I understand that the 5x multiplier is used to keep the market cap sufficiently higher than the open interest in order to secure against attacks but is the Rep market cap fixed to 5x open interest or can it increase to 6x, 10x, etc if pushed by factors other than an increasing total open interest?

For example, say the popularity of Augur encourages people to want to become reporters, they will need to buy Rep which could push the price of the token higher. This would normally lead to a higher market cap but if the market cap is restricted to 5x open interest (assuming open interest remains the same in this example), the Rep price would not increase?

Is there a negative to having a market cap more than 5 times higher than open interest?

I'm really wondering if the 5x multiplier could potentially limit the Rep token value. Apologies if I'm missing something or this has been answered before.


The REP market cap can float to any value it wants. The 5x (subject to change) target just determines how much fee pressure is applied to the system in order to encourage the REP price to move up or down. I strongly suspect that as long as Augur is in a growth phase (which could last months, years or decades) then the REP market cap will far exceed the 5x target. This will result in fee rate decreasing to its floor and REP holders not making much in terms of fees. This is likely to happen because REP will be held largely as a speculative investment, as people predict open interest to increase and therefor the REP price target to increase.

Eventually, once Augur is no longer growing significantly, speculators will begin to exit their positions causing the REP price to decrease below the 5x target. When this happens, the fee pressure will invert and start increasing, causing REP to become a dividend yielding asset.

This is very similar to how modern stocks behave, where a newly IPOd company will not pay dividends for many years (sometimes decades) yet the stock price continues to increase as investors speculate on the future dividend yield of the company. Eventually, after the company is no longer efficiently growing, the stock will begin paying dividends and dividend seeking investors will start buying up the stock while speculative investors will sell the stock.

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