Dispute Resolution Engine

A smart contract automatically holds the disputed assets and requires participants to post a security bond. This mechanism ensures economic skin in the game, penalizing frivolous or malicious challenges. For example, in an Optimistic Rollup, a challenger must bond funds to dispute a state root, which are slashed if the challenge fails.

The engine's logic is defined by its cryptographic proof system. Validity proofs (e.g., zk-SNARKs) mathematically guarantee correctness, while fault proofs (optimistic systems) allow a window for others to prove an error. The choice between these models dictates the security assumptions and finality time of the system.

This is the step-by-step game-theoretic process for resolving disputes. Common patterns include:

• Interactive Verification Games: A multi-round challenge-response (e.g., bisection protocol) that reduces a complex claim to a single, verifiable step.
• Jury/Voting Mechanisms: A decentralized set of validators or token holders vote on the outcome, often with slashing for incorrect votes.
• Appeal Periods: A defined time window where a decision can be escalated or contested.

The engine aligns participant behavior through carefully calibrated rewards and penalties. Honest actors (successful challengers, correct voters) are rewarded from the bonds of dishonest actors. This creates a Nash equilibrium where rational economic participation secures the network. Mismatched incentives can lead to liveness failures or censorship.

For fault-proof systems, a critical prerequisite is that the data needed to construct a proof (e.g., transaction data for a rollup) is publicly available. Data availability sampling or committee schemes ensure this. Without available data, a valid challenge cannot be constructed, breaking the security model.

The engine provides clear rules for when an outcome is irreversible and assets can be released from escrow. In an optimistic system, this is after a challenge period (e.g., 7 days) passes with no valid dispute. A validity-proof system offers instant finality upon proof verification. This defines the latency for users accessing their funds.

Dispute engines rely on two main security models:

• 1-of-N (Honest Minority): Used by optimistic rollups. Requires at least one honest validator to submit a fraud proof and halt the chain. Security is permissionless but has a challenge delay.
• N-of-N (Byzantine Fault Tolerance): Used in consensus. Requires a supermajority (e.g., 2/3) of validators to be honest. No delay but higher validator coordination and staking requirements.

The core security mechanism of an optimistic system. After a new state claim is submitted (e.g., a rollup batch), there is a mandatory waiting window where any participant can submit a fraud proof to challenge its validity. This period, often 7 days, allows for decentralized verification and is the primary line of defense against invalid state transitions.

Two cryptographic approaches to dispute resolution:

• Fraud Proofs (Interactive): A game where a challenger proves a specific state transition is incorrect. Used in optimistic rollups like Arbitrum. The system assumes correctness unless proven otherwise.
• Validity Proofs (Non-interactive): A cryptographic proof (like a zk-SNARK) that mathematically guarantees a state transition is correct. Used in zk-rollups like zkSync. Disputes are impossible by design.

Dispute resolution is secured by cryptoeconomic incentives. Participants (proposers and challengers) must post a bond (stake) to participate. A successful challenger wins the proposer's bond as a reward; a failed challenger loses their bond. This aligns financial incentives with honest behavior and prevents spam.

A technique to efficiently resolve complex disputes. Instead of verifying an entire computation, the challenger and proposer engage in a multi-round 'bisection game' that narrows the disagreement down to a single, simple instruction step. This interactive fraud proof makes verifying massive computations on-chain feasible and gas-efficient.

Security depends on having at least one honest and capable verifier watching the chain. A truly decentralized set of verifiers (not just a few centralized entities) is required for liveness (someone will always challenge) and censorship resistance. The '1-of-N honest actor' model is a key trust assumption.

A mandatory time window (e.g., 7 days) during which state updates can be challenged. This is a critical security parameter in optimistic rollups, creating a trade-off between finality speed and security. Assets cannot be withdrawn until this period expires without a successful challenge.

A cryptoeconomic security mechanism where participants must lock capital (a bond) to participate in the dispute game. A malicious actor who submits a false claim or proof loses their bond, which is slashed and awarded to the honest party.

A multi-round, step-by-step protocol (like bisection) used to resolve complex fraud proofs. It efficiently pinpoints a single point of disagreement between the challenger and defender, minimizing the computational burden on the layer 1 chain.