There is a very simple solution to this. The seller can simple hedge her exchange risk say USD/XBT using derivatives.
I've considered this possibility in
my post re: OpenBazaar/FreeBazaarWith bitcoin, there are well-developed margin trading and options trading platforms now. If a merchant is selling 2 BTC worth of merchandise on Freebazaar, and 2 BTC is put in escrow, he can immediately borrow 2 BTC on Bitfinex and sell them for his desired currency. If bitcoin's price plummets, he takes no risk. When the 2 BTC are released from escrow, he uses those BTC to cover the short. Of course, this may be complicated and time consuming from the merchant's perspective. First, it requires the merchant to keep some USD on Bitfinex as collateral in order to borrow the BTC. Money that will be sitting there doing nothing, which is an opportunity cost. Second, borrowing the BTC comes at a cost in the form of interest. Third, selling the BTC incurs fees. Fourth, there is counter-party risk in leaving funds on BitFinex. So hedging comes at a cost.
So, yes, the seller technically
can hedge, but in practice, he doesn't (because it's a PITA). Constantly hedging on Bitfinex outside of the market is probably a Buyer 10, Seller 3 solution. It's as if the seller has to run two separate businesses concurrently: a finance firm and a merchant firm. What we see in reality today is that the seller prefers simplicity. He would rather just give a discount in exchange for FEing. So FE remains the most popular.
It is the reason the futures markets were initially developed for agriculture.
(re: farmers. Farmers usually have one or two big harvests per year and thus only need to hedge several times per year. The negatives of hedging are greatly, greatly reduced when you only have to think about it once per crop per year rather than every day or week. Hedging is also much, much more necessary for farmers. Only a limited percentage of a merchants bankroll should be locked up in escrow at any given moment, whereas the farmers entire year's earnings are "locked up" in his uncertain yields. So with farmers, we see much greater incentive and much less of a drawback to shopping around on the futures markets.)
Furthermore the hedging does not have to take place in the same market as the transaction.
The idea of having the market do the hedging is because:
1) It offloads the initial investment requirement to the exchange. The exchange is more likely to benefit from investing in an automatic hedging system than an individual merchant. The individual merchant may just want to make a few sales on the market, or even a few hundred sales. If he hedges, he will do it manually, frequently, and will incur various costs (discussed above). He is not going to pay a developer to build a hedging engine. The market is the long-term actor, and is the party best suited to do do this work.
2) It makes it a one-click solution for the seller.
"I want a USD-stable escrow."
Click it. Done.
3) The exchange can avoid the costs of exchange fees by maintaining its own floats in crypto (which it probably does anyway). Let's say that the market administrator can't keep all of his earnings in government fiat currency because it isn't easily laundered. So, like Ulbricht and others, let's say he's long on BTC and he keeps a large amount of earnings in BTC along with USD. He can incorporate this into the hedging system by making his stash into a float:
a) The admin converts his BTC-stash into USD-stable crypto.
b) Whenever a buyer escrows BTC, the administrator does the exchange internally. He takes ownership of the BTC and converts the escrowed amounts into USD-stable crypto. This is all on paper.
If BTC goes up during the escrow period, he ends up giving less BTC to the seller and keeps the rest as profit. If BTC goes down, he ends up giving more BTC to the seller and losing some of his bankroll. But the admin wanted to be long on this amount of bitcoins anyway. At the same time, the administrator avoids the counter-party risk and exchange fees that would arise from sending the buyer's escrowed coins off-site for exchange.
This is an issue common to many markets no just just "dark" markets or even currency markets.
In non-"dark" markets, we see specialized actors arise to handle these kinds of risks. Bitpay and Coinbase specialize in hedging against bitcoin's volatility so that merchants don't have to. Because merchants don't want to. They just want to do their business, not become part-time actuaries. On darknet markets, the market, not the customer or merchant, is the best-placed actor to do the hedging.
Don't do drugs 
Problem solved 
