Augur: a Decentralized Oracle and Prediction Market Platform

Abstract

Augur is a trustless, decentralized oracle and platform for prediction markets. The outcomes of Augur's prediction markets are chosen by users that hold Augur's native Reputation token, who stake their tokens on the actual observed outcome and, in return, receive settlement fees from the markets. Augur's incentive structure is designed to ensure that honest, accurate reporting of outcomes is always the most profitable option for Reputation token holders. Token holders can post progressively-larger Reputation bonds to dispute proposed market outcomes. If the size of these bonds reaches a certain threshold, Reputation splits into multiple versions, one for each possible outcome of the disputed market; token holders must then exchange their Reputation tokens for one of these versions. Versions of Reputation which do not correspond to the real-world outcome will become worthless, as no one will participate in prediction markets unless they are confident that the markets will resolve correctly. Therefore, token holders will select the only version of Reputation which they know will continue to have value: the version that corresponds to reality.

Full text

Augur: a Decentralized Oracle and Prediction Market Platform
Jack Peterson, Joseph Krug, Micah Zoltu, Austin K. Williams, and Stephanie Alexander
Forecast Foundation
(Dated: February 3, 2018)
Augur is a trustless, decentralized oracle and platform for prediction markets. The outcomes of
Augur’s prediction markets are chosen by users that hold Augur’s native Reputation token, who
stake their tokens on the actual observed outcome and, in return, receive settlement fees from
the markets. Augur’s incentive structure is designed to ensure that honest, accurate reporting of
outcomes is always the most profitable option for Reputation token holders. Token holders can post
progressively-larger Reputation bonds to dispute proposed market outcomes. If the size of these
bonds reaches a certain threshold, Reputation splits into multiple versions, one for each possible
outcome of the disputed market; token holders must then exchange their Reputation tokens for one
of these versions. Versions of Reputation which do not correspond to the real-world outcome will
become worthless, as no one will participate in prediction markets unless they are confident that the
markets will resolve correctly. Therefore, token holders will select the only version of Reputation
which they know will continue to have value: the version that corresponds to reality.
Augur is a trustless, decentralized oracle and predic-
tion market platform. In a prediction market, individuals
can speculate on the outcomes of future events; those who
forecast the outcome correctly win money, and those who
forecast incorrectly lose money [1–3]. The price of a pre-
diction market can serve as a precise and well-calibrated
indicator of how likely an event is to occur [4–7].
Using Augur, people will have the ability to trade in
prediction markets at very low cost. The only significant
expenses participants assume is compensation to mar-
ket creators and to users that report on the outcomes of
markets once the event has taken place. The result is
a prediction market where trust requirements, friction,
and fees will be as low as competitive market forces can
drive them.
Historically, prediction markets have been centralized.
The simplest way to aggregate trades in a prediction mar-
ket is for a trustworthy entity to maintain a ledger; sim-
ilarly, the simplest way to determine the outcome of an
event and distribute payouts to traders is for an impar-
tial, trusted judge to determine the outcomes of the mar-
kets. However, centralized prediction markets have many
risks and limitations: they do not allow global participa-
tion, they limit what types of markets can be created or
traded, and they require traders to trust the market op-
erator to not steal funds and to resolve markets correctly.
Augur aims to resolve markets in a fully decentralized
way. Decentralized, trustless networks, such as Bitcoin[8]
and Ethereum[9], eliminate the risk that self-interest will
turn into corruption or theft. The only role of the Augur
developers is to publish smart contracts to the Ethereum
network. The Augur contracts are totally automated:
the developers do not have the ability to spend funds
that are held in escrow on-contract, do not control how
markets resolve, do not approve or reject trades or other
transactions on the network, cannot undo trades, can-
not modify or cancel orders, etc. The Augur oracle al-
lows information to be migrated from the real world to
a blockchain without relying on a trusted intermediary.
Augur will be the world’s first decentralized oracle.
I. HOW AUGUR WORKS
Augur markets follow a four-stage progression: cre-
ation,trading,reporting, and settlement. Anyone can
create a market based on any real-world event. Trading
begins immediately after market creation, and all users
are free to trade on any market. After the event on which
the market is based has occurred, the outcome of the
event is determined by Augur’s oracle. Once the out-
come is determined, traders can close out their positions
and collect their payouts.
Augur has a native token, Reputation (REP). REP is
needed by market creators and by reporters when they
report on the outcome of markets created on the Augur
platform. Reporters report on a market by staking their
REP on one of the market’s possible outcomes. By do-
ing this, the reporter declares that the outcome on which
the stake was placed matches the real-world outcome of
the market’s underlying event. The consensus of a mar-
ket’s reporters is considered the “truth” for the purpose
of determining the market’s outcome. If a reporter’s re-
port of a market’s outcome does not match the consensus
reached by the other reporters, Augur redistributes the
REP staked on the non-consensus outcome by this re-
porter to the reporters that reported with the consensus.
By owning REP, and participating in the accurate re-
porting on the outcomes of events, token holders are enti-
tled to a portion of the fees on the platform. Each staked
REP token entitles its holder to an equal portion of Au-
gur’s market fees. The more REP a reporter owns, and
reports correctly with, the more fees they will earn for
their work in keeping the platform secure.
Although REP plays a central role in Augur’s opera-
tions, it is not used to trade in Augur’s markets. Traders
will never need to own or use REP, as they are not re-
quired to participate in the reporting process.

2
Figure 1. Simplified outline of the lifetime of a prediction market.
A. Market Creation
Augur allows anyone to create a market about any up-
coming event. The market creator sets the event end time
and chooses a designated reporter to report the outcome
of the event. The designated reporter does not unilat-
erally decide the outcome of the market; the community
always has an opportunity to dispute and correct the
designated reporter’s report.
Next, the market creator chooses a resolution source
that reporters should use to determine the outcome. The
resolution source may simply be “common knowledge”,
or it may be a specific source, such as “The United States
Department of Energy”, bbc.com, or the address of a
particular API endpoint.1They also set a creator fee,
which is the fee paid to the market creator by traders who
settle with the market contract (see Section ID for details
on fees). Finally, the market creator posts two bonds:
the validity bond, and the designated report no-show bond
(also referred to as the no-show bond for brevity).
The validity bond is paid in ETH and is returned to
the market creator if the market resolves to any out-
come other than invalid.2The validity bond incentivizes
market creators to create markets based on well-defined
events with objective, unambiguous outcomes. The size
of the validity bond is set dynamically, based on the pro-
portion of invalid outcomes in recent markets.3
The no-show bond consists of two parts: the no-show
gas bond (paid in ETH) and the no-show REP bond (paid
in REP). These bonds are returned to the market creator
if the market’s designated reporter actually reports dur-
ing the first three days after the market’s event end time.
If the designated reporter does not submit their report
during the allotted 3-day window, then the market cre-
ator forfeits the no-show bond and it is given to the first
public reporter who reports on the market (see Section
I C 6). This incentivizes the market creator to choose a
1For example, if a market on “The high tempera-
ture (in degrees Fahrenheit) on April 10, 2018 at the
San Francisco International Airport, as reported by
Weather Underground” specifies a resolution source of
https://www.wunderground.com/history/airport/KSFO/2018/4/10/
DailyHistory.html, reporters would simply go to that URL and
enter the high temperature displayed there as their report.
2An invalid market is a market determined to be invalid by reporters
because none of the outcomes listed by the market creator is cor-
rect, or because the market wording is ambiguous or subjective; see
Section III F for discussion.
3See Appendix E 1 for details.
reliable designated reporter, which should help markets
resolve quickly.
The no-show gas bond is intended to cover the first
public reporter’s gas costs. This prevents the scenario
where the first public reporter’s gas costs are too high
for reporting to be profitable. The no-show gas bond is
set at twice the average gas cost for reporting during the
previous fee window.
In the event that the designated reporter fails to re-
port, the no-show REP bond is given to the first public
reporter in the form of stake on their reported outcome,
so that the first public reporter receives the no-show REP
bond if and only if they report correctly. As with the va-
lidity bond, the no-show REP bond is adjusted dynami-
cally based on the proportion of designated reporters who
failed to report on time during the previous fee window.4
The market creator creates the market and posts all
required bonds via a single Ethereum transaction. Once
the transaction is confirmed, the market is live and trad-
ing begins.
B. Trading
Market participants forecast the outcomes of events by
trading shares of those market outcomes. A complete set
of shares is a collection of shares that consists of one share
of each possible valid outcome of the event [10]. Complete
sets are created by Augur’s on-contract matching engine
as needed to complete trades.
For example, consider a market that has two possible
outcomes, Aand B. Alice is willing to pay 0.7 ETH for a
share of Aand Bob is willing to pay 0.3 ETH for a share
of B.5First, Augur matches these orders and collects a
total of 1 ETH from Alice and Bob.6Then Augur creates
a complete set of shares, giving Alice the share of Aand
Bob the share of B. This is how shares of outcomes come
into existence. Once the shares are created, they can be
traded freely.
4See Appendix E 2 for details.
5Initially, trades in Augur’s markets will use Ethereum’s native coin,
Ether (ETH). Subsequent releases of Augur will include support for
markets denominated in arbitrary tokens issued on the Ethereum
network, including shares of other markets as well as tokens pegged
to fiat currencies (“stablecoins”), if/when these become available.
6The 1 ETH figure is used here for ease of discussion. The actual
cost of a complete set of shares is much smaller than this; see
docs.augur.net/#number-of-ticks for details.

