Introduction

There’s a saying in international commerce: “what happens overseas, stays overseas.” In the digital age, that has proven not to be true, especially for digital, platform-based transactions where conflict resolution tools are both limited and underdeveloped. Enter the DeFi system, which works with smart, limited permission contracts aimed at “removing the illusion that online transactions can always be linked, in some way or another, to the territory of a state. Online transactions operated (...) require the application of connecting factors that are not always adapted.” The harsh legal implications for private, multinational companies (such as Amazon, Uber, and the like) have more and more limited courses of action when it comes to minor legal disputes–that could potentially become major if untreated by public entities. The interesting aspect of Blockchain-led justice processes is that both digital disputes and blockchain have, per se, no jurisdiction. While private companies do have societal managers, entities and abide by administrative regulations and lex societalis, that might very well not be the case for DAOs. Thus, companies could have an inherent leverage over projects for descentralized justice. But, what is decentralized justice exactly? According to an IBM research article, “Decentralized justice platforms are a form of “digital courts” supported by blockchain technology whose purpose is the settlement of disputes by crowdsourcing jurors under economic incentives to provide fair (Ast and Dimov, 2018) rulings” What are these minor juridical disputes? To mitigate the risk of non-compliance with ODR (Online Dispute Resolution) decisions, e-commerce platforms such as those we’ve mentioned aim to incorporate mechanisms encouraging voluntary adherence to the ODR outcomes. These mechanisms aim to compensate for the inherent limitation of ODR platforms, which lack the authority to enforce decisions beyond their own ecosystem. Seeking assistance from state authorities for traditional enforcement is deemed complex and likely cost-prohibitive. For instance, the losing party may find motivation to abide by the decision when factors such as market access or reputation within the ecosystem are at stake. Sellers, fearing potential loss of customers due to poor ratings resulting from non-compliance with the e-commerce platform's ODR system, may be incentivized to comply voluntarily. Various social and economic incentives, including trustmarks, accreditation, reputation management systems, marketplace exclusion, blacklisting, and penalties for performance delays, have proven effective in encouraging compliance with non-enforceable decisions. These incentives rely not only on parties' willingness to honor agreements but also on the prospect of direct sanctions affecting their property, rights, business relations, reputation, or membership within a community (i.e., the e-commerce platform). The power to deny access to a marketplace, such as by banning a user, carries both social and economic consequences, exerting pressure on community members to voluntarily comply with ODR decisions.

The limitations and possibilities of descentralized justice

Despite the efficacy of reputation management systems and access control mechanisms, they alone are insufficient to instill users' trust in the e-commerce platform's business environment. These tools, while promoting voluntary compliance with ODR outcomes, fall short of establishing a robust foundation of confidence. To foster trust, e-commerce platforms must offer an ODR mechanism that ensures execution of results without solely relying on the losing party's willingness to comply. In essence, the dispute resolution mechanism employed by an e-commerce platform should empower aggrieved users to secure effective redress, or risk losing them to alternative platforms. Taking into account that there are ODR mechanisms enforced by coalitions, governments and organizations, such as the one by the European commission, something to discuss in the future might be whether descentralized justice projects need to–or would be willing to–forge alliances with such entities, in order to resolve larger juridical and internationally-based disputes and legal conflicts.

Other recent platforms, like Smart ODR, claim to bring legal digital disputes and intermediaries closer together but do not, however, have their own medium for independent arbitrage. In an article by Frontiers in Blockchain, the takeaway is that Blockchain ODR is not exempt from the–almost–beaurocratic pitfalls of the traditional (let’s call it “analogic”) justice system, especially in the federal realm. Namely, corruption, bribery and forgery are veritable risks. Like the article states, “[ODRs could] suffer from Pre-Revelation attacks where jurors could decide to collude with revealing their vote.”, or they could also “suffer from the p + ε attack, a type of bribing attack where an agent tries to corrupt the jurors’ decision through a promise (with a variable credibility) to pay those voting for some specific decision.” Another argument is that cost efficiency and speed cannot be the sole competitive variables. Rather, competitivity should depend upon the theory that’s being applied as a background supposition and applied in practice. This means that how a company thinks about human behavior is what will make the project stand out, in the long run. Kleros: A Shining Example of Game Theory Applied to ODR Kleros is an example of Online Dispute Resolution through blockchain, by applying a series of incentivized contracts to ensure transparency and anonymity among participants in any arbitrage process. The company’s Argentine founder has made sure that Kleros is theoretically sound, even philosophically so, and remarks upon the importante of turning to Greek and Roman-like systems based on popular vote. There is also the important stability provided by its affiliations to French institutions and the European Commission itself. There are, as we’ve said, many different paradigms to be applied which shape the nature of participants’ interactions. Behavioral economics, game theory and, most notably, systems in which “decisions are made in light of the exit, voice and loyalty paradigm”. When asked about Kleros’ main philosophy, it’s game theory–a theory which resolves dispute based on the most likely vote to reach common agreement, and by common sense.

The application of game theory in Kleros serves as a cornerstone in shaping the dynamics of arbitration and decision-making. Game theory, a mathematical framework for analyzing and predicting the behavior of rational agents in strategic settings, provides invaluable insights into the dynamics of conflicts and negotiations. By integrating game theory principles into the arbitration process, Kleros establishes a framework where strategic interactions and incentives play a pivotal role in shaping the outcomes of legal disputes. Kleros, by virtue of its decentralized and autonomous framework, circumvents the pitfalls of bureaucratic influence and state intervention, offering a more agile and transparent alternative for dispute resolution.

hrough the elimination of intermediaries and administrative red tape, Klerosstreamlines the arbitration process, ensuring that legal decisions are arrived at through a swift and impartial mechanism. This not only reduces the burden of bureaucratic overhead but also mitigates the risks of external influence, safeguarding the integrity and independence of the arbitration process. Furthermore, the impact of bureaucracy and the state on traditional justice systems often manifests in the form of jurisdictional constraints and conflicting legal precedents.

The intricacies of navigating through disparate legal frameworks and regulatory environments can pose significant challenges for cross-border dispute resolution, leading to ambiguity and protracted litigation. Kleros, with its blockchain-based permissioned juridical systems, offers a harmonized and universally applicable framework for legal governance, transcending the limitations of jurisdictional boundaries and fostering a more cohesive approach to international arbitration.