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Augur
Augur, a permissionless prediction market platform, will soon release its first major protocol upgrade - V2. With this in mind, let’s breakdown some of the key improvements that we can expect to see once V2 is live and, as always, analyse some important aspects of the network that are discussed less.
Taking a step back, Augur V2 is still a generalised protocol for users to create prediction markets. The first and current version is arguably just a proof-of-concept and uses a fairly intensive trading-style UI. For V2 however, there will be 3 open-source UIs that will make Augur more accessible to a wider set of market participants. Specifically, users will be able to choose between: a re-vamped trading UI (Coinbase-style), traditional sports book UI (Pinnacle-style), and betting exchange (Betfair-style). Additionally, order templates can also be selected to mitigate any chance of a market resolving as ‘invalid’.
Under its hood, Augur is capitalising on DeFi composability - leveraging MakerDAO by using DAI as a global settlement asset, using Uniswap’s V2 oracle system as a price feed, and integrating 0x to power the off-chain order books. Importantly, the latest version of 0x will allow Augur users to modify order in and out of 0x mesh for free and users will only pay 0x fees when trades are settled on-chain.
However, creating free orders through mesh is somewhat of a double-edged sword. While it provides high flexibility in order management that some participants ultimately desire, it also opens up a potential DDOS attack vector. Despite 0x mesh having built-in DDOS protection, there have been a number of browser-related issues when orders have been scaled up in testing in the last few days (0x is now overhauling their database layer to optimise performance). Long-term, Augur will be looking to solutions that can take settlement completely off-chain, such as Matic Network.
What is often overlook with Augur is how reporter fees are dynamically calculated. Critically, REP holders who report on correct outcomes will still be rewarded with reporter fees. However, REP holders now have to actively participate during universe forks by migrating their REP before resolution (reporters previously given 5% bonus to their REP in new universe). This ‘use it or lose it’ model has to now measure the integrity of forks in light of potential oracle attacks. Based on certain assumptions, Augur’s ‘Market Cap Security Theorem’ dictates that the forking protocol has integrity when the market cap of REP is at least 3 times the native open interest (OI).
Therefore in order to meet the integrity requirement, Augur will use Uniswap’s more secure V2 oracle system to derive the REP price and also continuously measure native OI. This is how it works - if the market cap is less than 300% of its OI, reporting fees are automatically increased and as the fee pool for active REP holders grows this would theoretically put upwards pressure on the price of REP. Conversely, if the market cap is below the target, fees are lowered so traders are only paying the maximum amount to keep the network secure.
What’s particularly interesting about this approach is how minimally extractive the protocol is trying to become on its network participants. Why is this important? Protocols are logic systems of coordinating economic activity. The less extractive a protocol becomes, a greater level of exchange is encouraged between suppliers and consumers.
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