3
The Augur trading contracts maintain an order book
for every market created on the platform. Anybody can
create a new order or fill an existing order at any time.
Orders are filled by an automated matching engine that
exists within Augur’s smart contracts. Requests to buy
or sell shares are fulfilled immediately if there is a match-
ing order already on the order book. It may be filled
by buying shares from or selling shares to other partic-
ipants, which, may involve issuing new complete sets or
closing out existing complete sets. Augur’s matching en-
gine always sequesters the minimum amount of shares
and/or cash needed to cover the value at risk. If there is
no matching order, or the request can be only partially
filled, the remainder is placed on the order book as a new
order.
Orders are never executed at a worse price than the
limit price set by the trader, but may be executed at a
better price. Unfilled and partially-filled orders can be
removed from the order book by the order’s creator at
any time. Fees are paid by traders only when complete
sets of shares are sold; settlement fees are discussed in
more detail in Section I D.
While most trading of shares is expected to happen
before market settlement, shares can be traded any time
after market creation. All Augur assets – including shares
in market outcomes, fee window tokens, shares in dispute
bonds, and even ownership of the markets themselves –
are transferable at all times.
C. Reporting
Once a market’s underlying event occurs, the outcome
must be determined in order for the market to finalize
and begin settlement. Outcomes are determined by Au-
gur’s oracle, which consists of profit-motivated reporters,
who simply report the actual, real-world outcome of the
event. Anyone who owns REP may participate in the
reporting and disputing of outcomes. Reporters whose
reports are consistent with consensus are financially re-
warded, while those whose reports are not consistent with
consensus are financially penalized (see Section I D 3).
1. Fee Windows
Augur’s reporting system runs on a cycle of consecu-
tive 7-day long fee windows. All fees collected by Augur
during a given fee window are added to the reporting fee
pool for that fee window. At the end of the fee window,
the reporting fee pool is paid out to REP holders who
participated in the reporting process. Reporters receive
rewards in proportion to the amount of REP they staked
during that fee window. Participation includes: staking
during an initial report, disputing a tentative outcome,
or purchasing participation tokens.
2. Participation Tokens
During any fee window, REP holders may purchase
any number of participation tokens for one attorep7each.
At the end of the fee window, they may redeem their
participation tokens for one attorep each, in addition to
a proportional share of the fee window’s reporting fee
pool. If there were no actions (e.g., submitting a report or
disputing a report submitted by another user) needed of a
reporter, the reporter may purchase participation tokens
to indicate that they showed up for the fee window. Just
like staked REP, participation tokens may be redeemed
by their owners for a pro rata portion of fees in this fee
window.
As discussed in Section II, it is important that REP
holders are ready to participate in market resolution in
the event of a fork. The participation token provides
an incentive for REP holders to monitor the platform at
least once per week, and, thus, be ready to participate
if the need arises. Even REP holders who do not want
to participate in the reporting process are incentivized to
check-in with Augur once per 7-day fee window in order
to buy participation tokens and collect fees. This regular,
active checking-in will ensure that they are familiar with
how to use Augur, will be aware of forks when they occur,
and thus should be more ready to participate in forks
when they happen.
3. Market State Progression
Augur markets can be in seven different states after
creation. The potential states, or “phases”, of an Augur
market are as follows:
•Pre-reporting
•Designated Reporting
•Open Reporting
•Waiting for the Next Fee Window to Begin
•Dispute Round
•Fork
•Finalized
The relationship between these states can be seen in
Fig. 2.
4. Pre-reporting
The pre-reporting or trading phase (Fig. 1) is the time
period that begins after trading has begun in the market,
7One attorep is 10−18 REP.

4
Figure 2. Reporting flowchart.
but before the market’s event has come to pass. Gener-
ally, this is the most active trading period for any given
Augur market. Once the event end date has passed, the
market enters the designated reporting phase (Fig. 2a).
5. Designated Reporting
When creating a market, market creators are required
to choose a designated reporter and post a no-show bond.
During the designated reporting phase (Fig. 2a) the mar-
ket’s designated reporter has up to three days to report
on the outcome of the event. If the designated reporter
fails to report within the allotted three days, the mar-
ket creator forfeits the no-show bond, and the market
automatically enters the open reporting phase (Fig. 2b).
If the designated reporter submits a report on time,
then the no-show bond is returned to the market creator.
The designated reporter is required to post the desig-
nated reporter stake8on its reported outcome, which it
will forfeit if the market finalizes to any outcome other
than the one they reported.9As soon as the designated
reporter submits its report, the market enters the waiting
for next fee window to begin phase (Fig. 2c), and the re-
ported outcome becomes the market’s tentative outcome.
6. Open Reporting
If the designated reporter fails to report within the
allotted three days, the market creator forfeits the no-
show bond, and the market immediately enters the open
8See Appendix E 3 for details on the size of the designated reporter
stake.
9Forfeited stake is added to the reporting fee pool of the market’s
assigned fee window, and is used to reward honest reporters and
disputers; see Section I D 3 for details.

5
reporting phase (Fig. 2b). As soon as the market enters
the open reporting phase, anyone can report the outcome
of the market. When the designated reporter fails to
report, the first reporter who reports on the outcome of
a market is called the market’s first public reporter.
The market’s first public reporter receives the forfeited
no-show bond in the form of stake on their chosen out-
come, so they may claim the no-show REP bond only
if their reported outcome agrees with the market’s final
outcome. They also receive the no-show gas bond after
the market has finalized only if their reported outcome
agrees with the market’s final outcome.
The first public reporter does not need to stake any of
their own REP when reporting the outcome of the mar-
ket. In this way, any market whose designated reporter
fails to report is expected to have its outcome reported
by someone very soon after entering the open reporting
phase.
Once an initial report has been received by the ini-
tial reporter (whether it was the designated reporter or
first public reporter), the reported outcome becomes the
market’s tentative outcome, and the market enters the
waiting for next fee window to begin phase (Fig. 2c).
7. Waiting for Next Fee Window to Begin
Once the market receives its initial report, it enters
the waiting for next fee window to begin phase (Fig. 2c).
During this phase, reporting for the market is on hold un-
til end of the current fee window. Once the next fee win-
dow begins, the market enters the dispute round phase.
8. Dispute Round
The dispute round (Fig. 2d) is a 7-day period during
which any REP holder has the opportunity to dispute
the market’s tentative outcome.10 (At the beginning of a
dispute round, a market’s tentative outcome is the out-
come that will become the market’s final outcome if it
is not successfully disputed by REP holders.) A dispute
consists of staking REP (referred to as dispute stake in
this context) on an outcome other than the market’s cur-
rent tentative outcome. A dispute is successful if the to-
tal amount of dispute stake on some outcome meets the
dispute bond size required for the current round. The
dispute bond size is computed as follows.
Let Andenote the total stake over all of this market’s
outcomes at the beginning of dispute round n. Let ω
be any market outcome other than the market’s tenta-
tive outcome at the beginning of this dispute round. Let
10The fact that the dispute rounds coincide with the fee windows is
purely a matter of convenience; in principle, dispute rounds and
fee window durations could be different.
S(ω, n) denote the total amount of stake on outcome ωat
the beginning of dispute n. Then the size of the dispute
bond needed to successfully dispute the current tentative
outcome in favor of the new outcome ωduring round n
is denoted B(ω, n) and is given by:
B(ω, n)=2An−3S(ω, n) (1)
The bond sizes are chosen this way to ensure a fixed
ROI of 50% for reporters who successfully dispute false
outcomes (see Section II D).
The dispute bonds need not be paid in their entirety
by a single user. The Augur platform allows participants
to crowdsource dispute bonds. Any user who sees an in-
correct tentative outcome can dispute that outcome by
staking REP on an outcome other than the tentative out-
come. If any outcome (other than the tentative outcome)
accumulates enough dispute stake to fill its dispute bond,
the current tentative outcome will be successfully dis-
puted.
In the case of a successful dispute, the market will
either undergo another dispute round, or it will enter
the fork state (Fig. 2e). If the size of the filled dispute
bond is greater than 2.5% of all REP, then the market
will enter the fork state. If the size of the filled dispute
bond is less than 2.5% of all REP, then the newly chosen
outcome becomes the market’s new tentative outcome,
and the market undergoes another dispute round.
All dispute stake is held in escrow during the dispute
round. If a dispute bond is unsuccessful, then the dis-
pute stake is returned to its owners at the end of the
dispute round. If no dispute is successful during the 7-
day dispute round, the market enters the finalized state
(Fig. 2f), and its tentative outcome is accepted as its fi-
nal outcome. A market’s final outcome is the tentative
outcome that passes through a dispute round without
being successfully disputed, or is determined via a fork.
Augur’s contracts treat final outcomes as truth and pay
out accordingly.
All unsuccessful dispute stake is returned to the origi-
nal owners at the end of every dispute round. All success-
ful dispute stake is applied to the outcome it championed,
and remains there until the market is finalized (or until
a fork occurs in some other Augur market). All dispute
stake (whether successful or unsuccessful) will receive a
portion of the reporting fee pool11 from the current fee
window.
9. Fork
The fork state (Fig. 2e) is a special state that lasts up
to 60 days. Forking is the market resolution method of
11Any settlement fees and validity bonds collected during a fee win-
dow get added to that fee window’s reporting fee pool. At the
end of the fee window, the reporting fee pool is paid out to users
in proportion to the amount of REP they staked during that fee
window.

