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Augur v2 Upgrade Announced

A Review of the Augur's v2 Planned Features

· Platform,Ethereum


The Augur v2 upgrade has finally been announced by the Augur team.

The upgraded specification has a ton of notable upgrades that seek to not only fix existing problems with the platform. Along with this, the upgrade introduces some new features that are necessary for the platform to scale. Many of the upgrades are standard and only improve on existing functionality, like the addition of REP complying to ERC777. This post highlights and expands on some of the more notable features and why this is a great improvement to one of the most exciting dApps on the Ethereum platform.

DAI is Finally Here

One of the biggest problems of the Augur system has been the fact that every purchase of a market outcome is also a long position in ETH. For example, let's say you take a market's YES position at .9 that will close in a month. If ETH's value drops 15% over the course of that month and the market resolves to YES, you will end up at a net loss even though you correctly identified the market's outcome. If users feel the value of ETH will drop during a bear run, their financial incentive to sell their ETH to reduce further losses forces them off the platform since ETH is the only token to engage in markets. This is a major issue and could be the reason trade volume drops during bear markets, since users who feel ETH will drop essentially don't want to lock ETH into the Augur platform.

Enter DAI. The release of the DAI stablecoin allows users to interact with the Ethereum network without the worry of crashes, and is a major factor in the scaling of the network to general users. It's integration into Augur's platform marks the ability for average users to understand what they are gaining and losing in a market. Since Dai is pegged at $1 USD, you can easily calculate what your expected returns are without worrying about the fluctuation of ETH's value. As the Augur platform scales, we should see users engage with the market during crashes since the outcomes of markets will be completely decoupled from the valuation of ETH. Look forward to seeing markets that trade in DAI and be sure to pick some up soon.

Trade Using Your Own Tokens

The v2 announcement includes the ability to use a token that is not DAI or ETH as the orderbook token. This is an interesting addition to the v2 standard and personally a feature I am excited about. This feature allows users to generate a new token and allow it to be used as the token of choice in a market's orderbook instead of ETH or DAI. There is no mention of whether the token must be ERC20 or ERC777 compatible, but I hope any ERC20 token could be used. This is a major addition that should not be overlooked since it really pushes Augur away from being only a dApp, but a platform.

Let's say you're a major sports book or betting firm who wishes to use Augur as a third party oracle, but who also wishes to comply with existing laws in your country that say users must be identified. You simply need to generate your own ERC20 compliant token and supply it to users, and create orderbooks for that token. This allows any prediction market platform, including even PredictIt to partner with Augur. These wrapper apps that utilize Augur as a backend will not only gain a trustworthy third party Oracle for public events, but can help market Augur as a trustworthy partner.

While this does open up the possibility of partnerships with larger firms who can market Augur and build it's reputation, I do believe this won't be a major feature that many users will take advantage of. Any market that is open in one orderbook token could just be opened with DAI, eliminating the need for KYC which users should prefer. While this is the case, I believe the addition of ERC20 orderbook tokens makes it a viable option for anyone looking to produce a closed market, but who needs a distributed Oracle to resolve an event's outcome.

REP/DAI Auctions

This is another major announcement by the Augur team that I'm interested to see. In the current iteration of Augur, the platform generates fees for every market that is generated, and allows users to stake REP for some percentage of the fees. While the goals of this is to generate interest in forcing users to participate with Augur, it was noted another requirement of Augur could be satisfied by auctioning this REP by simply using a distributed price feed.

Reporter fees are necessary to help keep Augur secure. The Market Cap Security Theorem specified in the whitepaper states that one way Augur is provably secure is if the market cap of REP is greater than a specified dollar value. At the very least, REP's tradable value should be close to the amount of money one can gain from reporting in markets and winning the reporter fee. Because of this, the value of the reporter fee is adjusted to a target USD value to keep the market cap or REP up. While this is a good method to pressure the market cap to be high, it's extremely slow, and requires users to wait for their reporter fees up to a week before finally receiving any value. Along with this, it requires some trusted party to tell Augur what the price of REP is. Augur's code adjusts the reporter fee using this price, but it is still centralized in a way that requires human intervention.

This is where Auctions come in. The Augur protocol can simply auction off the fees it receives in DAI using REP. Users pay REP for the available DAI, giving Augur a way to tell how much one DAI is worth in REP. This REP is then destroyed, and new REP is minted and also subsequently auctioned off, giving Augur a way to tell how much one REP is worth in DAI. This is an interesting mechanism because it requires no human intervention, and is totally automated, allowing Augur to push further into a purely autonomouss DAO that cannot be intervened by any human. As long as users are purchasing REP or DAI, Augur can keep itself secure without the Augur team.

v2 Approaches Soon

The addition of v2 marks an important step in Augur, so we'll hopefully see it soon. The fact that the Augur team has released such a detailed spec marks they are likely to formally release a target date for the v2 rollover within the next few months. Even though they did release potential updates on v2's status in the past, they have remained mostly quiet but clearly hard at work on improvements that were shown in v1. I would guess this should be available before the end of 2019. We'll see what the market predicts for it's actual release. I'll be sure to trade it.

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