Augur (REP) Blockchain Predictions Saw Big Volume on Election Night, But Days After Tell the Story
The Block recently reported on the impact that the election had on the Augur market, commenting that the midterm elections will “hopefully” have pushed Augur’s market over $1 million. If that is the case, then Augur would be able to show that a decentralized prediction market has its advantages. There is already a centralized version of the service – PredictIt – which seemed to bring in slightly more volume. The actual amount that the platform managed to bring in varies on the price of ETH, since that is the token used for the prediction bids. On the day of the midterms, the Augur market saw a total volume of $2 million, while PredictIt saw $2.4 million.
There were a few differences in how the two platforms handled their bids. PredictIt, which is a legal entity, stopped bets from going higher than $850 per person, before adding a 10% fee. The servers went down for a short time during the vote count, though traders were trading in real time. However, Augur had no server issues at all during the election.
Right now, many Americans know PredictIt as the only outlet to allow for betting on political elections, considering that it is a law that wagering on elections is generally criminalized. However, this entity has certain limitations that they have to abide by to prevent violating the regulations of the Commodity Futures Trading Commission (CFTC).
The unique difference with Augur is that it is a decentralized entity, which means that it cannot be censored. As a result, users are able to make bets of all sizes. If the market was truly fair, then that would not be an issue.
By distributing the funds successfully, then Augur would show that they can handle the global betting on various elections in a way that centralized options simply cannot do right now. However, the only question is – can they do it? The next six months after the election are going to make a big difference in if they can succeed. The market does not actually conclude until December 10th, which is when many of the settlements happen.
The creator of this market has the next three days to make an unofficial report on what the market’s present status in, specifically outlining their opinion on which side prevailed. Then, REP holders (reporters) have up to a week to contest it. Any holder has the option to stake their tokens in the dispute, which could give them a 50% return.
None of this could be mentioned without also bringing up a single transaction that stood out – an unknown purchase of $40,000 worth of losing shares. It would not be that unique if that transaction did not come in just after the results of the election came in. According to The Block, “He would offer up to 0.05 ETH to bet on a Republican House win that would pay out at 1 ETH — a possible return of 20X or more depending on the precise prices paid to acquire the apparent ‘losing shares.’”
If that bet works out in the trader’s favor, he stands to receive hundreds of thousands of dollars, though most people would agree that the bet will ultimately pay nothing. However, based on the specific timing and amount of the wager, it looks like an experienced trader made this calculated decision, which has made other traders feel uneasy.
The midterm market posed the question – “Which party will control the House after 2018 U.S. Midterm Election?” The market was given one month to make the wagers from the election night, considering that the adjustments to Congress were not actually made on the day of the elections.
That considered, The Block points out that “The outcome of the market was known at the very time the market was created. This would normally be a recipe for what’s called an ‘invalid market.’ If reporters ultimately deem a market to be invalid, then shareholders are all paid out proportionally. For example, since there are three outcomes in this market — a Democratic, Republican, and Tie share — each would each pay out ⅓ of an ETH if the market is deemed invalid. If the reporters somehow conclude that this market should settle as Republican due to this wording, then this new entrant would be in for a huge pay day. But that shouldn’t happen, given Augur’s dispute process.”
The most likely situation is that the market will ultimately be disputed with all of the funding at stake. Another market, called the “Bastille market” had 15 reporting rounds, and essentially became the “case law” regarding subjective markets and whether they should even be placed on Augur.
Basically, there are three outcomes being examined, according to The Block, who put them in order of likelihood, starting with the most likely option. They are:
- Democrats, which would require the reporters to say that the traders were better on the part that ultimately gained control of the House.
- Invalid, in which the reporters would say that the outcome was known, and the bets would be called off
- Republican, in which reporters would “read the English language with a highly technical lens and resolve the market counter to those who appeared to purchase winning shares.”
Basically, if the reporters do not settle on Democrats, Augur’s platform is basically unnecessary. There are many purists that believe an invalid market decision would be the best. However, considering the millions of dollars involved, ruling against the Democrats would show traders that Augur is not a trustworthy platform and they cannot be counted on to follow through with the expected choice. Having this negative outcome would basically keep others from wanting to use the app. REP tokens would take a major hit, and the price would plummet.
There are many markets in disputes right now, with over 300 of them expiring by the year’s end with significantly more ambiguity. As 2019 begins, Augur will lose 95% of its open interest, and there is a good chance that traders would want to protect themselves from August from now on. As the Block puts it, “The friction, uncertainty, and time to settlement make for a negative experience for a trader.”