Are stablecoins also refundable? Circle has launched the Refund Protocol to create a Web3 version of the credit card dispute handling mechanism

In the past, using stablecoins to pay was like taking cash transactions, and once the money was paid, there was no way to control whether the goods arrived, and there was no return mechanism and appeal channels, which made many merchants and users discouraged from using stablecoins.

In this regard, stablecoin issuer Circle launched a refund agreement (Refund Protocol) on 4/17, trying to provide stablecoin payments with a refund and dispute resolution mechanism like a credit card without the need for a central platform to keep funds.

The traditional solution is too dangerous, and it is better to write it into the contract than to hand it over to a third party

The general solution is to let a third-party platform escrow the funds of the buyer and seller, and in the event of a dispute, an arbitrator will decide whether the money should be returned or allocated to the seller. However, this approach is very risky, because third parties are said to be free to deal with funds.

In response to this problem, Circle launched the Refund Protocol, which is:

Deny arbitrators access to funds

You can only press the "Refund" or "Pay" button when preset, nothing else can be done.

In this way, not only disputes can be handled, but there is no risk of misappropriation of funds.

How the Refund Protocol works, four stages at a time

1. Payment: The money is advanced in the contract, and the merchant cannot be moved temporarily

When the buyer pays, instead of directly giving USDC to the seller, the buyer sends the money into the smart contract through the Refund Protocol's pay () function. The contract will record the payee, amount, refund address and other information to lock the funds first.

2. Disputes and refunds: You can find the seller or the arbitrator

If the item is disputed, the buyer can contact the seller first.

If the seller is willing, he can use the refundByRecipient () in the contract to actively return the money. Assuming the seller doesn't admit it, the buyer can intervene with an arbitrator, who can enforce refundByArbiter () to force a refund.

3. Withdrawal: When the time comes, the money will automatically go to the seller

If there is no dispute, the funds paid to the seller will go through a lock-up period. After that, the seller can withdraw money from the contract himself, without the consent of the arbiter.

4. Early withdrawal: There is a way to use money urgently, but there is a handling fee

If the seller can't wait for the lock-up period, they can apply for an early grant as long as they are willing to pay the arbitrator a processing fee. It is assumed that in advance, the seller's "signed consent" must be obtained in advance to ensure that the arbitrator cannot arbitrarily quote.

The protocol design is highlighted, transparent and flexible, and truly non-custodial

The spirit of the Refund Protocol is to allow third-party arbitrators to "not enrich themselves and misappropriate funds", and can only implement the processing logic predetermined by both parties. For example:

The arbitrator cannot transfer money to another account

All refund addresses are set at the beginning of the transaction

All withdrawal operations must go through the contract process to avoid the risk of centralized operations

Let merchants and users establish a more trust-based transaction relationship.

There are a few risks to be aware of

1. The risk of arbitrator messing around: If the arbitrator deliberately messes around, it is still possible to use a fake account number to attack the refund operation. Therefore, if you encounter this situation, you can choose a trusted arbitration institution or DAO to deal with it.

2. Setting a refund address is not available to everyone: some users deposit funds with exchanges or fiat currencies, and then the wallet or deposit platform also supports the specifications of the Refund Protocol.

3. Each transaction must be recorded, which will eat a lot of gas: because each transaction is recorded separately and withdrawals are also processed separately, it will be a little more expensive than a simple ERC-20 transfer. If many small transactions accumulate, fees can be pulled up.

4. Funds can earn interest: At present, funds are idle in the contract, but in the future, they can be designed and integrated with lending agreements such as Aave, not only users can earn interest, but even arbitrators or merchants can share the pie.

5. In the future, it is necessary to expand the contract to support "smart contract wallet": At present, the early grant signature only supports the general wallet (EOA), and if the seller is a contract wallet, it also needs to support the EIP-1271 format signature method.

Article Stablecoins are also refundable? Circle's new Refund Protocol to create a Web3 version of the credit card dispute settlement mechanism first appeared in ABMedia.