decentralization – Is it possible to have a decentralized exchange like Bisq, but for government security contracts?

The idea here is to have a market place for competing governments.
Since each government gets its power from having a monopoly on violence, what if we had a free market of security agencies that can offer a replacement for government security? This will essentially put the power of the government back into the hands of the people.

The idea is similar to how Bisq works:
Both the users and the security companies deposit money and enter a voluntary contract to reach a certain goal of lowering crime rate. The deposited money makes sure both sides are incentivized to reach the goal in the contract. Everything is done using Bitcoin and Tor, so all participants keep their privacy.

Here is how the idea works in 3 steps:

  1. The security company who wants to do the police work opens the app and marks an area on the map that currently has 10% crime rate. and they’re willing to stake money (a deposit) to lower the crime rate, let’s say they deposit $10K. The security company claims that they will lower the crime rate from 10% to 5% within 6 months in the marked area, and they’re asking for $5K in return if they succeed in doing so.

  2. The people who live in the marked zone see the security contract offer on the app, and put up a collective deposit of $5K and accept the contract.

If the security company fails to reach the 5% goal, then they lose the $10K deposit to the users. But if the security company succeeds to reach the 5% goal, then they get their 10K deposit back + the 5K from the users.

  1. The app operator (completely anonymous person) is an arbitrator for the money staked from both sides, and he handles the payment in case of a dispute, or simply pays the winning side if the contract is completed as planned. He obviously gets a fee from the deposit for providing this arbitration service. The arbitrator won’t steal the money because he’ll lose his reputation and lose future business to his competing “alternative police app” operators.

What are possible pitfalls in this model?