One way to avoid the extortion risk is to make sure the peers have deleted the btc key for creating the payout tx. They create the intended tx initially and then delete the key. Then the blackmail cannot work as the buyer cannot sign a changed payout tx.
That idea was brought up back in 2013 when we discussed that problems by DanSmith, one of the TLSNotary devs. The problem here is still that it is rational to avoid the deletion of the key and the attacker can assume that rational peers will do that and only pretend that they have deleted the key which would re-enable the blackmail.
Though I think in reality 99.9% of users are technically not skilled enough to do that so the attacker would have very high failure rate which would render his attempts expensive for himself. Sure someone could start to provide alternative implementations where the key deletion is removed but then users need to trust that app provider and opt in break the security concept. Game-theoretically that would be not a solid concept but I am wondering if it would be good enough in reality and the friction and uncertainties would be good enough that attackers will consider it too expensive and risky.
At least as long there are no better solutions that “mutual destruction” concept (either both win or both lose, but amount what they lose is diferent) might be worth a try? Also if it would fail it would be just a limited damage for one payment method to get removed (which we don’t have anyway now so not worse than now). So it might be worth a try.
Important is to make it clear to users that it is a high risk payment method.
Anyone wants to work out all details and write up a Bisq proposal?
It should not require changes of the current model otherwise it is unrealistic to get added soon because of lack of dev resources.
A proposals is a tech spec sufficiently clear defined that a dev can implement the feature.
We have a repo for those: https://github.com/bisq-network/proposals
You can see the account witness proposal as example, though the cash by mail feature would require less effort and complexity. Though it should contain all steps in the trade process with required popups and text as well as all payment method fields and possible dispute cases and suggestions how to deal with them.
A quality proposal is subject for a compensation request (you get paid in BSQ).