Augur [REP]: Prediction market opens up about defeating its largest attack

[Magician]

Augur, one of the leading prediction markets in the cryptocurrency space, has often been on the list of the most popular dApps on Ethereum. Notably, even well-known influencers such as Vitalik Buterin, creator of Ethereum, Arianna Simpson, Founder and Managing Director of Autonomous Partners, and Benjamin Roberts, CEO of Ether Capital Corp, have spoken highly of the project.

Nevertheless, the project launched in 2018 was in the limelight earlier this year because of a flaw that was reportedly being exploited. Now, the developer team behind the project has released an official blog titled, ‘Defeating Augur’s Largest Attack,’ detailing the exploit and the fix for it.

The blog post stated,

“[….] [Augur V1] has faced one pressing attack vector: invalid market scams. Bad actors, or at least one prominent trader, have gamed the system to deliberately create and profit off of invalid markets at the expense of other traders. This attack vector was known before V1, but due to a technical issue, it was successfully exploited by scammers.”

The post then expanded on the attack in the prediction market. The post stated that in the Yes/No market of Augur, a user had the option of either buying into the Yes side of the prediction market or the No side of the prediction market.

Usually, when the event the market is betting on occurs, then the individuals who chose Yes would end up with one Ether, and the people who placed their bet against the event from occurring by choosing No would end up with no payout. But, if the event the market is betting on does not occur, then the people who chose No would end up with 0.50 Ether, and the ones that bet on its occurrence would end up with nothing.

Interestingly, if the event the market bets on turns out to be “ambiguous or unverifiable,” then it would be considered an “Invalid” market, thereby resulting in both sides of the bets being paid 0.50 Ether. The blog stated that “Invalid scam involves creating markets that appear valid on the first glance, but are actually Invalid.” This includes closing the market before the outcome is revealed. Notably, this attack could be applied to other markets as well, such as categorical markets and scalar markets.

The team stated,

“The market creator (or other traders) then place orders for cheap YES and/or NO shares for under .50 Ether a pop. Traders who do not realize the market is Invalid or do not understand how Invalid markets work then buy these shares, and the scammers net a profit when the market resolves.”

In order to counter this issue, the team released a new version of Augur App, which includes three main updates, new market sort and incentivization of liquid and valid contracts, invalid filter, tradable invalid, and invalidity bond. The post added,

“We expect that these improvements will not just solve this issue for good but also make Augur a more reliable and robust protocol in general”

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