Adaptive layer-two dispute cutoffs in smart-contract blockchains

Second-layer or off-chain protocols aim to increase the throughput of permissionless blockchains by enabling parties to lock funds into smart-contracts and perform payments through peer-to-peer communication, only resorting to the smart-contracts for protection against fraud. Current protocols have fixed periods during which participants can dispute any fraud attempts. However, current blockchains have limited transaction processing capacity, so a fixed dispute period will not always be sufficient to deter all fraudulent behaviour in an off-chain protocol. In this paper we present a novel mechanism for adaptive dispute cutoffs (ADCs) which ensure that users retain the opportunity to dispute fraudulent behaviours despite blockchain congestion, while increasing second-layer protocol efficiency by reducing dispute period lengths when the number of disputes is low. We present a non-interactive argument system for setting adaptive dispute periods under the current Ethereum Virtual Machine, and describe how to efficiently integrate built-in support for adaptive dispute periods in any blockchain using binary-indexed trees. We empirically demonstrate that an ADC-enabled second -layer protocol can handle a larger number of disputes and prevent more fraud than its non-adaptive counterparts even when users are slow to issue disputes, due to denial of service or blockchain congestion.