I'm totally new to Augur. I've read articles about it, but this issue is not entirely clear to me.

Is Augur a zero sum game? By this I mean that if there is a fixed pool of individuals that have engaged X REP in prediction events, once all events are settled and payouts are given (and fees paid), will these individuals still hold X of REP?

Why would it be not? Well, say there is a dichotomous event (yes/no), with odds 0.3 and 0.7. Say I buy 1 REP of yes shares, and 1 REP of no shares. If I win, I will receive less than 2 REP. This is, what I added into the pool was more of what I obtained of it. If we all do that, money being distributed is lower than that bet. Where is the difference?

Shares are actually purchased with ETH, so I'll answer the original question assuming that modification.

Augur is a zero sum game, though not between just traders. That is, no ETH gets burned when using the platform but two traders taking opposite sides of a bet will come out with less than they collectively put in originally because of fees.

In the example of a yes/no market buying 1 Yes share and 1 No share will cost a total of 1 ETH (You can do this directly through the contracts or approximate it by relying on market forces if bought through the orderbook). When the outcome is known and the market finalizes one of those shares is now worth 1 ETH and the other is worth nothing.

When a user claims proceeds for the winning share the system will extract fees from the 1 ETH however to compensate the market creator as well as reporters which keep the platform secure.

  • Thank you for the great answer. So where does your answer leave a market maker? Is it possible to be a profitable market maker without being the market creator? It seems like so many creators just pick up the fees but don't actually add liquidity to their market. If I understand your answer correctly, there is no motivation for someone to come in and add liquidity to a market without also being the creator? – Unknown Coder Sep 13 at 22:39
  • 1
    There is definitely motivation and opportunity for someone to add liquidity. Consider the simple case of a yes / no market. I could purchase 10 complete sets for 10 ETH then proceed to add orders to the book with spread such that I make a profit if my orders get taken. For example I could offer the Yes shares for .6 and the No shares for .5. If all my orders are taken I've made a profit of 1 ETH. – achapman Sep 14 at 23:02

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