A hybrid compliance-aware architecture for conditional escrow payments in regulated service platforms

Abstract

Regulated service platforms like Upwork liaise freelancers with employers. These platforms require strong identity verification and transaction monitoring, but use an opaque and custodial escrow to orchestrate payments to users. This project proposes and implements “FR33”, a hybrid Web2-Web3 architecture for conditional escrow payments that preserves on-chain auditability, while enforcing identity-based access for critical payment logic. It combines various components: (i) off-chain identity verification that uses existing identity infrastructure, (ii) an on-chain registry that manages credential-based access control, (iii) a state-machine-based smart contract that enforces escrow payments, and (iv) an off-chain event indexing and rule-based monitoring layer that intervenes in suspicious transactions. These components are demonstrated via a prototype freelance marketplace that aligns with Singapore’s regulatory context. The prototype is evaluated via its functional correctness, where 11 unit and cross-layer test suites cover these workflows. At the same time, its cost of operation is evaluated by benchmarking gas usage across 30 executions of escrow operations on the Polygon Amoy testnet. Finally, the operational trade-offs introduced by the hybrid architecture were evaluated qualitatively against fully on-chain escrows. Experimental results on the network show that the escrow lifecycle incurs an average on-chain cost between $0.006 and $0.013 USD, which is more efficient and consistent than fees charged by centralised platforms for settling payments. These results illustrate the feasibility of the design for a proof-of-concept (PoC) system, by depicting the tradeoffs between performance and trust assumptions.