transfer, and the arbitrators would then rule. The escrowed BTC would then be released to whichever side they found in favor of.
This process is both quick and cheap. The cost to generate the agreement is a dollar or two, while it only takes minutes to set up, complete, and sign the agreement. This stands in contrast to the current route through which OTC deals are completed, which often involves a lot of back and forth and introduces unnecessary intermediaries. It also allows for transactions that involve exclusively real-world assets, providing scope for wider usage.
These are examples of how PAID Network will save users both time and money. It also illustrates how we are bringing legal services to those who have long been excluded from them. Our SMART Agreements will widen the sector; users do not need to be completing a transaction for hundreds of thousands of dollars for it to be economically viable to use PAID Network. Indeed, even relatively small transactions will still be able to take advantage of our trustless legal toolkit. There has long been a movement in crypto to bank the unbanked; PAID Network will bring legal services to those long excluded from the sector.
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