6
last resort; it is a very disruptive process and is intended
to be a rare occurrence. A fork is caused when there is a
market with an outcome with a successfully-filled dispute
bond of at least 2.5% of all REP. This market is referred
to as the forking market.
When a fork is initiated, a 60-day12 forking period be-
gins. Disputing for all other non-finalized markets is put
on hold until the end of this forking period. The forking
period is much longer than the usual fee window because
the platform needs to provide ample time for REP hold-
ers and service providers (such as wallets and exchanges)
to prepare. A fork’s final outcome cannot be disputed.
Every Augur market and all REP tokens exist in some
universe. REP tokens can be used to report on outcomes
(and thus earn fees) only for markets that exist in the
same universe as the REP tokens. When Augur first
launches, all markets and all REP will exist together in
the genesis universe.
When a market forks, new universes are created. Fork-
ing creates a new child universe for each possible outcome
of the forking market (including Invalid, as discussed in
Section I D2). For example, a “binary” market has 3 pos-
sible outcomes: A,B, and Invalid. Thus, a binary forking
market will create three new child universes: universe A,
universe B, and universe Invalid. Initially, these newly
created universes are empty: they contain no markets or
REP tokens.
When a fork is initiated, the parent universe becomes
permanently locked. In a locked universe, no new markets
may be created. Users may continue trading shares in
markets in locked universes, but no reporting rewards are
paid out there, and markets in locked universes cannot
be finalized. In order for markets or REP tokens in the
locked universe to be useful, they must first be migrated
to a child universe.
Holders of REP tokens in the parent universe may mi-
grate their tokens to a child universe of their choice. This
choice should be considered carefully, because migration
is one-way; it cannot be reversed. Tokens cannot be sent
from one sibling universe to another. Migration is a per-
manent commitment of REP tokens to a particular mar-
ket outcome. REP tokens that migrate to different child
universes ought to be considered entirely separate tokens,
and service providers like wallets and exchanges ought to
list them as such.
When a fork is initiated, all REP staked on all non-
forking markets is unstaked so that it is free to be mi-
grated to a child universe during the forking period.13
Whichever child universe receives the most migrated
REP by the end of the forking period becomes the win-
12Forking periods can be less than 60 days: a forking period ends
when either 60 days have passed, or more than 50% of all genesis
REP is migrated to some child universe.
13The only exception is the REP staked by the initial reporter when
they made the initial report. That REP remains staked on the
initial reported outcome and is automatically migrated to the child
universe that wins the fork.
ning universe, and its corresponding outcome becomes
the final outcome of the forking market. Un-finalized
markets in the parent universe may be migrated only to
the winning universe and, if they have received an initial
report, are reset back to the waiting for next fee window
to begin phase.
There is no time limit to migrate tokens from the par-
ent universe to a child universe. Tokens may be mi-
grated after the forking period, but they will not count
towards the determination of the winning universe. To
encourage greater participation during the forking pe-
riod, all token holders who migrate their REP within 60
days of the start of a fork will receive 5% additional REP
in the child universe to which they migrated14. This re-
ward is paid for by minting new REP tokens.15
Reporters that have staked REP on one of the forking
market’s outcomes cannot change their position during a
fork. REP that was staked on an outcome in the par-
ent universe can be migrated only to the child universe
that corresponds to that outcome. For example, if a re-
porter helped fulfill a successful dispute bond in favor
of outcome Aduring some dispute round, then the REP
they have staked on outcome Acan only be migrated to
universe Aduring a fork.
Sibling universes are entirely disjoint. REP tokens
that exist in one universe cannot be used to report on
events or earn rewards from markets in another universe.
Since users presumably will not want to create or trade on
markets in a universe whose oracle is untrustworthy, REP
that exists in a universe that does not correspond to ob-
jective reality is unlikely to earn its owner any fees, and
therefore should not hold any significant market value.
Therefore, REP tokens migrated to a universe which does
not correspond to objective reality should hold no mar-
ket value, regardless of whether or not the objectively
false universe ends up being the winning universe after
a fork. This has important security consequences, which
we discuss in Section II.
10. Finalized
A market enters the finalized state (Fig. 2f) if it passes
through a 7-day dispute round without having its tenta-
tive outcome successfully disputed, or after completion of
a fork. The outcome of a fork cannot be disputed and is
always considered final at the end of the forking period.
Once a market is finalized, traders can settle their po-
sitions directly with the market. When a market enters
14This occurs even when the forking period has ended early due to
more than 50% of all REP being migrated to some child universe.
15The effect of this addition to the money supply of REP is small.
For example, if 20% of all existing REP is migrated during the
forking period of a fork, this bonus would result in a 1% increase
in the money supply of REP. Moreover, forks are expected to be
exceedingly rare events.

7
the finalized state, we refer to its chosen outcome as the
final outcome.
D. Market Settlement
A trader can close their position in one of two ways: by
selling the shares they hold to another trader in exchange
for currency, or by settling their shares with the market.
Recall that every share comes into existence as part of a
complete set when a total of 1 ETH has been escrowed
with Augur.6To get that 1 ETH out of escrow, traders
must give Augur either a complete set or, if the market
has finalized, a share of the winning outcome. When this
exchange happens we say traders are settling with the
market contract.
For example, consider a non-finalized market with pos-
sible outcomes Aand B. Suppose Alice has a share of out-
come Athat she wants to sell for 0.7 ETH and Bob has
a share of outcome Bthat he wants to sell for 0.3 ETH.
First, Augur matches these orders and collects the Aand
Bshares from the participants. Then Augur gives 0.7
ETH (minus fees) to Alice and 0.3 ETH (minus fees) to
Bob.
As a second example, consider a finalized market whose
winning outcome is A. Alice has a share of Aand wants
to cash it in. She sends her share of Ato Augur and in
return receives 1 ETH (minus fees).
1. Settlement Fees
The only time Augur levies fees is when market par-
ticipants are settling with the market contract. Augur
levies two fees during settlement: the creator fee, and
the reporting fee. Both of these fees are proportional
to the amount being paid out. So, in the pre-finalized
settlement example above, where Alice receives 0.7 ETH
and Bob receives 0.3 ETH, Alice would pay 70% of the
fees while Bob would pay 30%.
The creator fee is set by the market creator during
market creation, and is paid to the market creator upon
settlement. The reporting fee is set dynamically (see Sec-
tion II C) and is paid to reporters who participate in the
reporting process.
2. Settlement of Invalid Markets
In the event that a market resolves as Invalid, traders
who settle with the market contract receive an equal
amount of ETH for shares of each outcome. If the mar-
ket had Npossible outcomes (not including the Invalid
outcome), and the cost of a complete set of shares was C
ETH, then traders will receive C/N ETH for each share
settled with the market contract.16
3. Reputation Redistribution
If a market finalizes without initiating a fork, all REP
staked on any outcome other than the market’s final
outcome is forfeited and distributed to the users who
staked on the market’s final outcome in proportion to
the amount of REP they staked. The dispute bond sizes
are chosen such that anyone who successfully disputes
an outcome in favor of the market’s final outcome is re-
warded with a 50% ROI on their dispute stake.17 This is
a strong incentive for reporters to dispute false tentative
outcomes.
II. INCENTIVES AND SECURITY
There is a strong relationship between the market cap
of REP and the trustworthiness of Augur’s forking proto-
col. If the market cap of REP is large enough18, and at-
tackers are economically rational, then the outcome that
wins the fork should correspond to objective reality. In
fact, it would be possible for Augur to function properly
without using designated reporters and dispute rounds.
Using only the forking process, the oracle would report
truthfully.
However, forks are disruptive and time consuming. A
fork takes up to 60 days to resolve a single market, and
can resolve only one market at a time. During the 60
days in which the forking market is being resolved, all
other non-finalized markets are put on hold.19 Service
providers have to update, and REP holders have to mi-
grate their REP to one of the new child universes. There-
fore, forks should be used only when they are absolutely
necessary. Forking is the nuclear option.
Fortunately, once it has been established that forks can
be trusted to determine truth, incentives can be used to
encourage participants to behave honestly without hav-
ing to actually initiate a fork. It is the credible threat of
a fork, and the belief that the fork will resolve correctly,
that are the cornerstones of Augur’s incentive system.
Next, we discuss the conditions under which the fork-
ing system can be trusted to determine truth. We then
discuss the incentive system and how it encourages quick
and correct resolution of all markets.
16Trades cannot simply be unwound if a market resolves as Invalid
due to technical limitations. Shares of outcomes are just tokens,
which can be traded directly between users; the ETH and shares
are thus not under Augur’s control and cannot be given back to
the original owner if the market finalizes as Invalid.
17See Theorem 3 in Appendix A.
18See Section II A for details.
19Traders can continue trading on those markets, but those markets
cannot finalize until after the forking period.

