Markets on Augur go through three phases: Open, Reporting, and Finalized.
Once a market is created, it enters the Open phase. This is when most trading generally occurs and when the outcome of the event in question is not yet known.
The market enters its next phase, Reporting, at a time specified by the market creator during market creation. Typically, this occurs after the outcome in question is known.
During Reporting, a market undergoes a reporting process to determine its outcome. This process can complete in as soon as a day, though may take longer if users dispute the initial reported outcome. During this phase, trading may still take place, and traders may seek to settle shares on the open market if they do not want to wait for the market to finalize.
Once a market completes reporting and its outcome is determined, it is considered Finalized. At this time, traders may claim payouts for any shares of value. Markets may still be traded at this time, though it is unlikely to occur in practice, as the value of all shares is already known.
In rare cases, a market may also undergo a Forking phase.
On centralized betting platforms, determining the outcome is simple. The market’s operator reports that X or Y outcome occurred. Since Augur markets have no operator, it’s a bit more complex. Augur uses a communal reporting system driven by incentives to resolve market outcomes.
After a market enters reporting, an Initial Reporter (typically the market creator), selects which outcome occurred. This becomes the “Tentative Winning Outcome.”
Any user may then dispute the Tentative Winning Outcome by staking Reputation (REP), Augur’s native token, on an alternative outcome that they believe to be correct. An alternative outcome requires a specified threshold of REP, which is called the Dispute Bond, to be staked on it in order to become the new Tentative Winning Outcome.
Disputers that stake REP in favor of the outcome that the market ends up resolving to, receive a 40% ROI on their REP stake (except in the case of an unused pre-stake). Disputers that stake on an outcome that the market does not end up resolving to forfeit their entire REP stake.
With each successive dispute round, a higher Dispute Bond is needed to shift the Tentative Winning Outcome. A user may contribute the full Dispute Bond or fill it partially, along with other users.
The first dispute window is 24 hours. If the market’s Initial Report goes undisputed for 24 hours after the initial reporting window ends, the market will finalize and resolve to that outcome.After that, windows switch to 7 days and a market’s Tentative Winning Outcome must go a full 7 days without being successfully disputed in order to finalize, except in the unlikely event that it reaches a fork.
An Oracle is a mechanism that feeds real-world information on to a blockchain. In the case of Augur, the Oracle transfers information about what market outcome occurred e.g., if the Dolphins won on Sunday onto the Ethereum blockchain. The Oracle uses a communal reporting and dispute system driven by incentives to determine the outcome of markets.
Market creators specify a Resolution Source for every market. Reporters use the Resolution Source to deem which outcome occurred and how the market should resolve.
The Resolution Source may be set to “General Knowledge,” for any outcome that is broadly known and uniform across different sources. For instance, a market on who will be elected the next president of the United States may cite General Knowledge.
The Resolution Source may, instead, be set to a publicly-available URL. For example, a market concerning the price of Bitcoin at the end of the week, may specify the URL of an exchange or price feed. This is suited for cases where the outcome is not generally known or varies across different sources.
Once a market enters reporting, the Designated Reporter (DR) has 24 hours to submit a report on the market’s outcome. If the DR does not submit a report within 24 hours, the market will enter Open Reporting, and the market creator will not receive back the Designated Report No-Show Bond.
The DR does not unilaterally decide on a market’s outcome. Once a DR submits an outcome, it is open to dispute. If the market ends up resolving to another outcome, the DR will lose their REP stake.
A market enters Open Reporting if the Designated Reporter does not submit a report within 24 hours of a market’s Reporting Start Time. At this time, any user may report on the outcome and the first report will receive the forfeited No-Show Bond if the market ends up resolving to the outcome that they report. Open Reporting does not require any staked REP on the part of the reporter.
The reporting fee is a dynamic rate paid to reporters for maintaining the integrity and security of the Augur market resolution process.
Every time complete sets are sold or a winning share redeems proceeds, this fee (along with a fee paid to market creators) is extracted to compensate reporters. The rate of this fee is dynamic, and moves up or down in response to the total aggregate value of all REP tokens in circulation.
A more detailed look at the reporting fee structure can be found here.
If you stake REP in favor of an outcome that the market ends up resolving to, you receive a 40% ROI on your staked REP (except in the case of an unused pre-stake). If you stake on an outcome that the market does not end up resolving to, you lose your entire stake. Only stake in favor of the outcome that you believe to be correct.
You can dispute a market’s outcome by staking REP on an alternative outcome that you believe to be correct. An alternative outcome requires a specified threshold of REP staked on it in order to become the new Tentative Winning Outcome. Note that if you stake on an outcome that the market does not end up resolving to, you will lose all your staked REP.
Users can add extra support for a Tentative Winning Outcome by pre-staking REP that will be used to dispute in that outcome’s favor in the event that is no longer the Tentative Winning Outcome. Pre-filling can help accelerate a market’s resolution.
Pre-filled Stake yields ROI if and only if 1) the market resolves to the staked-on outcome and 2) the pre-stake ends up being used to dispute in that outcome’s favor. If the market resolves to the staked-on outcome but the pre-stake is not used, you will receive back the pre-stake but no ROI. If the market does not resolve to the staked-on outcome, you will lose the pre-stake.
When a market is in the Fast Dispute phase, its Tentative Winning Outcome can be disputed immediately. Markets enter Fast Dispute after the initial reporting window ends and remain in it until either the market is resolved or until a large REP threshold is hit such that the market is within 8 dispute rounds of a potential fork.
At any time during a Fee Window, users can purchase Participation Tokens in exchange for REP. Once the Fee Window ends, users can redeem their Participation Tokens for a portion of the Reporting Fees (in DAI) that Augur collected during that Fee Window. The more Participation Tokens a user purchases, the bigger the portion of the Reporting Fees they will receive.