The Influence of Explainable AI (XAI) and Smart Contracts on Consumer Trust and Acceptance of Decentralised Escrow Services

Poor market penetration and consumer skepticism are the hindrances to the radical transformation of the financial services sector by decentralised finance (DeFi) and Smart Contracts (SCs). This is largely linked to the black box phenomenon, as even the code logic of SCs, although publicly recorded in a ledger, is incomprehensible to the average reader of it, which makes perceived trust lower. This opacification is also complicated by the Artificial Intelligence (AI) applications in the SC processes, such as vulnerability detection and dispute resolutions. This paper is a systematic review of secondary literature that proves the hypothesis that Explainable AI (XAI), used in combination with Smart Contracts (SCs), can contribute to a significant increase in the perceived trust, transparency, and uptake of decentralised escrow and automated financial services. The systematic review of market research, consumer surveys, and case studies published after 2020 were taken into account as the methodology, and the results were sorted according to Security, Transparency, and Cost-Efficiency. The findings affirm that the strategic combination of XAI and SCs is a direct solution to the black box phenomenon. XAI converts the black-box, de facto judgements of SC-based escrow systems into transparent, verifiable, and human-comprehensible judgements. This visibility of execution is also essential at the time of such important events as the release of funds or the cancellation of a contract, which directly improves consumer confidence, which is a key factor of purchase in digital finance. Moreover, the XAI-SC framework has economic benefits related to the minimisation of the cost of operation and legal overheads, easing dispute resolution mechanisms, and enabling human-centric adherence to regulations. This paper concludes that XAI should be integrated to overcome consumer distrust and accelerate the spread of decentralised escrows in the mass market.