Dispute Resolution in a Web3 Future (Part 2)

Part 2: The current State of Dispute Resolution in the Context of Blockchain Technology

This is part of a two-part series. Make sure to read Part 1: Why alternative dispute resolution organizations matter for blockchain and web3

Dispute resolution is highly complex, with many models and unproven theories, so we will keep this high-level and just look at who’s doing what.

It’s important to note that there is essentially no significant adoption of any of these technologies. We are in the experimental pre-adoption phase, so invest with caution, and as always, this is not financial advice. I do, however, believe that this is a vastly overlooked niche with real (and sticky) adoption potential - the question is whether we are a decade too early or not!

Let’s take a look at some current attempts and then try to piece together a conclusion:

Aragon Court

How it Works

Aragon Court is pretty simple. It is a modular dapp that any web3 project can use to initiate a dispute.

Jurors, called “guardians,” are selected by random based on their staked token weight, and review any documents or other evidence as submitted by the involved parties.

In order to attempt to come to a decision about a subjective matter, guardians are incentivized to consider how the other guardians are most likely to vote, and vote according to that. Each time a vote is cast, a portion of their staked tokens are locked up, which they stand to lose if others vote counter to their vote.

For simple and straightforward cases, this will likely result as expected. But what about in a case where an overlooked clause negates an agreement? Would a practiced arbiter and the average anon guardian always come to the same conclusion?

But nobody has used it!

Aragon Court is still only live on Ethereum Mainnet, and thus gas fees are a big factor. The average dispute would never be worth resolving if it costs more than the money at stake. That being said, the deployment to many other networks and L2s is currently slated for this coming month.

Despite the complete lack of traction, Aragon Court is just one module within the Aragon ecosystem. As adoption for tools like Vocdoni’s anonymous, censorship-resistant governance suite and Aragon’s governance frameworks accelerates, I wouldn’t be surprised to see more creative use of this building block. And despite Aragon’s own governance challenges, they remain well capitalized with upwards of $100m (not including tokens).

Kleros Court

Kleros is similar in its selection process to Aragon, so we’ll skip over how all of that works.

One major difference is that Kleros has created various courts in an attempt to ensure that jurors are familiar with the subject matter of each case. For example, in a software contract related dispute, the Blockchain>Technical court may be selected. While there is nothing stopping unskilled jurors yet from joining any court, Kleros’ focus on Proof of Humanity and close relationship with Gitcoin (essentially a skill and reputation registry) may help them figure this out in the future.

Kleros has settled over 1,000 disputes. Still small numbers, but enough to provide them with market feedback to continue to iterate.

A few interesting resolved cases can be seen here: Docs - Famous Kleros Cases

Jur

Jur is combining legally-compliant arbitration services with blockchain. Their main arbitration product is focused on serving the B2B world with experienced arbiters. However, their “Community Layer” will focus on solving “micro-sized disputes” and they have incorporated blockchain into various aspects of their tech stack. While they have not taken the same censorship-resistant, modular approach as Aragon Court and Kleros, they are worth a look.

Warning: They issued a token via ICO/IEO and I am not even sure if their products use it.

Conclusion

Legal services represent a trillion dollar market, and these protocols are just the beginning of a long trend towards a censorship-resistant and voluntary arbitration and dispute resolution economy.

As adoption of DeFi continues and the number of DAOs and market participants increases, we will see a higher incentive for DAO collaboration which will, in some cases, require the ability to enter into contracts that cannot be settled with code.

In addition, dispute resolution modules may be viewed as a DeFi primitive, enabling a multitude of new ideas, governance frameworks, and products.

We are super early and the above protocols have not gained any noticeable market share, leaving the market open to competition and new participants, but it may be a market worth taking a second look at due to its potential size.