Introducing Smart Invoice: A Web3 Payment Protocol.
When we started thinking about developing the smart contracts for what would eventually become Smart Invoice and told people in the industry about our ideas, we heard countless stories of fellow freelancers who experienced a defaulting client at least once. This led to the smart contracts becoming not just a payment gateway for RaidGuild, but the open source protocol that it is today. If you neither worked with RaidGuild nor used Smart Invoice, you rightfully ask where the difference is and what is Smart Invoice. Let us get started and take a deep dive on crypto-escrows and payment protocols.
The idea of nominating a trusted third party to administer and safe keep funds is not new. Indeed, the institution of today’s trusts in the Anglo-sphere is said to date back to the crusades when noblemen placed their trust in maintaining the estate under the responsibility of a trusted third party. In civil law jurisdictions, a notary may offer similar escrow for purchasing real estate or facilitating mergers and acquisitions. Both institutions receive trust through the guarantees of the law, but are at the same time reserved for a privileged minority, who can afford such services.
Our Web3 communities, however, are based on technological guarantees of the blockchain and can be trustless environments where pseudonymity prevails. The borderless nature of these networks render institutional trust guaranteed by national laws unenforceable, because the jurisdiction over the transaction is seldom certain. Contracting parties must assume an adversarial environment, where the counterparty may be out of judicial reach in a blink of an eye. For this reason, using a custodial escrow account is undesirable.
Smart Invoice solves this problem by combining a trusted third party that has institutional guarantees with technological guarantees for non-custodial escrows. In short, we combine an arbitrator for dispute settlement with smart contract-based safe keeping of funds for the project duration without gaining control over such funds. This way the payee can be assured that funds for their work is earmarked and kept available, whereas the payor does not have to entrust the funds to either the payee as advance payment or any third party.
Use Cases of Smart Invoice
Even in Web3, many invoices are still sent and paid using wire transfer in the United States (US), or SEPA Credit Transfers within the European Union (EU). In comparison to these protocols, our invoices are smart because they combine transfer functionality with requests to pay. Freelancers can request payment, whereas clients retain the feel of sending an invoice. Smart Invoice not only revives familiar payment flows in Web3, but it also enables faster payment compared to the sixty day notice for the payment of invoices in the USA. Throughout our outreach, we have met freelancers worried about receiving their payment, who were actively looking for tools to improve their liquidity and cash flow management. Although all of these characteristics are a solid foundation for a successful protocol, there is more to explore.
Lengthy addresses, differing contract addresses across chains, and unclear ENS controllers make the perfect mix for chaos. Meanwhile, when it comes to payment nothing should get lost in translation. Smart Invoices mitigates the risk of misunderstandings, and funds sent to the wrong address by making payor deposits available to specific addresses only. In this way, miscommunicated network preferences or address typos are surfaced right away and before any deposit can take place. Through making all relevant payment parameters explicit, asset classes and payment dates are also covered. This makes Smart Invoice ideal to be integrated as a payment interface for Web3-native organizations and freelancers, which mirrors what our stakeholders are reporting.
At a hackathon in Bogota I thought it would be right to indicate that we have the funds like in escrow or something while we do the KYC. I feel like every hackathon I’ve been in, there’re always people constantly asking like when do we get paid?
Ex-Deloitte and Ethereum Foundation Developer, US
For this reason, Smart Invoice is more than just another payment protocol. It is a payment interface and toolkit for clients to be transparent, for freelancers to achieve certainty, and organizations to facilitate their reporting duties. Smart Grants is just the most recent addition to the stack, focusing on grant giving organizations to manage their funding activities. We have realized that many contractual relationships in Web3 are still asymmetric, which means that a larger payor is sending funds to payees, who primarily are freelancers or small startups. Smart Invoice connects them to allow holistic risk management.
The Technology Behind Smart Invoice
While Smart Invoice is a product built on top of and for Web3, there are three features that make the payment protocol particularly interesting. Nothing stops you from using a multi-signature Safe, or relying on externally owned accounts for receiving your payment or sending amounts due. Yet, our partnership with LexDAO as an arbitration provider offers a cost-effective integration with a legal tech provider and saves you the cost of specifying arbitration requirements in additional contracts off-chain. These offerings would not be possible without our escrow contracts, which you may circumvent by choosing the option of direct payments on the application.
Escrow services certainly are useful, but in comparison to programmatic applications escrow provided by human actors, such as Lawyers and Notaries, include more than one execution criterion to avoid deadlocked funds. Legal agreements for escrow usually stipulate when the funds are returned to the depositor if no transaction has occurred. Now, the safety valve on Smart Invoice mitigates the risk of user funds being forced into arbitration, locked, or just never requested. It allows unlocked, but unrequested funds to be withdrawn by the payor after the specified date. Our safety valve complements our prudent approach to user funds and payment processing.
Although the combination of permissionlessness, escrow, arbitration, and safety valve withdrawal make our solution competitive and resilient, it is not the full story. Users have access to an invoice management dashboard, invoice export to PDF, milestone-based payment schedules, and linking project agreements to payment flows. Most notably, the technology is tested and used by long-standing Web3-native organizations, like RaidGuild, making your experience seamless and secure.
What is next for Smart Invoice
Smart Invoice is a stable and tested software solution that has been operational for almost two years — a long time for Web3. The team behind it has grown and the Web3 space has evolved. For this reason, we are building out new implementations of the protocol on top of regularly shipping features on our roadmap. In 2023 we achieved a major milestone with the deployment on Polygon, but there is more. Participating in the Consensys “Not Another” Virtual Hackathon — NAVH challenged us to build “Smart Invoice but Private”, which is our first attempt at delivering features for account abstraction and identity access management. Tools like HATs Protocol, or standards for non-fungible tokenisation keep us excited while continuing to make the lives of freelancers in Web3 easier.
We are available on Ethereum Mainnet, Gnosis Chain, and Polygon.
To find out more visit us on Twitter, at smartinvoice.xyz, or join our Discord.
