What is Augur? (REP)
Augur is software that aims to create an incentive for a global computer network to maintain a predictive market platform on Ethereum (ETH).
A prediction market is no different from a stock exchange, except that instead of betting on trading assets, users bet on the outcome of events. With Augur, users can create and trade “shares” that represent a portion of the value of the results, without having to trust a company that makes or monitors these markets.
The software itself maintains an order book for each market created, and there is no limit on tradable events, meaning that markets can be created to predict the outcome of events ranging from results of elections to the weather.
As in any betting system, users are rewarded if they correctly predict an outcome. If they do not do so, they lose the capital offered. The idea is that market participants gain value by helping external observers use crowdsourced knowledge to collect aggregate data points.
If users predict the results correctly, they are rewarded with REP, the cryptoasset that powers the Augur network.
REP itself can be used to create a prediction market, challenge an outcome of a known outcome, or purchase stake tokens. Users can also obtain REP by purchasing them on stock exchanges, reporting a weather outcome, or taking the right side in an argument over the outcomes.
However, traders do not even need to own or use REPs to bet on the platform. Rather, its main purpose is to allow users to participate in the event reporting process.
Who created Augur?
Augur is developed by the Prognose Foundation, which was founded in 2014 by developer Jack Peterson and computer scientist Joey Krug, among others.
In 2015, Augur was one of the first cryptocurrency projects to raise funds through an Initial Coin Offering (ICO), during which the Forecast Foundation sold 8.8 million REP Coins, enabling to raise $5.5 million.
The platform finally went live in 2018, and in the first month after its launch, US$1.53 million was wagered by users on over 800 outcome bets.
How does Augur work?
Augur runs on the Ethereum blockchain, meaning purchasing shares on its prediction markets is done with ETH, Ethereum's native asset. Traders who want to use a less volatile asset can also bet on the markets with DAI, a stablecoin that runs on Ethereum.
The platform uses Ethereum smart contracts to execute all final betting results and ensure that the correct results are declared and winners are paid.
To facilitate the user experience for betting on event outcomes, Augur divides its execution process into four distinct stages:
- Market Creation – Anyone can create a betting market based on real events. Creators set the resolution source (where the outcome is determined) and a creation fee (a percentage of a trader's earnings) that they take after the market has calmed down.
- Market trading – users buy shares of the outcome of an event, the price of which varies depending on the amount of bets placed.
- Reporting – The results of each event are determined by the Augure Oracle, which brings real information into the blockchain. Reporters report on the market and the consensus outcome of all reporters is considered the “truth.” Those whose report was not part of the consensus lose their delineated REP, which is then distributed to those who reported with the consensus.
- Settlement – Traders close positions and collect payments
Why is REP valuable?
Augur's REP cryptocurrency derives its value from its ability to ensure the proper execution of smart contracts that rely on the Augur network.
Importantly, REP is integrated into the network itself and is the only currency that can be used to report event results.
To report event results and earn a share of the platform fees collected during the trading event, Augur nodes (“reporters”) must integrate REP into a special contract.
The consensus decision of all nodes is considered the “truth” by the Augur oracle. If a node announces a result different from the consensus, its bounded REP is confiscated by the network and redistributed to honest nodes.
Augur is not the only cryptocurrency project attempting to disrupt the prediction market, however, meaning it could face user competition that would put pressure on the price of the coins.
Augur's main competitors are other decentralized market platforms for predictions, mainly including Gnosis, with different technical capabilities.
Why use REP?
Prediction markets like Augur offer unique insight into overall sentiment.
Therefore, investors may wish to add REP to their portfolio if they believe that the forecasting market will become an essential tool in the capital and data science markets.
Likewise, Augur complements the cryptocurrency market by allowing users to trade the potential outcomes of events. These can range from predicting the price of a particular asset to betting on the outcome of elections.
Users who believe in the long-term value of driving change with predictive markets may also want to support the platform and its broader mission.