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Protocol

Refund waterfall

When a buyer wins a dispute, the refund is taken from the seller's escrowed balance first, then the bond, then the Guarantee Pool in phase 2.

The order

shortfall1 · Escrowed balanceseller funds held by UNDO2 · Seller’s bondBondVault3 · Guarantee Poolphase 2 · legal reviewBuyer refundedUSDC or EURCSeller debtrepaid from future payouts
Each layer is used only when the one before it is empty.

When a buyer wins a dispute, or an agent's automatic claim is accepted, the refund is paid from up to three sources, always in the same order.

OrderSourceAvailable
1The seller's escrowed balanceAt launch
2The seller's bondAt launch
3The Guarantee Pool, with a seller debtPhase 2, subject to legal review

Each layer is used only if the one before it is not enough.

Layer 1: the seller's escrowed balance

If the seller has payments held in escrow, those funds are used first.

The simplest case is a disputed payment that was itself escrowed. The money is still in the contract, and the refund sends it back to the buyer. The bond is not touched.

Layer 2: the seller's bond

If the escrowed balance does not cover the refund, the rest comes out of the bond in BondVault. This is the normal path for a payment that was paid out instantly.

Example: Lea has a 1,000 USDC bond and no escrowed balance. She loses a dispute on a 180 USDC sale.

text
refund to buyer     180 USDC, from the bond
bond after refund   1,000 − 180 = 820 USDC
capacity at 5x      820 x 5 = 4,100 USDC

Capacity follows the bond. A smaller bond means less capacity until Lea tops it up.

BondVault is designed to pay refunds even when part of the bond is deployed to a lending market. It withdraws what it needs. If a lending market cannot return funds in time, the refund can be delayed. This is listed in Risks.

Layer 3: the Guarantee Pool (phase 2)

Leverage means a bond can back more open payments than it could refund all at once. If a seller loses many disputes in a short time, layers 1 and 2 can run out.

In phase 2, the Guarantee Pool is designed to cover that shortfall. When it pays, the seller carries a debt for the same amount. The debt is repaid from the seller's future payouts.

Staked $UNDO is planned as a first-loss layer ahead of Guarantee Pool depositors. See Guarantee Pool.

Before phase 2

Until the Guarantee Pool exists, the waterfall stops at the bond.

Three rules are designed to keep a shortfall unlikely:

  • New sellers start at 1x, where every instant payout is fully backed.
  • A seller above 5% lost disputes over 30 rolling days is frozen to 1x.
  • A single protected payment can be at most 2,500 USDC.

What never changes

  • The order of the layers is fixed in the contracts.
  • A pause can stop new payments. It never blocks refunds or withdrawals. See Security.
  • Governance covers parameters only, never funds.