8
A. Integrity of the Forking Protocol
Here we discuss the reliability of the forking process
and the conditions under which it can be trusted. For
ease of discussion, when referring to forks, we will refer
to the child universe that corresponds to objective reality
as the True universe, and any other child universe as a
False universe. We will refer to the child universe which
receives the most REP migration during the forking pe-
riod as the winning universe and all other child universes
as losing universes.
Naturally, we always want the True universe to be the
winning universe, and the False universes to be the losing
universes. We say that the forking protocol has been suc-
cessfully attacked whenever a False universe ends up be-
ing the winning universe of a fork – thus resulting in the
forking market (and, potentially, all non-finalized mar-
kets) being paid out incorrectly.
Our approach to securing the oracle is to arrange mat-
ters such that the maximum benefit to a successful at-
tacker is less than the minimum cost of performing the
attack. We formalize this below.
1. Maximum Benefit to an Attacker
An attacker who successfully attacks the oracle would
cause all non-finalized Augur markets to migrate to a
False universe. If the attacker controls the majority of
REP in the False universe, the attacker can then force all
non-finalized markets to resolve however she wants. In
the most extreme case, she would also be able to capture
all funds escrowed in all of those markets.20
Definition 1. We define, and denote by Ia, Augur’s na-
tive open interest as the value of the sum of all funds
escrowed in unfinalized Augur markets.21
Definition 2. We define a parasitic market as any mar-
ket that does not pay reporting fees to Augur, but does
resolve in accordance with the resolution of a native Au-
gur market.
Definition 3. We define, and denote by Ip, the parasitic
open interest as the value of the sum of all funds escrowed
in all parasitic markets that resolve in accordance to non-
finalized, native Augur markets.
In the most extreme case, an attacker would also be
able to capture all funds in all parasitic markets which
resolve in accordance to non-finalized, native Augur mar-
kets.
Observation 1. The maximum (gross) benefit to an at-
tacker who successfully attacks the oracle is Ia+Ip.
20This would require the attacker to capture all shares of some given
outcome, and then force the market to finalize to that outcome.
21This includes external markets that pay reporting fees to Augur.
2. Parasitic Open Interest is Unknowable
Augur can accurately and efficiently measure Ia. How-
ever, Ipcannot be known in general, as there may exist
arbitrarily many offline parasitic markets, each with arbi-
trarily large open interest. Since the maximum possible
benefit to an attacker includes the unknowable quantity
Ip, one can never be objectively certain that the oracle
is secure against economically rational attackers.
However, if we are willing to assert that Ipis reason-
ably bounded in practice, then we can define conditions
under which we may assert that the oracle is secure.
3. Minimum Cost of a Successful Attack
Next, consider the cost of attacking the oracle. Let
Pdenote the price of REP. Let denote one attorep22.
Let Mdenote the total amount of REP in existence (the
“money supply” of REP). Let Sdenote the proportion
of Mthat will be migrated to the True universe during
the forking period of a fork.
Thus the product SM represents the absolute amount
of REP migrated to the True universe during the forking
period of a fork, and the product P M is the market cap
of REP.
Let Pfdenote the price of REP migrated to a False
universe of the attacker’s choosing. Note that if P≤Pf
then the oracle would not be secure against economically
rational attackers, because it would be at least as prof-
itable to migrate REP to the False universe as it would
be to not migrate at all.
4. Integrity
Assumption 1. Reporters that are not attackers will
never migrate REP to a False universe during a fork.23
By design, a successful attack on the oracle requires
more REP to be migrated to some False universe than
to the True universe during the forking period of a fork.
By assumption, only the attacker will migrate REP to
aFalse universe. The amount of REP migrated to the
True universe during the reporting period is denoted by
SM . Thus, for an attacker to be successful, they must
migrate at least SM +REP. For simplicity, we will
ignore the negligible , and say that a successful attack
requires migrating at least SM REP, which has a value
of SM P before the migration, to some False universe.
22One attorep is 10−18 REP.
23There may be cases where some non-malicious reporters do migrate
REP to a False universe accidentally or carelessly. However, such
behavior is, in practice, indistinguishable from collaborating with
an attacker.

9
If an attacker migrates SM REP during the report-
ing period of a fork, they will receive SM REP on the
child universe to which they migrate.24 If the attacker
migrates to a False universe then the value of those coins
becomes SMPf. Thus the minimum cost to the attacker
is (P−Pf)SM .
Observation 2. The minimum amount of REP a suc-
cessful attacker must migrate to a False universe during
a fork is SM , which costs the attacker (P−Pf)SM .
Note that if S > 1
2then an attack is impossible because
there does not exist enough REP outside of the True
universe for any False universe to become the winning
universe.
Pitted against economically rational attackers, the or-
acle will resolve to outcomes that correspond to objec-
tive reality if the maximum benefit to an attacker is less
than the minimum cost of attack. By observations 1
& 2 we can see that this occurs whenever S > 1
2or
Ia+Ip<(P−Pf)SM . This gives us our formal def-
inition of integrity.
Definition 4. (Integrity Property) The forking protocol
has integrity whenever S > 1
2or whenever Ia+Ip<
(P−Pf)SM .
The above inequality can be solved for P M to see the
relationship between forking protocol integrity and the
market cap of REP.
Theorem 1. (Market Cap Security Theorem) The fork-
ing protocol has integrity if and only if:
1. S > 1
2, or
2. Pf< P and the market cap of REP is greater than
(Ia+Ip)P
(P−Pf)S.
Proof. Suppose the forking protocol has integrity. Then,
by definition, S > 1
2or Ia+Ip<(P−Pf)SM . Suppose
Ia+Ip<(P−Pf)SM . Since Ia+Ip≥0 and SM > 0, we
know that Pf< P . Then, solving Ia+Ip<(P−Pf)SM
for P M , we see that (Ia+Ip)P
(P−Pf)S< P M . Thus the first
direction is proved.
Now suppose that S > 1
2, or that Pf< P and
(Ia+Ip)P
(P−Pf)S< P M . If S > 1
2, then the forking protocol has
integrity by definition. If Pf< P and (Ia+Ip)P
(P−Pf)S< P M,
then, solving the inequality for Ia+Ip, we see that
Ia+Ip<(P−Pf)SM , and the forking protocol has
integrity.
24In practice, the attacker would receive 1.05SM REP in the child
universe because of the 5% bonus for migrating within 60-days
of the start of a fork. We ignore the 5% bonus here for ease of
discussion. To see a discussion that includes the 5% bonus, see
Appendix C.
B. Our Assumptions and Their Consequences
We believe traders will not want to trade on Augur in a
universe where reporters have lied. We also believe that
market creators will not pay to create Augur markets
in a universe where there are no traders. In a universe
without markets or trading, REP does not provide any
dividends to those holding it. Therefore, we believe REP
sent to a False universe will hold no non-negligible mar-
ket value and we model this by letting Pf= 0.
We think it is reasonable to expect at least 20% of ex-
isting REP to be migrated to the True outcome during
the reporting period of a fork, and we model this by let-
ting S≥1
5. We are also willing to accommodate parasitic
open interest as large as 50% of the native open interest,
and so we let Ia≥2Ip.
Under these assumptions, Theorem 1 tells us that the
forking protocol has integrity whenever the market cap
of REP is at least 7.5 times the native open interest.25
C. Market Cap Nudges
Augur gets information about the price of REP in the
same way it gets any other information about the real
world: through an Augur market. This gives Augur the
ability to compute the current market cap of REP. Augur
can also measure the current native open interest, and
can thus determine what market cap ought to be targeted
in order to meet Augur’s integrity requirements.
If the current market cap is below the target, then re-
porting fees are automatically increased (but will never
increase more than 33% from one fee window to the next),
putting upward pressure on the price of REP and down-
ward pressure on new native open interest. If the current
market cap is above the target, then reporting fees are
automatically decreased so that traders are not paying
more than needed to keep the system secure.
The reporting fees are determined as follows. Let rbe
the reporting fee from the previous window, let tbe the
target market cap, and let cbe the current market cap.
Then the reporting fee for the current fee window is given
by min t
cr, 4
3r.
D. Leveraging the Threat of a Fork
As mentioned above, forks are a disruptive and slow
way for markets to reach finalization. Rather than using
the forking process to resolve every market, Augur lever-
ages the threat of a fork to resolve markets efficiently.
Recall that any stake successfully disputing an out-
come in favor of the market’s final outcome will receive
25See Appendix B for some alternative assumptions and their conse-
quences.

