Augur's Troubled Token Launch Highlights 'Appcoin' Pitfalls

The crypto markets didn't respond well to the launch of Augur's digital asset.

The ethereum-based prediction market came out of the gates strong last week, with its REP$1.0376 tokens quickly getting listed on markets like Poloniex, Bittrex and Kraken. However, the market value of those tokens fell sharply in post-launch trading.

Since then, some market observers have moved to voice their concerns about the blockchain token's long-term viability, and the viability of 'appcoins' in general.

Intended to act as an incentive for prediction market users who provide reliable reports on the Augur platform about real-world events, Augur raised roughly $5.3m in a sale of its REP tokens last year. The platform launched its public beta in March, but until last week, they weren't able to be freely bought or sold.

The public release is a notable test of the appcoin model, in which tokens are issued via a blockchain to both spur adoption and provide a mechanism for supporting a project. While advocates say the model represents a new way for startups to raise cash and build momentum, critics have argued that an appcoin is little more than 'snake oil' with a new name.

As for how traders see it, the answer is less clear, though Augur provides a valuable data point.

The price of REP took a sharp hit soon after launch, falling 52% from an opening price of $13 on 4th October to a low of $6 on 6th October. REP prices are currently reported at an average of roughly $6.50, Poloniex data show.

Amid these sharp declines, Whaleclub’s Petar Zivkovski expressed his concerns that the REP launch was largely beneficial for those who bought in early.

He told CoinDesk:

“[REP] has rewarded accumulators, its founding team, the early buyers, much more than it is likely to reward anyone buying now."

Early moves

The digital currency quickly broke into the top 10 cryptocurrencies by market capitalization, and was the eighth-largest currency at press time, according to data provider CoinMarketCap.

While REP commanded a market capitalization of $71m at the time, this figure represented a steep decline from the all-time high of $119.7m on 5th October.

Most of the currency’s early trading took place on Poloniex, and Zivkovski noted that the majority of the initial REP/BTC volume going through this exchange was sell volume. His take was that the initial stage of trading was driven by "early accumulators...looking to liquidate their REP in favor of [bitcoin]."

Arthur Hayes of BitMEX argued that, despite the decline, the release was largely a success because its price remains above what early adopters paid last fall.

"I would say that it isn't a setback at all," he told CoinDesk. "The token still trades well above its ICO price."

Looking ahead

What happens from here on out to the REP token depends largely on two factors: adoption and regulatory scrutiny.

Some argue that Augur could potentially enter rough regulatory waters like the ones that doomed Intrade, a prediction market that closed in early 2013 amid pressure from the US government.

"Any prediction market that takes off is likely to attract unwelcome and possibly fatal regulatory attention for sports betting," said Jacob Eliosoff, who runs Calibrated Markets LLC, a cryptocurrency investment firm.

He went on to argue that, even if the platform manages to steer clear of such regulatory risks due to its decentralized management, Augur's decision to forego ether – the cryptocurrency of the ethereum network – and to launch its own appcoin could potentially undermine its ability to keep users for the long-term.

"To me that's the name of the game," he told CoinDesk.

At least one analyst in the market had an alternative perspective on the launch, suggesting that REP wouldn't be the last ethereum-based appcoin to see a similar launch.

"REP is the first major ethereum subtoken to gain traction on exchanges,” noted Olaf Carlson-Wee, founder of digital asset hedge fund Polychain Capital, adding:

"It won't be the last."

Banana on road image via Shutterstock

Correction: This article has been amended to properly attribute comment to Jacob Eliosoff.