Augur, a prediction marketplace lauded as one of Ethereum’s most promising dapps, is “being gamed,” but not quite in the way people think.
Yesterday, a Reddit post titled, “Augur is being gamed!” laid out a scam in which individuals create prediction markets with “very subtle mistakes in the description (like non-native English language).” The scammers then bet on outcomes that won’t win before the market is declared invalid. When a market is declared invalid on Augur, all of the staked funds get distributed equally across bettors. This means the scammer gets a payout that they wouldn’t have gotten if the bet was deemed valid, since they bet purposefully on the losing outcome(s). Some people, like prominent blockchain skeptic David Gerard, were unsurprised that “statements in words” used on the predictions platform “may have exploitable ambiguities.”
We reached out to core developer Joey Krug, who is also a co-chief investment officer at Pantera Capital and cofounder of Beam, to better understand how scammers are taking advantage of Augur’s platform. Krug said that while there is a flaw in the system, it’s actually exploited in a different way than the Reddit post suggests. The issue isn’t so much about the words in the descriptions of Augur’s prediction markets, but rather the numbers—specifically, the expiration dates on the markets and whether there’s a specific date mentioned in their titles.
“In Augur’s history, off the top of my head, 95 percent of [these misleading markets] have been because of an expiration date issue,” says Krug. Let’s take the most recent offending market, “Ethereum price at the end of March 2019?” The title specifies the “end of March 2019,” and additional details say the market expires “at end of day March 31, 2019 UTC.” However, if you look at the listed expiration date of the market, it specifies 1:59 p.m. UTC on March 31, which is not quite the end of the day. The fact that the market specifies one end date in the title/description and a (slightly) different one in the expiration date renders it invalid, allowing the poll’s creator to purposefully bet on the losing outcome and get paid out regardless.
Krug also says this isn’t a widespread problem on Augur. A single known repeat offender, who Krug says goes by “Poyo-Poyo” on Augur’s Discord channel and Reddit, is behind the latest offending market about Ethereum’s end of March price. The same address is also behind misleading polls like, “Will the price of Ethereum exceed $500 at the end of September 2018?” (The market closed on September 3.)
Poyo-Poyo apparently “claims” to have created these markets, initially promoting them before outing them. “If you look at Reddit, the post yesterday was initially brought up because Poyo-Poyo created a post in the Augur subreddit asking about this market,” says Krug. In the post, Poyo-Poyo links to the market he allegedly created and writes, “It is clearly invalid, so why are there still offers up?”
“It seems this person’s M.O. is to create a bunch of confusing markets, try to create traction in one or two of them, and then bring up after the fact that the market is confusing,” says Krug. In the meantime, the market’s creator tries to get people involved in the market, presumably so after they bet against the likely outcomes, there will be staked funds for them to receive when the market is deemed invalid.
Currently, Augur is powerless to stop such scammers because of a bug. When you create a market on Augur, you have to stake it with some ETH. If the market is ultimately deemed invalid, you lose the ETH you stake. “This [ETH] bond is supposed to increase when a market is reported as invalid,” says Krug, “but it doesn’t increase fast enough. There’s a bug so that’s not happening.” In order fix this, Augur needs to create a new version of its contract, but the next on-chain contract release, says Krug, isn’t slated to happen until this summer.
Another way to avoid this scam is to let people bet on whether a market is invalid. If the creator of a purposefully invalid market bets on its invalidity, the system can theoretically easily and automatically detect it, and those markets can get filtered out. That update is also slated for version two of Augur, coming out this summer.
In the meantime, the best Augur can do is set up a series of warnings for users that appear before they even enter the Augur app. The warnings would lay out the hallmarks of a scam, showing users how to spot them and encouraging users to avoid those markets.