[dwohnitmok]

Swapping exposure is only productive if you have many guardrails outside of the system that absolutely constrain what actions players inside the system are allowed to do. Otherwise, and this has been borne out it in reality, you end up with very distorted incentives.

This is covered today by what we call fraud (whether that be insurance fraud or market manipulation fraud), which tries to set bounds on what acceptable behavior is so that you can try to eliminate pathological edge cases. I don't see how this would be handled if everything at a top-level is handled through prediction markets.

[cinquemb]

More important than guard rails (which makes a value judgement on what actions are "allowed") is a way to determine how to settle the thing that bets are being made on ("did these actions that have stakes on them, actually happen"), auger[0] does this by:

"Once a Market’s underlying event occurs, the Outcome must be determined in order for the Market to Finalize and begin Settlement. Outcomes are determined by Augur’s Decentralized Oracle, which consists of profit-motivated Reporters, who simply report the actual, real-world Outcome of the event. Anyone who owns REP may participate in the Reporting and Disputing of Outcomes. Reporters whose Reports are consistent with consensus are financially rewarded, while those whose Reports are not consistent with consensus are financially penalized."

Where the market here can take these states/phases:

    > Pre-Reporting

    > Designated Reporting
    
    > Open Reporting
    
    > Waiting for the Next Fee Window to Begin
    
    > Dispute Round
    
    > Fork
    
    > Finalized

[0] https://v1-docs.augur.net/