Contract Dispute Resolution

Abstract

Contracts need a well-defined process for what happens in the event of a dispute over the remargin price of a contract.

Motivation

The core question being asked here is "how can we allow counterparties to withdraw money or settle trades before the verification system has had the opportunity to vote and verify the price feed?" For example, if the votes are happening weekly and a trade settles just after a vote happened, how can we avoid both counterparties from waiting one week before they can withdraw their monies? What happens if people dispute things?

Our objective is to maintain continuity of financial risk for all contract counterparties so that counterparties have, and know they have, their desired risk. We can defined this objective by the following priorities / goals:

1. Initial counterparties (A, B) maintain their initial contract without defaulting.
2. If the event of a default, a keeper K steps into the trade for the non-defaulting counterparty to maintain their risk.
3. If the event of a default where no keeper K emerges, the trade is terminated and margin is returned to both counterparties (with the default penalty being paid out appropriately).

Specification

A very simple initial specification is detailed in this Google doc put together by Allison. This early spec does not include any concept of keepers. In this simplified form, as soon as a trade is in default, it is terminated. This is the easiest path to having both counterparties always know their risk—they either have their risk because the trade is not in default, or they don't have their risk.

Some pics from a white boarding session with Matt can be found here.