My understanding is that reporters have the choice between being active or dormant. If you choose to be active, there are two costs associated with that: 1) It requires labor time and 2) If you accidentally report incorrectly, you will lose 20% of your tokens. As a result, it seems that active reporters will demand a nontrivial earnings yield (e.g. 5%/year) in exchange for being active.
Based on my understanding of the fee structure, it appears very likely that the reporter participation rate will be dangerously low from a security perspective.
For example, if annual betting volume is $1B and if the average trading time horizon is 5 days and if reporters demand a 5% earnings yield, it implies the following:
Average Open Interest = $13.7m ($1B * 5 days / 365 days)
Target Market Cap = $68m ($13.7m * 5)
Actual Market Cap = $600m (or any number over $68m)
Reporter Fee Rate = 0.01% because it keeps falling in order to make the actual market cap reach the target market cap, but because of speculation the market cap doesn't go low enough and the reporter fee bottoms out at 0.01%
Reporter Revenues = $0.1m (0.01% * $1B)
Reporter Participation Rate = Only 0.33% of reporters would spend the time reporting since for active reporters to earn a 5% earnings yield, most would reporters would have to become dormant until only 0.33% actually report. ($0.1m / $600m / 5% = 0.33%)
What am I missing?