How Bisq P2P Exchange Works
(BSQ, DAO & Escrow)

This page goes deeper into how Bisq actually works under the hood. You’ll learn what the BSQ token does and how it’s created, how the Bisq DAO makes decisions without a company behind it, how multisig escrow and security deposits protect every trade, and what happens when a trade goes wrong. If you’re new to Bisq, start with the beginner guide first – this page is for understanding the system, not just using it.

BSQ Token: How Bisq Funds Itself Without a Company

BSQ is the native token of the Bisq ecosystem – technically, a “colored coin” that lives directly on the Bitcoin blockchain rather than on a separate network. It solves a real problem: how do you fund the development of a project that has no company, no investors, and no revenue account?

The BSQ economy works as a loop:

• Contributors earn BSQ. Developers, designers, and support contributors file compensation requests to the DAO, and if approved, new BSQ is issued to pay them for their work.
• Traders buy and spend BSQ. Paying trading fees in BSQ gives roughly a 50% discount, which creates constant demand for the token.
• Fees paid in BSQ are burned. Spent BSQ is destroyed, which offsets the new BSQ issued to contributors. The balance between issuance and burning ties the token’s value to actual use of the network.

You don’t need to hold BSQ to trade on Bisq – it’s optional. But it’s the mechanism that lets the project pay its contributors and govern itself without any central treasury or company account.

Bisq DAO: Decisions Without a Boss

The Bisq DAO is the decentralized governance system that replaces a company. It operates in repeating cycles, and each cycle follows the same rhythm: anyone can submit a proposal (a new feature, a parameter change like fee rates, or a compensation request), then BSQ holders vote, with voting weight tied to their BSQ stake, and accepted proposals take effect.

In practice this means the people who use and build Bisq are the same people who decide its direction. Fee rates, trade limits, and even the payment of the developers you rely on – all of it is set by DAO voting, recorded on the Bitcoin blockchain, rather than decided in a boardroom.

Security Deposits: Skin in the Game

Every Bisq 1 trade requires both the buyer and the seller to lock up a security deposit in Bitcoin – commonly around 15% of the trade amount (the maker sets the exact percentage when creating the offer). This is the system’s answer to a hard question: how do you keep anonymous strangers honest without ID checks?

The answer is economics. If you abandon a trade or try to cheat, you risk losing your deposit to the other party. If you complete the trade normally, your deposit is returned in full – it is not a fee. With both sides having real money at stake, bad behavior becomes expensive, and in practice the vast majority of trades complete without any conflict.

Escrow: The 2-of-2 Multisig Model

While a trade is in progress, the Bitcoin being sold doesn’t sit with Bisq (there is no Bisq server to hold it) and doesn’t sit with either trader alone. It’s locked in a 2-of-2 multisignature address – a Bitcoin address that requires both traders’ signatures to release funds. Here’s the flow of a typical trade:

• The trade starts: the seller’s Bitcoin plus both security deposits are locked in the multisig escrow.
• The buyer sends the fiat payment (bank transfer, or another payment method) directly to the seller, outside the app.
• The seller confirms receiving the payment, both sides sign, and the escrow releases: Bitcoin to the buyer, deposits back to their owners.

At no point can Bisq, or either trader alone, take the funds. That’s what “non-custodial” means in practice – the protection is enforced by Bitcoin itself, not by trusting a middleman.

What If a Trade Goes Wrong? Mediation and Arbitration

Most trades complete smoothly, but disputes happen – a payment arrives late, a trader goes offline, a bank transfer gets flagged. Bisq handles conflict in escalating layers:

• Trader chat first. Many issues are simple misunderstandings resolved directly in the app’s encrypted trade chat.
• Mediation. If chat doesn’t resolve it, either side can open a dispute. A mediator (an experienced, DAO-bonded community member) reviews the evidence and suggests a payout split. If both traders accept, the escrow is released accordingly.
• Arbitration as the last resort. If mediation fails, an arbitrator can resolve the case and compensate the honest party. Arbitrators put up a large BSQ bond themselves, so they have their own skin in the game.

Going Deeper

If you want to master the platform beyond this overview, three directions are worth your time: the Bisq Academy for trading mechanics and participant roles, the fee structure to understand maker/taker economics and the BSQ discount in real numbers, and the DAO page if you’re interested in participating in governance itself. The community wiki documents every mechanic in full technical detail.

Frequently Asked Questions