Augur is an enchanting blockchain project, and even though it somewhat lies on the older end of the blockchain spectrum, it warrants a review particularly owing to its distinct implementation of blockchain technology.
Elementally, Augur is a blockchain-based application devised to provide users with a decentralized market for making predictions on the outcomes of events. Being an ERC-20 token, REP uses the Ethereum network to harness the “Wisdom of the Crowd” and predict on real-world events.
It’s worth noting that this “crowdfunding” of predictive ability has as a matter of fact generated a variety of results that are more accurate as compared to those of top experts in the niches being predicted. Prediction is nothing new. Actually, whilst in most circles it would be termed as gambling, in others it’d go under the guise of “analysis.”
Be that as it may, Augur goes a notch higher than this and through the implementation of blockchain technology, it aims at providing predictive communities with more accessibility, reduced fees, and greater accuracy.
What is a Prediction Market?
Before jumping into the nitty-gritty details regarding the Augur project, let us first get a better grasp of what a prediction market really is. Just as it sounds, a prediction market is an exchange-traded market used in the prediction of future events.
The Augur market enables participants to purchase or sell shares based on the outcomes of future occurrences. Significantly, the pricing is determined by the crowdsourced possibility of the event materializing.
Reportedly, prediction markets are somewhat more reliable as compared to organizations/institutions who hire pundits. Predictive markets have been existent in the financial markets space for quite some time now. In this regard, for instance, there are records of predictive markets for political betting extending back to early 1500s. These markets utilize what is termed as the “Wisdom of the Crowd” to come up with generally precise approximations of the outcomes of events. The underlying premise owes to the fact that with an ample sample size, results have the tendency of being just as precise or more so as compared to the results you’d get from an individual pundit, or even a small group of pundits.
This is the concept used by the Augur team of experts to come up with accurate predictions regarding the outcomes of future events.
The Market for Prediction Markets
Even though it seemingly sounds as if prediction markets are merely an alternative form of gambling, or a ploy, they are actually deemed rather valuable if appropriately implemented.
The “Wisdom of the Crowd” is able to generate exceptionally accurate predictions. This, as a result, will significantly improve efficiency in the operations of markets. Both Google and the Ford Motor Company have been leveraging prediction markets internally for more than a decade now. Nonetheless, the process of getting the data to the decision-making process has been rather slow.
Whilst these internal markets were majorly used to appraise the efficiency of in-house processes, prediction markets can as well be implemented in the niche of financial markets. There is a concord that predictive market modelling could be utilized in hedging investments on the basis of such corporate behaviors as acquisitions, management changes, earnings’ reports, and changes in dividends or stock buyback programs.
An interesting use case of prediction markets is as a form of insurance in third-world countries, where citizens have no other means of hedging against climatic, political, or even political risks. Leveraging a prediction market, such individuals could effectively buy insurance against such disasters as currency devaluation, flooding, civil strife, or drought, just to mention but a few, by buying a prediction contract that pays out in the event these disastrous events turn out.
How Does Augur Work?
Augur is a blockchain-based prediction market that pays users for correctly predicting about real-world events. What’s more, those who create markets on the Augur platform, as well as REP token holders who give reports of events are also recompensed.
Forecasts in the market are done by trading shares in the outcomes of real-world occurrences. Consequently, those who buy shares in the accurate outcome profit. The amount of the profits one is able to make are determined by the chances of an event turning out, as dictated by the crowd. Every share is worth 1 ETH. In the event there are even odds of an event occurring, the user pays 0.50 ETH per share. If, on the other hand, the event does not turn out, the user is paid 1.0 ETH.
Notably, share prices are bound to change over time. What this basically implies is that the price rises as more people purchase shares and falls as people sell their shares. It is as such possible to purchase and hold shares while their prices are low and later sell them when their prices increase.
The Augur platform is at the moment in beta and can be tested out using virtual currencies.
How is an Augur Market Created?
