🧘‍♂️Our Journey

From reversibility to a general-purpose payment system

Cryptocurrency was born from Satoshi's vision of a "Peer to Peer Electronic Cash System" yet mainstream people associate crypto with scammers, fraud, and meaningless speculation. We believe that Satoshi's vision for a cheaper, fairer, and global system for commerce is coming, but there are serious roadblocks to getting there we want to address.

TradFi Sucks (But Crypto Falls Short)

Describing all the way traditional finance sucks would be redundant if you are reading this. But for all the ways that crypto is better, there have been a number of steps backwards that Denota believes must be solved before we see mainstream adoption. We removed user protections, we removed reversibility, and we removed trusted 3rd parties that we can call if something goes wrong. TradFi payments are reversible since a centralized entity can assign liability but crypto cannot.

Crypto Payments Need Protection

Ironically, the very properties that makes crypto trustless also results in no way for users to be protected if their purchases go wrong. There is no one to call, and nothing that can be done to be made whole. This is wholly at odds with what most people are accustomed to and is likely a major hurdle to mass adoption. A historic example was the introduction of credit cards. Consumers were skeptical of the new payment method's ability to transfer value without new and significant risks. Adoption was pretty slow until payment protections were enforced in the Consumer Credit Protection Act Of 1968. A lack of trust means a lack of adoption. Now, we don't believe that blockchain transactions should be reversible but that crypto payments should have the option for reversal.

Payments are Actually Non-fungible

Many may not realize this but in the TradFi system payments are actually a form of implicit escrow. For users to have reversibility there needs to be an entity that decides when and under what circumstances a payment is reversed. This requires metadata to quantify risk, conditions for when a payment is eligible for reversal, and procedures to enact these rulings. Unlike crypto today, most payments have extensive metadata attached that a simple ERC20 transfer does not currently capture. However this is only one part of the equation because while crypto has had escrows since the beginning TradFi has an ace up it's sleeve. They're also liquid.

Non-Fungibility is Bad UX

Some would say that crypto does have a way to protect users and can treat payments as non-fungible: a simple escrow. The issue with this is that the funds are locked up until, usually, a settlement time is reached. This is both frustrating to users and inefficient since they can't access the money no matter how certain the payment is expected to settle. Protections require non-fungibility but in crypto today that also means poor UX. TradFi can support protections because it can handle and ABSTRACT non-fungibility and subsequent illiquidity. The reason for this is a credit and debit system that banks use to bear the risk of a payment until it settles. If the payment is fraudulent or charged back, the bank debits money from the merchant (effectively transferring the risk) and credits the consumer. Abstracting non-fungibility in crypto is hard but can be done with similar trade-offs.

Our Approach

Taking cues from TradFi, we saw that variations of the chargeback system exist across countries and even within them. There doesn't seem to be a single "best" system rather a number trade-offs that must be balanced and managed. We've built Denota to be as web3 aligned as possible and to give users a spectrum of options with varying levels trust. Each user can choose the level of trust they are comfortable with. With this goal in mind we built the protocol to be extensible and, in the process, have enabled a GIANT design space for things beyond reversibility that developers can get excited about as well.

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