How to choose a guarantor - criteria, rates and red flags
Who can be a guarantor in Coin-Trust, by what criteria to choose one, how to agree on rates and what to watch for so that a dispute does not become a problem.
In this article
The guarantor is the only person (or organisation) who can change the outcome of a deal against one side's will. So choosing a guarantor is the most important decision when creating a deal, after choosing the counterparty. What a guarantor does we described in the article arbitration design; here we look at practice.
Who can be a guarantor
Technically, any address except the offer's creator, their counterparty and the zero address. The contract does not check the guarantor's identity, so choosing one is the parties' responsibility. The platform may mark a guarantor with a "verified" badge, but that is not a guarantee of fairness, merely a sign that the platform knows them.
Typical roles:
- A professional guarantor - a person or service that earns from arbitration and values its reputation.
- A mutual acquaintance - someone respected by both, from the community: a colleague, a mentor.
- An organisation - a legal entity managing the address via a multisig.
- A community platform - for example a moderator of the marketplace where you met.
The main property: neutrality
The guarantor must be independent of both sides. Any tie to one of them is a risk. If the guarantor is the seller's friend, the buyer has the right to doubt, and the contract will not affect that: the decision will be made independently of trust. A good practice is for both sides to agree on the guarantor before the deal is created.
Selection criteria
| Criterion | What to check |
|---|---|
| Reputation | reviews, dispute history, public activity |
| Availability | whether they answer quickly, in which time zone |
| Experience in your field | whether they understand the deal's subject (development, goods, domains) |
| Transparency | whether they publish review rules and rates |
| Language | whether they can read your conversation and terms |
| Key reliability | whether they might lose access to the address (key storage) |
Availability is especially important. If the guarantor is silent for 30 days, the emergency exit triggers, the money is split equally and the guarantor gets nothing (lifecycle). For you this means losing half the amount even if you were fully right.
How to agree on rates
There are two rates (all the calculations):
- Base (1-10%) - the guarantor gets it even if there is no dispute.
- Dispute (not below base, up to 30%) - the guarantor gets it if they issue a ruling.
What to consider:
- Deal size. With a large amount even a small percentage gives the guarantor decent pay. For small deals the percentage should be higher or a review will not pay off for the guarantor.
- Complexity of the review. If a dispute needs an analysis of technical work or correspondence, the dispute rate should reflect it.
- Motivation. A dispute rate that is too low reduces the guarantor's wish to investigate; one that is too high pushes the sides to drag disputes out.
The cost of the guarantor is shared by both sides: in a dispute the rate is deducted from the amount before the split.
Questions to ask the guarantor in advance
- Are you ready to act as guarantor for such a deal at such rates?
- How quickly do you usually respond?
- What evidence do you accept and in what form?
- By what principles do you decide?
- Which address will you use and who controls it?
It is better to record the answers in the terms text: then the terms hash fixes them in the contract (why this works).
Red flags
A selection example
A client in Germany and a developer in Georgia agree on a 3,000 USDC project. The client proposes his acquaintance, a lawyer, as guarantor. The developer refuses: there is no certainty of neutrality. The parties choose an independent guarantor: a specialist with a public record of reviewing IT projects, rates 2% base and 8% in a dispute. They write the deal terms together, including acceptance criteria (how to write terms).
Your own guarantor or not?
Sometimes it is easier for the parties to appoint a trusted third person, and that is fine. But remember: the guarantor cannot be the buyer or seller themselves - the contract does not allow it.
What to read next
Learn how to prepare for a possible dispute: how to collect evidence. And how to word terms so there are fewer disputes: good deal terms.
Keep reading
- 2 · Practice
Preparing for a dispute - what evidence to collect and how to present it
A practical guide for buyer and seller: what evidence a guarantor needs, how to preserve conversations, photos and video, and how to present your position.
4 min read - 2 · Practice
How arbitration works in escrow: incentives, deadlocks and abuse protection
Dispute mechanics in the smart contract: the guarantor's two rates, the 30-day timeout with a 50/50 split, mutual cancellation and abuse protection.
5 min read
Mentioned in
- Where escrow is used - 10 real-life scenarios with examples
- Glossary - blockchain, wallets, smart contracts and escrow from A to Z
- Coin-Trust fees by example - how much you pay and to whom
- How arbitration works in escrow: incentives, deadlocks and abuse protection
- Preparing for a dispute - what evidence to collect and how to present it
- Use case - a 1,500 USDC freelance project paid by stages
- Use case - selling a physical item with delivery through escrow
- Use case - selling a domain and digital goods through escrow
- Oracles and the oracle problem - how a blockchain learns about the outside world
Ready to try it?
Create your first deal in a couple of minutes. The money is locked in a smart contract and paid out by rules you can see in advance.