10
a 50% ROI on their dispute stake.26 In the event of a
fork, any REP staked on any of the market’s false out-
comes should lose all economic value, while any REP
staked on the market’s true outcome is rewarded with
50% more REP in the child universe that corresponds
to the market’s true outcome (regardless of the outcome
of the fork). Therefore, if pushed to a fork, REP holders
who dispute false outcomes in favor of true outcomes will
always come out ahead, while REP holders who staked
on false outcomes will see their REP lose all economic
value.
We believe this situation is sufficient to guarantee that
all false tentative outcomes will be successfully disputed.
III. POTENTIAL ISSUES & RISKS
A. Parasitic Markets
Recall that a parasitic market is any market that does
not pay reporting fees to Augur, but does resolve in ac-
cordance with the resolution of a native Augur market.
Because parasitic markets do not have any reporters to
pay, they can offer the same service as Augur with lower
fees. This can have serious consequences for the integrity
of Augur’s forking protocol.
In particular, if parasitic markets attract trading inter-
est away from Augur, then Augur’s reporters will receive
less in reporting fees. This would put downward pressure
on the market cap of REP. If the market cap of REP
falls too low, the integrity of the forking protocol is put
in jeopardy (Theorem 1). As a result, parasitic markets
have the potential to threaten the long term viability of
Augur, and should be vehemently opposed.
Our best defense against parasitic markets is to make
trading on the Augur platform as cheap as possible (while
still maintaining the integrity of the oracle), in order to
minimize the reward for running a parasitic market.
B. Volatility of Open Interest
Large, sudden, and unexpected increases in open in-
terest – like those that may be seen during a popular
sporting event – result in rapid increases in the market
cap requirement for forking protocol integrity (Theorem
1). When the market cap requirement exceeds the mar-
ket cap, there is a risk of economically rational attackers
causing a fork to resolve incorrectly. While Augur does
attempt to nudge the market cap upwards during such
situations (see Section II C), these nudges are reactionary
and are adjusted only once per 7-day fee window.
26Measured in REP that exists in a universe that corresponds to the
market’s final outcome; see Theorem 3 in Appendix A.
It is worth noting, however, that speculators who wit-
ness the sudden increase in open interest may buy REP
in anticipation of the reactionary market cap nudge, thus
driving the market cap of REP up, perhaps to a point
where the integrity of the forking protocol is no longer
threatened. So the length of time during which the ora-
cle is vulnerable may not be long enough for an attacker
to successfully exploit the vulnerability.
C. Inconsistent or Malicious Resolution Sources
During market creation, market creators chose a reso-
lution source that reporters should use to determine the
outcome of the event in question. If the market creator
chooses an inconsistent or malicious resolution source,
honest reporters may lose money.
For example, suppose the market in question has out-
comes Aand B, and the market creator, Serena, has cho-
sen her own website, attacker.com, as the resolution
source. After the market’s event end time, Serena – who
is also the designated reporter for the market – reports
outcome A, and updates attacker.com to indicate that
outcome Bis the correct outcome. Honest reporters who
check attacker.com will see that the initial report is in-
correct and, during the first dispute round, should suc-
cessfully dispute the tentative outcome in favor of out-
come B. Serena would update attacker.com to indicate
that outcome Ais the correct outcome, and the market
would then enter its second dispute round. Again, re-
porters who check attacker.com will see that the tenta-
tive outcome (outcome B) is incorrect, and may success-
fully dispute it. Serena can repeat this behavior until
the market resolves. No matter how the market resolves,
some honest reporters will lose money.
Several variations of this attack exist. Simply ignoring
markets with dubious resolution sources is not sufficient,
for in the event that such a market causes a fork, all
REP holders will have to choose a child universe to which
to migrate their REP. Reporters should remain vigilant
against markets with dubious resolution sources. Such
markets should be publicly identified so reporters can
coordinate to make sure such markets finalize as invalid.
D. Self-Referential Oracle Queries
Markets that trade on the future behavior of Augur’s
oracle may have undesirable effects on the behavior of the
oracle itself [11]. For example, consider a market that
trades on the question, “Will any designated reporter
fail to submit a report during their three-day reporting
period before December 31, 2018?” Bets placed on the No
outcome of this market may act as a perverse incentive
for designated reporters to intentionally fail to report.
If a designated reporter can buy up enough Yes shares
at a low enough price to compensate for the loss of the
no-show bond, they may intentionally fail to report.

11
If the market cap of REP is large enough (Theorem 1)
then these self-referential oracle queries will not threaten
the integrity of the forking protocol. However, they may
negatively affect the performance of Augur by causing
delays in market finalizations. While markets would still
finalize correctly, this sort of behavior is disruptive and
undesirable.
E. Uncertain Fork Participation
We cannot know in advance how much REP will be mi-
grated to the True universe during the forking period of a
fork, thus we cannot know in advance whether the market
cap is large enough for the oracle to have integrity (Theo-
rem 1). Our belief in the integrity of the forking protocol
can be no stronger than our belief in our assumptions
about the lower bound on honest participation during a
forking period. We assume that at least 20% of all REP
will migrate to the True child universe during the forking
period of a fork, but we cannot guarantee this.
Augur forks differ from blockchain forks in one impor-
tant respect: after a blockchain fork, a user who owned
a coin on the parent chain will now own a coin on both
forks. Ignoring replay attacks, blockchain forks pose lit-
tle risk to users. After an Augur fork, however, a user
who owns a REP token in the parent universe can mi-
grate that coin to only one of the child universes. If the
user migrates their token to any universe other than the
consensus universe, their token may lose all value. Thus
migrating REP during the forking period of a fork, before
it is clear which child universe has achieved consensus,
exposes the user to risk. That risk may discourage par-
ticipation during the forking period of contentious forks.
In an effort to compensate for this risk and encour-
age participation during forking periods, all token holders
who migrate their REP within 60 days of the start of a
fork will receive 5% additional REP in the child universe
to which they migrated (see Section I C 9). However, we
cannot know in advance whether this 5% bonus will be
enough to compensate for the risk and incentivize par-
ticipation during a forking period.
F. Ambiguous or Subjective Markets
Only events that have objectively knowable outcomes
are suitable for use in Augur markets. If reporters be-
lieve that a market is not suitable for resolution by the
platform – for example, because it is ambiguous, subjec-
tive, or the outcome is not known by the event end date
– they should report the market as Invalid. If a market
resolves as Invalid, traders are paid out at equal values
for all possible outcomes; for scalar markets, traders are
paid out halfway between the market’s minimum price
and maximum price.
It is possible to imagine markets where some reporters
are certain that the outcome is Aand others are cer-
tain that the outcome is B. For example, in 2006, Trade-
Sports allowed its users to speculate on whether North
Korea would fire a ballistic missile that would land out-
side of its airspace before the end of July 2006. On July
5, 2006, North Korea successfully fired a ballistic missile
that landed outside of its airspace, and the event was
widely reported by the world media and confirmed by
many U.S. government sources. However, the U.S. De-
partment of Defense had not confirmed the event, as
was required by TradeSports’ contract. TradeSports con-
cluded that the contract’s conditions had not been met,
and paid out accordingly.27
This is a case where the spirit of the market – to predict
the missile launch – was clearly satisfied, but the letter
of the market – to predict whether the U.S. Department
of Defense would confirm the launch – was not. Trade-
Sports, being a centralized website, was able to unilater-
ally declare the outcome of the market. If such a situa-
tion arises in an Augur market, REP holders may have
differing opinions about how the market should resolve,
and stake their REP accordingly. In the worst case, this
could result in a fork where REP in more than one child
universe maintains a non-zero market value.
ACKNOWLEDGMENTS
We thank Abraham Othman, Alex Chapman, Serena
Randolph, Tom Haile, George Hotz, Scott Bigelow, and
Peronet Despeignes for their helpful feedback and sug-
gestions.
[1] J. Wolfers and E. Zitzewitz. Prediction markets. Journal
of Economic Perspectives, 18(2):107–126, 2004.
[2] James Surowiecki. The Wisdom of Crowds. Anchor, 2005.
27See https://en.wikipedia.org/wiki/Intrade#Disputes for details.
[3] R. Hanson, R. Oprea, and D. Porter. Information ag-
gregation and manipulation in an experimental mar-
ket. Journal of Economic Behavior & Organization,
60(4):449–459, 2006.
[4] D.M. Pennock, S. Lawrence, C.L. Giles, and F.A. Nielsen.
The real power of artificial markets. Science, 291:987–
988, 2001.

12
[5] C. Manski. Interpreting the predictions of prediction
markets. NBER Working Paper No. 10359, 2004.
[6] J. Wolfers and E. Zitzewitz. Interpreting prediction
market prices as probabilities. NBER Working Paper
No. 10359, 2005.
[7] S. Goel, D.M. Reeves, D.J. Watts, and D.M. Pennock.
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arXiv:1501.01042v1 [cs.CR], 11 2014.

