Augur’s Antifragility: A Few Thoughts
On the night of the midterms, as America sat glued to CNN and Fox news, some of us instead tuned into Augur to get a pulse on the election. That night, the peer-to-peer prediction platform hit a new milestone: its first-ever market with over one million dollars at stake as traders wagered on which party would take the House
The price swung around as votes trickled in until it became clear that Democrats would win. But just as it looked like the drama was over, something odd happened...
An Augur trader bought thousands of dollars worth of shares betting on the Republicans. Wait... what? Why would someone bet on the Republicans when it was clear the Democrats had already won?
One explanation — and there are many possible explanations here — points to a technicality. The market, which was worded “Which party will control the House after 2018 U.S. Midterm Election?” did not specify when exactly is meant by “after.” The Democrats will not actually assume control of Congress until after the date the market is set to expire in December.
It’s clear the general intent of traders was to speculate on which party would win control of the House and the phrasing of the market was identical to that used on PredictIt, a centralized prediction market. But this technicality could lead to a dragged out dispute process that, at least in theory, could have the market resolve “Invalid” or even “Republicans” And some are concerned that this sort of tedious dispute over a technicality and a potential resolution other than “Democrats” would invalidate Augur’s utility.
But what if this is actually a blessing in disguise? What if a drawn-out dispute and maybe even a fork would be a good thing for Augur?
In Antifragile, Nassim Taleb looks at how in the face of uncertainty, stress, and disorder, some things wither and die while other things grow and thrive. The latter are antifragile.
Think Hydra. Everytime someone cuts off its head, it grows back two. Hydra likes to be harmed. Resilient things survive stress and shock; antifragile things benefit.
Crypto networks, at their best, are antifragile organisms. The more successful a crypto network becomes, the bigger the honeypot for malicious actors. But the bigger this effective bug bounty, the greater the incentive for stakeholders to protect the network. The fact that no one person or party has the power to protect it gives everyone a sense of shared responsibility to do so — that is, everyone who has a stake in the network’s success. On Augur, when malevolent actors stake REP in bad faith, it only incents benevolent actors to buy and stake more REP on the competing outcome.
Crypto networks have another means to antifragility: forking. At its best, forking is an evolutionary force that allows for experimentation and drives a survival of the fittest. As Fred Ehrsam notes,
Just like mutations to DNA in biological organisms allow for evolution through natural selection, forking lets us run multiple experiments in parallel where the strongest versions survive.
Augur has its own version of ‘forking.’ If the community can’t agree on the outcome of a market after a certain number of dispute rounds, it splits into multiple universes. Each universe has its own version of REP and its own accounting — two separate ledgers — of what happened i.e., one where Democrats took the House and one where the market was deemed invalid.
The DAO hack and subsequent fork arguably only strengthened Ethereum and its community. While a totally different animal, a drawn-out Augur dispute and potential fork would arguably pit the same ideals against one another: the purist versus the pragmatic. Purists did not want to return The DAO’s stolen funds. And purists don’t like a market that can be invalidated on some technicality.
But it seems that in a well-designed crypto economy, the pragmatic and productive will, more often than not, trump the purist. Why? Because a crypto asset with strong tokenomics i.e., it’s monetary value rises in proportion to its utility will naturally incent holders to favor the productive, practical path over the purist. In other words, they will choose the path that actually makes the token more useful, since they want its value to rise.
In the case of Augur, useful probably means predictive. You want prediction markets to be good at…predicting things. But what if sacrificing precision would actually compromise predictiveness in the long run?
If such questions can’t be resolved in this case, it would mean forking into two universes, one where the Democrats won and one where the market was deemed “invalid” or where the Republicans prevailed. Maybe both universes and their corresponding REP would be valuable for different use cases — or for different users. But I think more likely, not. One would probably thrive and one would sink into oblivion.
So while Augur as a whole may be antifragile, that doesn’t mean that individual universes are. As Taleb writes,
Some parts on the inside of a system may be required to be fragile in order to make the system antifragile as a result.
A drawn-out dispute process could accomplish the following:
- Incent more folks to buy and stake REP and to engage in vigorous debate over how the market should resolve.
- Encourage better standards for market creation and wording.
- Further motivate Augur developers to speed up the dispute resolution process, something they’re already working on.
- If in the unlikely scenario of a fork, allow for an experiment to see which universe was more productive and to test the forking process.
What doesn’t kill Augur will only make it stronger.
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