'Augur Scam' Sparks Centralized Vs. Decentralized Debate on Reddit

According to a Reddit thread on March 19, traders on Augur, a decentralized oracle and peer-to-peer protocol for prediction markets, are being scammed.

The Reddit user claims that "Some people" in the Augur community are exploiting a design element of the Augur protocol by purposefully creating invalid markets through ambiguous wording.

How do prediction markets work?Prediction markets are essentially groups of people speculating on the outcome of a future event.

As a result, market analyzers will quite often look at how a prediction market is progressing to form an opinion as to that specific market outcome.

What's the difference with a decentralized prediction market?Apart from trading being supposedly cheaper, the biggest difference in a decentralized prediction market, like Augur, is that outcomes are determined by the combination of an oracle and a decentralized reporter.

In traditional markets, the results would be determined by an impartial, yet centralized judge - which, ironically, Augur states in its white paper, would "Require traders to trust the market operator to not steal funds and to resolve markets correctly."

What is "The scam"?Augur, which raised $5 million in its 2015 initial coin offering and which Ethereum co-founder Vitalik Buterin called the "Uber for knowledge" has a mechanism called a validity bond - supposedly to incentivize market creators to initiate markets based on well-defined events with objective, unambiguous outcomes.

The market creator posts the validity bond and only gets their stake refunded if the outcome of the market is anything other than invalid.

"Right now the bond for a market being invalid doesn't increase as much as it should due to some bug. So the more invalid markets there are the market validity bond isn't increasing as much as it should."

Scammers purposefully create markets that they know will result in an invalid outcome, but structure the wording carefully so that it won't be picked up by the majority of traders who enter the market.