Value of REP via /r/reptrader

These are some of my thoughts about the value of the REP token, any views are welcome.

If you want to bet on a prediction, you want to bet a certain value. If ether price changes by a factor of 2 after a while, the total bettings should also change by a factor of 2 (all other things equal). That way, the price of ether should have a small effect on REP. Because of that, I think a doubling of the price of ether wouldn't match a doubling of the value of REP. However, expected Augur prediction volume should of course have a high effect on the value of REP.

As owning REP doesn't pay you a passive rate of interest, I think an effective profit of 5-10% is required. Less income, and there may be too much work for the money. There will be approx 11 million tokens. Suppose the current price is 1 ether, then the total REP token market cap would be 11112=132 million US$. If we want 5% profit and the reward is 1%, that means the total Augur markets should be 132*0.05/0.01=0.66 billion US$ per year. That is quite a lot of money. Remember, however, that the same person can bet many times using the same money every year.

The total Augur betting market will be much lower the first year. To reach this kind of volume, it has to achieve major success, and be generally accepted far outside of the current Ethereum circles. It would certainly rank as a "killer app" for Ethereum in that case.

There are other risks. For example, there may be competing solutions (e.g. Gnosis).

The penalty as a REP owner of not doing your job is that you will lose a percentage of your REP. I expect a lot of lazy participants, so I think this effect will be significant for a couple of years. Looking at theDAO, there seems to be many people that forgot they have DAO tokens, or lost their keys. There are still more than 3 million ETC waiting to be claimed from the white hat attack, and 1.5 million ether in the DAO withdraw account! The effect of lazy participants will add a passive income effect to the active participants, and I think it is going to be non negligible.

Owners of small amounts of REP are at a disadvantage. They will have to do just as much work as big owners. In the long run, it is simply not going to be worth it. I expect them to sell their shares eventually. But if they are not in the Lazy Group, they may stick around for a while and see how it goes.