I'm writing a full analysis of Augur and REP tokens, and value comes down to two things-- market volume and market fees. Volume can be estimated in various ways, but I'm curious about calculating average fees. I've seen 1% thrown around in various places, and I know that there are measures in place to prevent 0% fees, but is there a way to calculate the floor on fees?

The incentives for people to hold and use REP depend almost entirely on how much the platform generates in fees, so I'm hoping to get as accurate an estimate as possible (or at least a few different possibilities). Any insight that could be provided would be much appreciated. As Augur grows and volume increases dramatically, will fees become much, much lower? Is there some sort of equilibrium for how much REP holders can earn?

There are two types of fees assessed to market participant in Augur.

  1. Market creator fees. These fees go entirely to the market creator and the fee rate is set by the market creator. I personally suspect that over time these fees will go to zero as market makers realize that they can make more money on spread/bookie by creating markets with 0% market creator fees. However, initially I suspect they'll be "competitive", but not 0 as people get a feel for the system.
  2. Reporting fees. These fees go entirely to reporters in the reporting window the market ends in (exact timing subject to change). The fee rate is set dynamically by the system as a price pressure mechanism to keep the value of REP at its target value of 5x (subject to change) outstanding interest across all of Augur. This is necessary for the security of the system. If the REP market cap is too low, the fee rate will increase periodically as a REP price pressure mechanism. If the REP market cap is too high, the fee rate will decrease periodically to relieve pressure. There is currently a lower limit of 0.01% reporting fee (subject to change). I personally suspect that this will rapidly reach the lower limit as the value of REP initially will be largely driven by speculation, not by current dividends. Once the speculators start leaving, then upward price pressure will kick in.
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    Micah, can you clarify "the target value of 5x?" 5 x what? – PatrickOBTC Aug 14 '17 at 23:49
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    I believe there is another question around that goes into more detail about the security model, but it is 5x the outstanding interest across all markets in Augur. You can think of it as 5x the amount of ETH that is currently in escrow in Augur at any given time. – Micah Zoltu Aug 15 '17 at 1:58

The market creator fees are set by the market creators, so they are completely arbitrary.

It's just speculated to have fees of <1% as anyone can "outbid" by creating a duplicate market with a lower fee. There is a cost to creating a market, so there is some barrier to "outbidding" another market.

  • So there's no way to truly estimate what fees might be? At <1% there's not a great incentive for REP holders to perform work. – multicoinmyles Aug 11 '17 at 3:47
  • Market creators earn the same fee percentage as reporters, so they're incentivized to find the sweet spot of low enough fees to attract traders, but high enough to make it worth their while. And really a percentage itself is only relevant if you know what the settlement amount is. – eyezick Aug 11 '17 at 5:56
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    This isn't correct. Market creator fees are separate from reporting fees. They are assessed at the same time and in the same way, but what they are set to is not correlated at all. – Micah Zoltu Aug 13 '17 at 4:46
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    Note: this answer has been corrected, the discussion in comments above is mostly out of date, but the answer is no longer out of date.. – Micah Zoltu Dec 17 '17 at 19:56

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