Why Everything May Be About to Change…
Imagine a social network that:
1) none of your friends are on
2) where you have to pay a dollar each time you post a status update or add a friend
3) you can only pay this fee using an obscure, volatile currency that most people have never even heard of, and you must verify each payment using a browser extension and wait minutes for it to process.
Would you use such a thing?
Welcome to Augur v1.
Sure, it’s not a social network — it’s more like a liquidity network connecting buyers and sellers, rather than friends — but it’s subject to network effects nonetheless.
In Augur v1, you must pay (and wait) to make or take orders, and to do so you must use a volatile currency that may drop in value and lose you money, even if your bet is right.
A market is kind of like a dating network that connects buyers and sellers. The fewer the number of sellers, the less likely a buyer is to find a match and vice versa. The ability to find a buyer or seller, and do so quickly, is called liquidity. If you can easily find sellers to buy from or buyers to sell to, a market is liquid. The more liquid a market, the more attractive it is to new buyers and sellers, driving yet more liquidity.
Network effects can also work against you. Just as people only want to be on social networks that their friends are on, people only want to trade in markets that other people are trading in.
It’s almost impossible to crack this chicken-and-egg if it costs money, time and effort to create orders (and fill them) in the same way that you can’t crack it on a social network if it costs money to add friends (and accept friend requests).
The good news: these network effects are about to flip…
Augur v2 will be a big leap forward in removing UX frictions and cutting costs. With 0x mesh, it will be cheap to post and update orders, opening the door for market making at scale. Improved onboarding and wallet UX will make it more frictionless to use Augur. A bit further down the line, sidechains will make taking orders fast and cheap as well.
Removing UX frictions is essential but insufficient. It will also be important to jumpstart liquidity in the same way that social networks jumpstart usage in their early days in ways that don't scale. For instance, early day Tinder evangelists would visit college campuses, knocking on the doors of fraternities and sororities to recruit users.
Likewise, there are some exciting efforts around jumpstarting liquidity and user acquisition starting to materialize in Augurland right now.
Removing UX frictions is the first and essential key to cracking the chicken-and-egg, and it’s happening as we speak. The same network forces that drive illiquidity in Augur v1 will flip around and multiply liquidity in v2 and beyond. Once the river is running, it will be harder to stop than to keep it going.
You can't put a dam on a borderless, limitless pool of liquidity.
Note: Augur’s network effects will be ~20 times more powerful if v2 launches soon enough to capture the booming market around the 2020 election cycle, including the primaries. I write about the importance of that here.