13
Appendix A: Finalization Time & Redistribution
We begin with some notation, definitions, and obser-
vations.
Definition 5. For a given market M, let ΩMbe the
outcome space (or set of outcomes) of M.
Definition 6. For n≥1 and ω∈ΩM, let S(ω, n) denote
the total amount of stake on outcome ωat the begin-
ning of dispute round n. This includes all stake from all
successful dispute bonds in favor of ωover all previous
dispute rounds.
Definition 7. For n≥1 and ω∈ΩM, let S(ω, n) denote
the amount of stake on all outcomes in ΩMexcept for ω
at the beginning of dispute round n:
S(ω, n) = X
γ∈ΩM
γ6=ω
S(γ, n)
Definition 8. For n≥0, let Andenote the total stake
over all outcomes Mat the beginning of dispute round
n:
An=X
ω∈ΩM
S(ω, n)
Observation 3. It follows that An−S(ω, n) = S(ω , n).
Definition 9. For n≥1, let ˆωndenote the tentative out-
come at the beginning of dispute round n. For example,
ˆω1is the outcome reported by the initial reporter.
Definition 10. For n≥1 and ω6= ˆωn, let B(ω, n)
denote the amount of stake required to successfully fill a
dispute bond in favor of outcome ωduring dispute round
n.
Recall that the amount of stake required to successfully
fill a dispute bond in favor of outcome ωduring dispute
round n, where ω6= ˆωnis given by Eq. 1, B(ω, n) =
2An−3S(ω, n).
Observation 4. If a dispute bond is successfully filled in
favor of outcome ωduring dispute round n, then S(ω, n+
1) = B(ω, n) + S(ω, n). That is, the successful dispute
stake is the only new stake applied to outcome ωat the
end of dispute round n.
Observation 5. For all ω6= ˆωn, S(ω , n −1) = S(ω, n).
That is, if a dispute bond is not entirely filled in favor of
outcome ω, then no additional stake is added to outcome
ωat the beginning of the next dispute round. This is due
to the fact that all unsuccessful dispute stake is returned
to the users at the end of the dispute round.
Observation 6. For all n≥2, An=An−1+B(ˆωn, n −
1). That is, the total stake over all outcomes at the
beginning of a dispute round is simply the total stake
from the beginning of the previous dispute round plus
the successful dispute stake from the previous dispute
round. All other stake is returned to users at the end of
the previous dispute round.
Lemma 2. S(ˆωn, n) = 2S(ˆωn, n), for n≥2.
Proof. Suppose a market enters dispute round n, where
n≥2. During dispute round n−1, the outcome ˆωn−1
must have been successfully disputed in favor of outcome
ˆωn. According to Eq. 1, the size of that dispute bond is
B(ˆωn, n −1) = 2An−1−3S(ˆωn, n −1). Using observation
3, this can be rewritten as
B(ˆωn, n −1) + S(ˆωn, n −1) = 2S(ˆωn, n −1) (A1)
We know the dispute bond was successfully filled dur-
ing round n−1. Using observation 4, we see that
B(ˆωn, n −1) + S( ˆωn, n −1) = S(ˆωn, n). Observation 5
tells us that the total amount staked on ˆωnis unchanged
from round n−1 to n, 2S(ˆωn, n −1) = 2S( ˆωn, n). Thus,
Eq. A1 reduces to S(ˆωn, n)=2S(ˆωn, n).
Theorem 3. Any REP holders successfully disputing an
outcome in favor of a market’s final outcome will receive
a 50% ROI on their dispute stake (measured in REP that
exists in a universe that corresponds to the market’s final
outcome), unless the market is interrupted by some other
market causing a fork.
Proof. During a fork, all users who successfully filled dis-
pute bonds in favor of the forking market’s final outcome
are given (via coins minted during the fork) a 50% return
on their dispute stake when they migrate their dispute
stake to the corresponding child universe. Thus, in the
case where the market in question has caused a fork, the
theorem is immediately true.
Now consider the case where the market in question
resolves without causing a fork, and reporting is not in-
terrupted by some other market causing a fork.
Denote the market’s final outcome by ωFinal and sup-
pose the market resolves at the end of reporting round
n, where n≥2. That means the tentative outcome
for round nis ωFinal, and that outcome is not success-
fully disputed during round n. In other words: ˆωn=
ωFinal. Then by Lemma 2 we know that S(ωFinal, n) =
2S(ωFinal, n).
Since the market resolves at the end of round nwith no
further stake added to any outcome, the above equation
shows the final amount of stake on the market’s final
outcome, ωFinal, and the sum of all stake on all of the
market’s other outcomes, ωFinal. Note that there is ex-
actly twice as much stake on the market’s final outcome
as there is on all other outcomes combined.
Augur redistributes all stake on the non-final out-
comes to users who staked on ωFinal, in proportion to
the amount of REP they staked. Therefore the users
who successfully filled a dispute bond in favor of ωFinal
get a 50% ROI on their staked REP.
Next, consider the maximum number of dispute rounds
required to resolve a market. Eq. 1 is minimized when ω
is chosen to be the non-tentative outcome that begins the
dispute round with the greatest amount of stake. Lemma

14
2 implies that the non-tentative outcome with the great-
est amount of stake is the previous dispute round’s ten-
tative outcome. Therefore, the smallest possible dispute
bond size that can be successfully filled during dispute
round n, where n≥2, is B(ˆωn−1, n).
In other words, the dispute bond size grows slowest
when the same two outcomes are repeatedly disputed in
favor of one another. It follows that the number of dis-
pute rounds required for a market to initiate a fork is
maximized when the same two outcomes are repeatedly
disputed in favor of one another. Therefore we can deter-
mine the maximum number of dispute rounds that any
market may undergo before initiating a fork by finding
the maximum number of dispute rounds that can occur
in the particular case where the same two market out-
comes are repeatedly disputed in favor of on another.
We examine that case now.
Suppose that every successful dispute bond is filled in
favor of the previous dispute round’s tentative outcome.
Then the two tentative outcomes that are iteratively dis-
puted in favor of one another other are ˆω1and ˆω2.
Observation 7. In the case where the same two ten-
tative outcomes are repeatedly disputed in favor of one
another, ˆωn= ˆωn−2for all n≥3.
Definition 11. Let ddenote the amount of stake placed
on ˆω1during the initial report. Because the tentative
outcome for each round is known in this situation, we can
simplify our notation for the dispute bond sizes. Define a
shorthand Bnto denote the bond size required for round
n, so that B1= 2dand Bn=B(ˆωn−1, n) for all n≥2.
This will make for easier reading and comprehension.
Observation 8. In the case where the same two ten-
tative outcomes are repeatedly disputed in favor of one
another, S(ˆωn−1, n) = S( ˆωn−1, n −2) + Bn−2for n≥3.
(That is, every other successful dispute bond is added to
the same outcome.)
Lemma 4. If the same two tentative outcomes are re-
peatedly disputed in favor of one another, then for all n
where n≥3:
1. S(ˆωn−1, n) = 2
3Bn−1
2. An= 2Bn−1and
3. Bn= 3d2n−2
Proof. (By induction on n)
Suppose the same two tentative outcomes are repeat-
edly disputed in favor of one another.
(Base Case) By definition and Eq. 1 we make the fol-
lowing observations.
•S(ˆω1,1) = d,S( ˆω2,1) = 0, A1=d, and B1= 2d
•S(ˆω1,2) = d,S( ˆω2,2) = 2d,A2= 3d, and B2= 3d
•S(ˆω1,3) = 4d,S( ˆω2,3) = 2d,A3= 6d, and B3=
6d
S(ˆω3−1,3) = S( ˆω2,3) = 2d=2
3(3d) = 2
3B2=2
3B3−1,
so part 1 of the lemma holds for n= 3.
A3= 6d= 2(3d)=2B2= 2B3−1, so part 2 of the
lemma holds for n= 3.
B3= 6d= 3d23−2, so part 3 of the lemma holds for
n= 3.
Therefore the lemma, in its entirety, holds true for the
base case of n= 3.
(Induction) Suppose the lemma is true for all nsuch
that 3 ≤n≤k. We want to show that the lemma holds
for n=k+ 1. That is, we want to show that:
(a) S(ˆωk, k + 1) = 2
3Bk
(b) Ak+1 = 2Bkand
(c) Bk+1 = 3d2k−1
First, we prove part (a). By observation 8:
S(ˆωk, k + 1) = S( ˆωk, k −1) + Bk−1
By observation 7 we can rewrite the above as:
S(ˆωk−2, k + 1) = S( ˆωk−2, k −1) + Bk−1
By the induction hypothesis, we can rewrite
S(ˆωk−2, k −1) as 2
3Bk−2on the right-hand side to get:
S(ˆωk−2, k + 1) = 2
3Bk−2+Bk−1
By the induction hypothesis, we can write Bk−2as
3d2k−4and Bk−1as 3d2k−3:
S(ˆωk−2, k + 1) = d2k−1
Applying observation 7 to the left-hand side we get:
S(ˆωk, k + 1) = d2k−1
Finally, note that by the above equation and the in-
duction hypothesis, S(ˆωk, k + 1) = d2k−1=2
3(3d2k−2) =
2
3Bk. This proves part (a).
Next, we prove part (b). By observation 6:
Ak+1 =Ak+Bk
By the induction hypothesis, Ak= 2Bk−1:
Ak+1 = 2Bk−1+Bk
By the induction hypothesis, Bk−1= 3d2k−3, so the
right-hand side can be simplified to
Ak+1 = 3d2k−2+Bk
By the induction hypothesis, Bk= 3d2k−2to rewrite
the right-hand side as
Ak+1 = 2Bk,

