You need to state what contractor, what deposit are they asking for. I normally tell exactly the same story to every contractor.

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I once paid to a contractor and he never showed up again, and stopped answering my calls. Sorry, I do not do this anymore. I can consider paying 70% the moment you completed the job, or I can consider payment to a supplier the moment materials delivered to the job site. I will not pay 50% deposit on any job.

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To be honest I can pay rough-ins materials to electrical, plummer, hvac - after they performed about a day of labor. Obviously if you pay 10k to framers - you will never see them again.

We're owner builder and haven't paid a deposit to a single sub and are at drywall taping stage.

How much of a deposit is he asking for? In the end, you are trusting the guy to participate in building your house, do you not trust him with a small retainer?

This is for waterproofing and drain tile to the foundation and they ask for 30%. I don't feel comfortable working with this sub. How would you cancel it if you already signed the contract? I want to work with someone else but what if they ignore the cancelation, show up at the site and do the work? I only want waterproofing and drain tile once.

Registered letter, signature required, stating notice to cancel contract immediately.

I've never paid a deposit other than to custom stair and rail builders and cabinetry suppliers.

How would you cancel it if you already signed the contract?
Don't pay the deposit.
But more importantly, do as Virgil has suggested.

I would probably do some homework to see if they are even licensed. Red flags for me!

Thank you all for the advice.
Plumbing, electrical and HVAC contracts clearly show what % is due after certain phases and I don't have problem with these. Excavation, septic and pour foundation have no payment structure except the pour foundation sub asks for full payment within 2 weeks of completion. Foundation sub also mentioned if I paid in 5 days of completion they'll give 2% off.
My concern is they may make up things to charge me more if I continue working with them. They told me twice that the price will change if the measurements they found are different.

Listen to what your gut is telling you! As you previously mentioned you don't feel comfortable with them. If their contract did not have a payment schedule as you mentioned above then you owe them nothing as a deposit. Sounds to me they have breached their own contract....which in MHO would be reason to pull out.....if I were you.

Good for you.