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 used to and is likely a major hurdle to mass adoption. A historic example was the adoption of credit cards being slow until payment protections were incorporated. 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 liquid.
Non-Fungibility is Bad UX
Some would say that crypto does have a way to protect users and does 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 predicted to settle. Protections require non-fungibility but that also means poor UX. Still, TradFi can support protections because it can handle and ABSTRACT non-fungibility/illiquidity. The reason for this is a credit and debit system that banks use to hold the risk of a payment until it settles in the happy case. If the payment is fraudulent or charged back, the bank debits money from the merchant and credits the consumer. Abstracting non-fungibility in crypto is hard but can be done with similar trade-offs.
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 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 developers can get excited about as well.