The Buy/Sell experience is confusing. If a market is binary and its outcomes are Yes and No, Augur’s infrastructure is designed to actually have only one outcome (Yes), in which the trader can take a long (Buy) or short (Sell) position.

Selling is specially counter-intuitive. When you sell an outcome, you’re sort of saying “I want to make money if the outcome is false even if I think there’s a x% chance that it will happen”, x being the limit price you provide the order. The cost is then calculated as (1-x)*y, y being the number of shares you’d like to buy, and the UI provides you with a calculated final cost for the order which usually leaves the less skilled traders wondering what amount they should increase or decrease in order to fit the cost to their budget.

Free choice in number of shares and limit price damages the UX. In order to place an order in the previous example market, you can either Buy or Sell the Yes outcome. When you Buy, you must provide:

Your desired price for the chosen outcome (a 0.5 represents your opinion that the outcome is 50% likely to happen)

The number of shares you’re willing to buy (1 share = 1 eth)

and make the payment. When you Sell, you fill the same two fields but the calculation explained before happens in order to give you an estimated cost.

As most people don’t buy a round number of shares and the market graphs provided are not so easy to figure out, it’s hard to be precise with your order. This produces wasted time trying to figure out the price and number of shares you want to place to fit your budget, and even once placed, we have seen that 51% of orders are not fulfilled.

As we understand it, this is sort of a Paradox of Choice scenario where many users with less skilled trading profiles would probably be more comfortable actually having less choices to make, less decisions to consider, and a simpler experience where liquidity for orders is easier to achieve.

3.2. Curation

The vast majority of markets in Augur are not liquid. The probability that an order placed on a market gets filled can be somewhat estimated looking at two factors: the spread and the order book depth. Predictions.global, a site that helps organize and sort Augur markets, estimates that less than 100 markets are currently liquid. This is a low percentage of total markets, and we believe it’s an optimistic figure. Thus, placing an order on most of the markets one encounters when searching through the Augur app is useless; a big number of them don’t convert into a position.

Creators can be imprecise when defining a market. If anyone can create markets, anyone can make mistakes (or troll) too. Creator fees can be unfair (e.g. 50%), or market specifications such as ending date or even the wording of the market can be wrong. For example, this market on whether the price of ETH would be over $500 at the end of September had its expiration date on September 4th, way before the end of the month. It gathered thousands of dollars in orders. Even the popular US Midterm Elections market is foreseeing disputes about its correct outcome, as the wording for it was “Which party will control the House after 2018 U.S. Midterm Election?” and the newly elected party doesn’t “control the House” exactly after the election, but weeks later. Since markets can be reported as “Invalid” by the Oracle, this causes some trouble for traders that might have invested in a market, be right and expect profits only to get their initial money back (minus fees) if a market is ruled as invalid.

Market categories are very chaotic. As creators can provide any tag to their markets, there is currently a long list of topics where duplicates are common (Crypto/Cryptocurrency, Sports/Sport), something that makes the sorting of markets in the user-facing client quite a mess.

3.3. Others

Prediction market growth will entail some legal issues. The Forecast Foundation is an open source software development group. It is developing an implementation of a software that lets anyone create and participate in prediction markets in a fully permission-less way. Regulation on crypto and smart contracts is still very young, with bodies such as the SEC or the CFTC just starting to provide guidance in these matters. That said, complying with regulations of one sort or another will probably be a task for the clients building on top of Augur, not for the underlying protocol. We’ll see how all this plays out as the industry matures.

Augur’s underlying protocol, Ethereum, is still experimental technology. Most things in Ethereum are still to be done: the shift towards proof of stake, sharding and scalability issues, state channels… Many things can go wrong and projects built on it will have to deal with upcoming issues. The nature of the smart contract platform also presents some specific risks, like parasitic contracts, which are yet to be solved in Augur. Circle Research has also pointed out to an accumulation of fees due to the cryptocurrency landscape when one wants to try Augur:

“Although the fees market creators and reporters collect are low (1–2%), there are layers of fees users must pay to use the platforms and these fees add up. In Augur, from lowest to highest, these include reporting fees (0.01%), market creator fees (1–2%), Ethereum gas fees (depends on the size of order), and fees for converting fiat to ETH (4% on Coinbase if using debit/1.5% if using ACH). Thus, total fees for trading on Augur range from 3.5% to 9% or more.”

Augur’s oracle works, but competition is heating up. Augur’s oracle is a network of humans reporting on the state of affairs which has been working OK up to date. The first report can happen in less than 3 days, but disputes can go on for up to 60 days. These delays raise the question on whether unmanned data oracles like Witnet might make sense for certain prediction markets that can benefit form instant resolution. Or a general-purpose dispute resolution network like Kleros. Another question that has been debated in the community is whether it makes sense for REP holders to only act as oracles for Augur prediction markets or if it would be positive to open the network to other dispute resolution use cases where token holders could be able to provide value and earn further profits (this would imply relevant upgrades to the code and incentive mechanism).