Draw Dispute Mode

The Draw Dispute Mode defines how financial risk is distributed between the buyer and seller in the event of an unresolved dispute. Instead of relying on trust or reputation alone, Nector uses programmable economic incentives to determine which party bears greater risk when a dispute ends in a draw.

Purpose

Draw Dispute Mode exists to:

Force both parties to pre-commit to risk before a transaction begins.

In Nector, a transaction will only happen if at least one party is willing to take on more risk.

If neither side accepts the risk conditions, the deal does not proceed.

This mechanism ensures that:

  • Risk is explicitly priced into every transaction
  • Both parties understand the consequences of failure
  • No trade occurs without mutual agreement on risk

Mode Types

Nector supports two modes for physical products:

Buyer Take Risk (BTR)

The buyer bears the greater financial loss if the dispute ends in a draw.

Seller Take Risk (STR)

The seller bears the greater financial loss if the dispute ends in a draw.

Digital Products

For digital products, the system defaults to:

Buyer Take Risk (BTR)

This is because delivery is immediate via file upload, making it impossible for the seller to falsely claim shipment.

Bond Structure

The bond structure determines how much each party must stake.

Let P = product price

Buyer Take Risk (BTR)

  • Buyer deposits: P + 20% of P
  • Seller deposits: 20% of P

Seller Take Risk (STR)

  • Buyer deposits: P + 20% of P
  • Seller deposits: 120% of P

Draw Outcome

If a dispute reaches a draw:

All funds locked in escrow are forfeited

This includes:

  • Product price
  • Buyer bond
  • Seller bond

All funds are transferred to the platform treasury.

Economic Consequences

The system is intentionally asymmetric.

In Buyer Take Risk (BTR)

  • Buyer loses significantly more than the seller in a draw
  • Seller’s downside is limited

In Seller Take Risk (STR)

  • Seller loses significantly more than the buyer in a draw
  • Buyer’s downside is limited

This asymmetry is not a flaw. It is the core mechanism that enables:

Risk negotiation between strangers

User Decision Logic

The seller selects the Draw Dispute Mode when creating an order.

The buyer is shown a clear warning before funding the escrow, including:

  • Who bears more risk
  • Exact bond amounts
  • Total potential loss in a draw

If the buyer does not agree with the selected mode:

  • They simply do not fund the escrow.

This creates a natural negotiation loop where:

  • Sellers adjust risk to attract buyers
  • Buyers choose deals based on acceptable risk

Incentive Design

Draw Dispute Mode discourages dishonest behavior by making disputes financially costly.

Key properties:

  • Both parties lose funds in a draw
  • One party always loses more
  • No party benefits from escalating conflict

This ensures that:

  • The optimal strategy is to resolve disputes early rather than escalate.

Example Scenarios

Assume a product priced at $100.

Buyer Take Risk (BTR)

  • Buyer deposits: $120
  • Seller deposits: $20

If the dispute ends in a draw:

  • Buyer loses $120
  • Seller loses $20

Seller Take Risk (STR)

  • Buyer deposits: $120
  • Seller deposits: $120

If the dispute ends in a draw:

  • Buyer loses $120
  • Seller loses $120

Security Philosophy

Nector does not attempt to determine truth. Instead, it ensures that:

Lying, delaying, or refusing to resolve a dispute results in financial loss.

This creates a system where:

  • Honest behavior is the most rational strategy
  • Dishonest behavior is economically discouraged
  • Disputes are resolved through incentives, not judgment