15
and part (b) is proved.
Finally, we prove part (c). By Eq. 1:
Bk+1 = 2Ak+1 −3S(ˆωk, k + 1)
By observation 8, we can write S(ˆωk, k +1) as S(ˆωk, k −
1) + Bk−1:
Bk+1 = 2Ak+1 −3 (S(ˆωk, k −1) + Bk−1)
By observation 7, ˆωk= ˆωk−2:
Bk+1 = 2Ak+1 −3 (S(ˆωk−2, k −1) + Bk−1)
By observation 6, Ak+1 =Ak+Bk:
Bk+1 = 2 (Ak+Bk)−3 (S(ˆωk−2, k −1) + Bk−1)
By the induction hypothesis, Ak= 2Bk−1and
S(ˆωk−2, k −1) = 2
3Bk−2:
Bk+1 = 2 (2Bk−1+Bk)−32
3Bk−2+Bk−1
By the induction hypothesis, Bk= 3d2k−2,Bk−1=
3d2k−3and Bk−2= 3d2k−4. Making these substitutions
and simplifying yields:
Bk+1 = 3d2k−1
This proves part (c), and concludes the proof of the
lemma.
Theorem 5. If not interrupted by some other market
causing a fork, a given market may undergo at most 20
dispute rounds before finalizing or causing a fork.
Proof. Suppose that a given market is not interrupted by
some other market causing a fork. Then, as shown above,
we know that the number of dispute rounds required for a
market to initiate a fork is maximized when the same two
outcomes are repeatedly disputed in favor of one another.
Part 3 of Theorem 4 tells us that, in this situation, the
dispute bond size required for successfully disputing the
tentative outcome during round nis given by 3d2n−2,
where dis the amount of the stake placed during the
initial report.
We know that forks are initiated after the successful
fulfillment of a dispute bond with size at least 2.5% of
all existing REP, and we know that there are 11 million
REP in existence. Thus a fork is initiated when a dispute
bond of size 275,000 REP is filled. We also know that
d≥0.35 REP.
Solving 3(0.35)2n−2>275,000 for n∈Zyields n≥20.
Thus, we can guarantee that a market will resolve or
cause a fork after at most 20 dispute rounds.
Appendix B: Alternative Assumptions &
Consequences
Recall that:
•Sis the proportion of total REP that is migrated
to the True universe during the forking period
•Pis the price of REP in the True universe
•Pfis the price of REP that has been migrated to
aFalse universe of the attacker’s choosing
•Iais Augur’s native open interest
•Ipis the parasitic open interest
Augur makes certain assumptions about S,Pf, and Ip
in order to arrive at a target market cap. In particular,
Augur assumes that at least 20% of all REP will be mi-
grated to the True universe during the forking period of
a fork, REP migrated to a False universe will have no
non-negligible value, and parasitic open interest will be
at most half of the native open interest. In other words:
S≥0.2, Pf= 0, and Ia≥2Ip. Under these assump-
tions, Theorem 1 tells us that the forking protocol has
integrity whenever the market cap of REP is greater than
7.5 times the native open interest.
You can make your own assumptions about S,Pf, and
Ipto arrive at your own conclusions about how large the
market cap needs to be for the oracle to have integrity in
practice. We list some alternative scenarios here for your
convenience.
Scenario 1. More than 50% of existing REP migrates to
the True universe during the forking period. In this case
Pfand Ipdo not matter at all. Since S > 1
2, the forking
protocol has integrity no matter what the market cap
happens to be. There would not exist enough remaining
REP on the market for an attacker to be successful.
Scenario 2. 48% of existing REP migrates to the True
universe during the forking period, no parasitic markets
exist, and REP sent to a False universe has no value. In
this case S= 0.48, Ip= 0, and Pf= 0. Under these
assumptions, the market cap of REP must be greater
than about twice the native open interest for the forking
protocol to have integrity.
Scenario 3. 20% of existing REP migrates to the True
universe during the forking period, parasitic open interest
is equal to native open interest, and REP migrated to a
False universe trades at 5% of the value of REP migrated
to the True universe. In this case S= 0.2, Ip=Ia, and
Pf= 0.05P. Under these assumptions, the market cap
of REP must be greater than about 10.5 times the native
open interest for the forking protocol to have integrity.
Scenario 4. Only 5% of existing REP migrates to the
True universe during the forking period, parasitic interest
is twice as large as native open interest, and REP sent to
aFalse universe trades at 5% of the value of REP sent
to the True universe. In this case S= 0.05, Ip= 2Ia, and
Pf= 0.05P. Under these assumptions, the market cap
of REP must be greater than about 63 times the native
open interest for the forking protocol to have integrity.

16
Appendix C: The Effect of the Early Migration
Bonus on the Integrity of the Forking Protocol
For ease of discussion, we ignored the 5% early migra-
tion bonus and a small term when discussing the integrity
of the forking protocol. Here we revisit Theorem 1 taking
those two things into consideration.
As before, the amount of REP sent to the True universe
during the reporting period is denoted by SM . Thus for
an attacker to be successful, they must migrate at least
SM +REP, which has a value of (SM +)Pbefore
migration, to some False universe.
If an attacker migrates SM +REP to a False universe
during the reporting period of a fork, they will receive
1.05(SM +) REP on the child universe to which they
migrated. By definition of Pf, the value of those coins
is given by 1.05(SM +)Pf. Thus the minimum cost to
the attacker is (SM +)P−1.05(SM +)Pf, which can
be expressed as (SM +)(P−1.05P f ).
As before, the maximum (gross) benefit to an attacker
is given by Ia+Ip. Thus we would say the forking pro-
tocol has integrity whenever S > 1
2or:
Ia+Ip<(SM +)(P−1.05Pf) (C1)
Solving the above inequality for the market cap, P M ,
we can see that the forking protocol has integrity if and
only if:
1. S > 1
2or
2. 1.05Pf< P and the market cap of REP is greater
than P(Ia+Ip−(P−1.05Pf))
S(P−1.05Pf)
As we can see, the effect of the early migration bonus
on the market cap requirement is very small.
Appendix D: The Effect of the Early Migration
Bonus on the Minimum Cost of a Fork
To encourage greater participation during a fork, all
token holders who migrate their REP within 60 days of
the start of a fork will receive 5% additional REP in the
child universe to which they migrated. This reward is
paid for via currency inflation.
This bonus can become a perverse incentive if the cost
of initiating a fork is too low. In particular, if an attacker
can gain more value from the 5% REP bonus than she
would lose by initiating a fork, then we would expect
forks to happen as often as possible. This attack, which
we refer to as the inflation milking attack, would not
result in the oracle reporting incorrectly, but it would
result in disruptive forks happening often.
To prevent this behavior Augur needs to make sure
that the cost of initiating a fork is greater than the max-
imum value that can be gained from the 5% inflation
bonus. Here, we derive a lower bound on cost of initiat-
ing a fork in order to prevent this perverse incentive.
Let P0denote the price of REP before the fork and P1
denote the price of REP after the fork. Let M0denote the
money supply before the fork and M1denote the money
supply after the fork. Let Sdenote the proportion of
M0migrating to the True universe during the forking
period of the fork. Let bdenote the amount of REP that
must be economically burned (that is, staked on a False
outcome) in order to initiate a fork. We assume b > 1.
For the purposes of this section, we make the conser-
vative assumption that all REP that migrates during the
forking period is controlled by the attacker. We further
assume (because it minimizes the cost of this attack this
attack) that all REP that migrates during the forking
period is migrated to the True universe.
With this notation, SM0is the amount of REP mi-
grated during the forking period, while (1 −S)M0is the
amount of REP not migrated during the forking period.
M0=SM0+ (1 −S)M0(D1)
When a total of SM0REP is migrated during the fork-
ing period, a total of 0.05SM0REP is created via infla-
tion:
M1= 1.05SM0+ (1 −S)M0(D2)
Focusing only on the effects of inflation, and for the
sake of simplicity, we are assuming that the market cap
after the fork will be the same as the market cap before
the fork28:
P0M0=P1M1(D3)
Substituting D1 and D2 into D3 and simplifying gives
us:
P1=20P0
20 + S(D4)
The (gross) benefit to the attacker for initiating a fork
and taking advantage of the early migration bonus is the
value of her migrated REP after migration minus the
value of her migrated REP before migration:
1.05SM0P1−SM0P0(D5)
Substituting D4 into D5 we get an alternative expres-
sion for the (gross) benefit to the attacker:
1.05SM0
20P0
20 + S−SM0P0(D6)
Recall that bis the amount of REP that must be eco-
nomically burned in order to initiate a fork. Thus, the
cost of initiating a fork is bP0. Therefore, paying the cost
of initiating a fork in order to take advantage of the early
28We think this is conservative. In practice, we expect the market
cap to decrease after a fork.

