What is Augur?
Augur is a decentralized prediction market platform
What problem is it trying to solve?
Augur is trying to fix the status quo of prediction markets. Investopedia defines a prediction market as a collection of people speculating on a variety of events – exchange averages, election results, commodity prices, quarterly sales, or any outcome in the future. Think about somebody trying to predict an outcome of an election. There is a 0-100% chance that a candidate will win and the contract could be worth $100. With a prediction market, somebody could buy shares of the likelihood of an outcome. For example, if the market thought a candidate had a 50% chance of winning, somebody could buy those shares for $50. If that prediction ends up being correct, that person could sell their shares for 100% of the contract, or $100.
In the status quo, prediction markets are centralized, which potentially impairs the market. The Augur whitepaper points out a couple risks and limitations with centralized prediction markets 1) They may not allow global participation. 2) They limit what types of predictions can be created or traded. 3) They require traders to trust the market operator to steal funds and to resolve predictions correctly.
What is Augur’s solution?
Augur solves the risks and limitations of current prediction markets by creating a decentralized and trustless market. Specifically, they use automated contracts that are not vulnerable to human interference. The Augur whitepaper explains how the developers do not have the ability to spend funds that are held within their contracts, do not control how markets (predictions) resolve, do not approve or reject trades or other transactions in the network, cannot undo trades, and cannot modify or cancel orders. With Augur’s decentralized oracle, information can be migrated from the real world to a blockchain without relying on a trusted third party.
How does it work?
Augur’s market has four stages – Creation, Trading, Reporting, and Settlement. BlockWolf will summarize Augur’s whitepaper that explains the four stages. Some of the summary is directly from the whitepaper. If you are interested in Augur, we encourage you to visit its whitepaper.
Anybody can create a market about the outcome of any upcoming event. The market creator sets an event and time as well as a designated reporter to report the outcome of the event. The creator also selects a resolution source to determine the outcome of the solution. An example of a resolution source could be ESPN.com if somebody wanted to predict the outcome of a sports game. The creator also sets a creator fee, which is the fee paid to the market creator by traders who settle with the market contract.
Users can forecast outcomes by trading shares that represent likelihoods of those outcomes. For example, two people can buy shares in two different outcomes in an event. Augur’s whitepaper uses an example where Alice pays 0.7 ETH for a share of an outcome and Bob pays 0.3 ETH for a share of an outcome. Augur matches them together and placer their total 1 ETH in escrow through an automated contract and then allows their individual represented shares to be traded. Anybody can participate in trading.
Once an event occurs, its outcome is determined and is used to settle the trading contracts. Outcomes are determined by reporters who state the outcome of the event using the specified resolution source. Anybody who owns the Augur token (REP) may participate in reporting. Honest reporters are rewarded with REP, while dishonest reporters are financially penalized.
A trader can close their position by selling their shares of an outcome to somebody else at a market price or by settling their shares with the market after an outcome. For an example for the latter event, if Alice bought 0.7 shares of an outcome that ended up occurring, the escrow contract would automatically send her all of the funds in the contract (1 Eth).
Are there fees?
Yes, but they will be competitively priced within the platform, which means that they should be presumably cheaper than centralized alternatives. There is a creator fee to reward the market creator and a reporter fee to ensure honest reporting.
Why is the REP token valuable?
REP tokens are needed to create markets and they are also needed by reporters to report the outcome of an event.
When will Augur be live?
Augur excites us because it could provide a good example of how a cryptocurrency can be an integral part of a valuable platform. Without a decentralized cryptocurrency, there would be a form of censorship within the Augur platform, which would make it share the risks and limitations that current prediction markets have. It looks like Augur’s development is almost complete. Hopefully it will provide a unique, innovative, and working use case for a cryptocurrency, which is rare in the current cryptocurrency marketplace.