CodeHawks Escrow Contract - Competition Details

Summary

An inadequately set immutable arbitration fee could lead to insufficient compensation for the arbiter during complex dispute resolution processes, causing delays, potential loss of funds due to unfair resolutions, and frozen funds.

Vulnerability Details

The arbiter fee is fixed at the creation of the escrow by the buyer. This fixed fee may not reflect the complexity of potential disputes, especially in cases that involve intricate technical details and multiple rounds of communication among the buyer, seller, and arbiter.

Impact

If the arbitration process is more complex and time-consuming than the fee justifies, it could lead to two main problems:

1. Loss of Funds due to Inadequate Dispute Resolution: If the arbiter matches the effort to the fee, they might provide less thorough arbitration services. This could lead to unfair resolutions, potentially resulting in a loss of funds for either the buyer or the seller.

2. Temporarily Freezing of Funds due to Substantially Delayed Resolution: If the arbiter still agrees to provide adequate services despite the low fee, this process is likely to be prioritized lower than other better-compensated tasks in a resource constrained reality. This could lead to delays in dispute resolution, leading to frozen funds for an indeterminate duration.

Likelihood

The likelihood of this issue is high. The fixed fee model does not account for the unknowable complexity of future disputes and will result in inadequate compensation for the arbiter. Especially in industries or applications where disputes could be highly technical or complex, this issue could arise frequently.

Tools Used

Manual analysis.

Recommendations

Consider specifying the arbitration fee as a percentage, to naturally scale the arbiter compensation to the amounts at stake.

Alternatively, consider allowing the buyer and seller to agree to increase the arbitration fee if a dispute arises that is more complex than originally anticipated. As this will be at their expense, they are motivated to limit the fee to the minimal fair amount.