17
migration bonus is worthwhile whenever the following in-
equality is satisfied:
0<1.05SM0
20P0
20 + S−SM0P0−bP0(D7)
Observing that P0>0, and S6=−20, we solve for b
and see that the attack is profitable when:
b < 21M0S
S+ 20 −M0S(D8)
In order to prevent the perverse incentive, Augur must
arrange matters such that:
b > 21M0S
S+ 20 −M0S(D9)
Noting that Sis restricted to the interval [0,1], we see
that the value of the right-hand side of inequality D9
is maximized when S= 2√105 −20 ≈0.4939. That is,
this attack is most profitable for the attacker when about
49.39% of all existing REP is migrated during the forking
period. Being conservative, we use this value for S.29
Substituting S= 0.4939 into D9 we get b <
0.012197M0. Therefore, if the cost to initiate a fork is at
least 1.2197% of existing REP then the inflation milking
attack is unprofitable.
Recall that a fork is initiated only after a successful
dispute bond is filled that is greater than 2.5% of existing
REP. Suppose that such a dispute bond were filled in
favor of outcome ωand a fork were initiated. Outcome
ωis either true or false.
If outcome ωis false, then at least 2.5% of existing REP
was staked on a false outcome, and thus economically
burned. So inflation milking is not profitable when ωis
false.
If outcome ωis true, then Lemma 2 tells us that at
least 1.25% of existing REP (in total) is staked on false
outcomes, and thus economically burned. So inflation
milking is also not profitable when ωis true.
It is for this reason that fork initiation requires suc-
cessfully filling a dispute bond that is at least 2.5% of
existing REP.
Appendix E: Bond Size Adjustments
The validity bond, the no-show REP bond, and the
designated reporter stake are dynamically adjusted based
on the behavior of participants during the previous fee
window. Here we describe how we adjust those values.
29In practice, the attacker cannot prevent other participants from mi-
grating their own REP during the forking period, and thus cannot
guarantee that Swould not exceed her ideal value of about 0.4939.
However, since we are defending against the worst case scenario,
we use S= 0.4939.
We define the function f: [0,1] →[1
2,2] by:30
f(x) = (100
99 x+98
99 for x > 1
100
50x+1
2for x≤1
100
(E1)
The function fis used to determine the multiple used
in these adjustments, as described in the subsections be-
low. In brief, if the undesirable behavior occurred exactly
1% of the time during the previous fee window, then the
bond size remains the same. If it was less frequent, then
the bond size will be reduced by as much as half. If it
was more frequent, then the bond size will be increased
by as much as a factor of 2.
1. Validity Bond
During the very first fee window after launch, the va-
lidity bond will be set at 0.01 ETH. Then, if more than
1% of the finalized markets in the previous fee window
were invalid, the validity bond will be increased. If less
than 1% of the finalized markets in the previous fee win-
dow were invalid, then the validity bond will be decreased
(but will never be lower than 0.01 ETH).
In particular, we let νbe the proportion of finalized
markets in the previous fee window that were invalid,
and bvbe the amount of the validity bond from the pre-
vious fee window. Then the validity bond for the current
window is max 1
10 , bvf(ν).
2. No-Show REP Bond
During the very first fee window after launch, the no-
show REP bond will be set at 0.35 REP. As with the
validity bond, the no-show REP bond is adjusted up or
down, targeting a 1% no-show rate with a floor of 0.35
REP.
Specifically, we let ρbe the proportion of markets
in the previous fee window whose designated reporters
failed to report on time, and we let brbe amount of the
no-show REP bond from the previous fee window. The
the amount of the no-show REP bond for the current fee
window is max {0.35, brf(ρ)}.
3. Designated Reporter Stake
During the very first fee window after launch, the
amount of the designated reporter stake will be set at
0.35 REP. The amount of the designated reporter stake
is dynamically adjusted according to how many desig-
nated reports were incorrect (failed to concur with the
final market outcome) during the previous fee window.
30This formula may change once empirical data from live markets is
obtained.

18
In particular, we let δbe the proportion of designated
reports that were incorrect during the previous fee win-
dow, and we let bdbe the amount of the designated re-
porter stake during the previous fee window, then the
amount of the designated reporter stake for the current
window is max {0.35, bdf(δ)}.
Appendix F: Design Changes
We arrived at the current design of Augur after three
years of research and iteration. The design that emerged
from this process differs substantially from the vision laid
out in our old whitepaper [12]. Here, we discuss three sig-
nificant changes as well as the rationale for the changes.
1. Reporting Fees
In the old design, the market creator would set a trad-
ing fee which would be split 50/50 with reporters. In the
current design, the fees for the market creator and the re-
porters are independent, and the reporters’ fees are tuned
dynamically by Augur itself to keep the system secure.
The fees paid to reporters impact the price of REP,
which has a direct effect on the security of the forking
protocol (Theorem 1). If the fees paid to reporters are too
low, then the integrity of the oracle is at risk. If the fees
paid to reporters are too high, then the threat of parasitic
markets increases. Thus, it is important that the fees
paid to reporters be adjusted dynamically to maintain
Augur’s security, rather than being decided arbitrarily
by market creators.
Decoupling reporters’ fees from the choices of market
creators also ensures that reporters (and thus, forking
protocol integrity) are not harmed by competition among
market creators to create markets with the lowest fees.
Quality markets and quality reporting should be mea-
sured and rewarded separately. Competition should be
allowed to drive market creator fees towards zero, with-
out dragging the fees paid to reporters down as well.
2. Trading Fees
In the old design, fees were collected from traders on
every trade. In the new design, fees are collected from
traders only when settling directly with market contracts.
This change was made, in part, because Augur cannot
police offline trading. Shares of market outcomes are
simply tokens, which can be traded freely between users.
Since collecting fees on every trade is infeasible, Augur
instead collects fees only when traders settle directly with
the Augur market contracts. An added benefit of this ap-
proach is that it reduces the average fees paid by traders,
which should make Augur more competitive.
3. Universes
In the old design, there was only one “version” of REP,
and its total supply was fixed. In the current design, REP
can fork into many different versions (universes), each of
which can end up with more or less total REP than the
original version. If a fork is contentious, the REP supply
in each child universe might be only a fraction of the
total supply in the parent universe. In a non-contentious
fork, the early migration bonus to fork participants could
result in a child universe that has more total REP than
its parent universe.
The new versions of REP spawned by a fork are all dif-
ferent tokens, each with its own price and total supply,
and service providers should treat them as such. When
Augur first launches, there will be a single universe (the
genesis universe) and a single version of REP, just as it
exists now. However, as soon as a fork occurs, the single
version of REP will split into many versions: for example,
a forking market with outcomes Aand Bwould spawn new
tokens REP-A, REP-B, and REP-Invalid. Wallets and
exchanges that support REP would now have four differ-
ent versions of REP which they could (in theory) support
– REP-genesis (the original version of REP, which would
now be locked), REP-A, REP-B, and REP-Invalid.31
The total supply of REP in each child universe depends
on how much REP migrated to it, and when that migra-
tion occurred. Migrating REP during a fork, before it
is clear which child universe has achieved consensus, ex-
poses the user to a small (but non-zero) amount of risk
(see Section III E), which may discourage participation
during the forking period of contentious forks. In order
to encourage participation during a fork, users must be
compensated for the risk.
Users who do not participate during the forking period
of a fork could be penalized by losing some portion of
their REP holdings. In fact, the old design had a “use it
or lose it” mechanism that penalized non-participants as
if they were reporters who reported incorrectly. However,
punishing users who do not participate creates significant
usability problems. Punishing users who do not partic-
ipate is problematic for wallets and exchanges who are
the custodians of their customers’ REP. In the event of a
fork, exchanges would need to migrate their customer’s
REP to some child universe during the forking period, or
lose some portion of their REP holdings.32
Instead of penalizing non-participants, fork partici-
pants who migrate during the forking period are re-
31As a practical matter, service providers may find it easiest (and
least disruptive to their users) to encourage their users to partici-
pate in the fork, and then to simply support the winning universe
once the fork has resolved.
32We also found, as a practical matter, that the smart contract code
needed to implement forking rewards only using redistribution was
inordinately complex. Contract code complexity is itself a secu-
rity risk, so we have tried to simplify the implementation wherever
possible.

19
warded by minting a 5% bonus in the child universe to
which they are migrating. If 4.762% of REP (or more)
migrates to a losing universe – of which 1.25% to 2.5%
has already been committed as dispute stake – then all
universes will have a smaller total supply of REP than
the parent universe.