Anybody can create an Augur market for whichever event in the physical world. The platform, however, charges users a small fee in Ether to create a market for any event. Noteworthy, a market creator is at liberty to stipulate their own fee. This fee is drawn from the total pool raised upon the market’s closure. Creator fees have to be in the range of 0-50% and even though it can be reduced upon the market’s creation, it can’t be raised. This fee comes directly from the trader rewards. As such, creators are advised to keep their fees as low as possible, yet amply high to cover the costs they incurred while creating the market.
The latter incentivizes users to actually purchase shares in the outcome of their market. Setting high fees as a market creator dissuades traders from partaking since it limits their prospective gains.
Augur Trading Events
Other than being able to create their own markets, users are as well in a position to trade (buy/sell) shares created by others on the markets. These shares depict the odds that an event will turn out before the market closes. As an example, we will consider such a case as: “Will the S&P 500 close above 2,600 this week?”
You have been following the equity markets keenly, and on the basis of your present fundamental and technical evaluation, you are somewhat confident that the S&P 500 will close above the 2600 level at the end of the week. As such, you place a bid to purchase 20 shares at 0.7 ETH for every share. Given that the at the close of the market shares are worth 1.0 ETH, their price can lie anywhere between the range of 0 to 1 ETH. This is contingent upon the likelihood of the crowd believing the outcome is. With a 0.7 ETH price for you shares, the crowd’s majority is in agreement with you since the higher the price, the higher the chances of the outcome on the basis of trades in the Augur system.
On the assumption that your prediction is accurate, upon the close of the market, you stand to gain a 0.3 ETH per share profit or an aggregate of 6.0 ETH. If on the other your prediction was not correct, you stand lose either the entirety of your investment, or a total of 14 ETH.
Traders on the Augur platform are able to profit in the following 2 ways:
- By holding their shares up till the market’s closure and with accurate predictions, they make profits.
- By purchasing shares while the cost is low and sell them as the prices increase. Certain events and sentiments in the physical world are bound to change the prices of the market over time. This as a result makes it possible to gain profits basically on the basis of the changes in the value of the shares, even prior to the market closing.
Take notice that by winning a trade you are obliged to pay the Augur Reporting fees, which varies on the basis of the formula below:
current_reporting_fee * (augur_open_interest * 5 / rep_market_cap)
Reporting fees are updated on a weekly basis and are used to recompense the Reporter.
REP (Reputation) Tokens
It is these REP tokens that fuel the Augur ecosystem. To better understand this, think of it as the means to “score” events on the platform. REP token holders stake the coins to report on the outcomes of events detailed in the marketplace.
Most noteworthy, these tokens do not serve as stores of value since they don’t pay passively. Instead, they serve as a tool used by Augur to run its operations. A majority of Augur users will as such not be able to ever hold a REP token, and may not even fully grasp its usefulness. Nevertheless, it is imperative to generally understand what its creation was aimed at to fully grasp how the platform operates.
The organization has limited the token’s total supply to 11 million. 80 percent of these tokens were sold in their Initial Coin Offering (ICO). REP token holders automatically qualify as the platform’s “Reporters” and are as such required to come up with accurate reports regarding the outcomes of haphazard events listed on the Augur marketplace at least every few weeks.
On the assumption that these “Reporters” fail to report, or their reports turn out to be inaccurate, their Reputations is evenly distributed amongst those whose reports were accurate amid the same reporting cycle.
What are the Benefits of Owning REP Tokens?
Owning REP tokens qualifies one as a Reporter, and by accurately predicting on the events’ outcome in the marketplace, they get to share in Augur’s imposed market fees. Every single REP token entitles one to 1/22,000,000 of the aggregate market fees amassed by Augur for an event.
Of course, the amount of fees collectable by a user is inherently determined by the amount of REP tokens they hold as well as the accuracy of the reporting they do.
What is the Job of a Reporter?
As earlier mentioned, holding REP tokens entitles one to become a Reporter. As such, every time a market closes, as a reporter, one is required to accurately come up with a report of the outcome of the event(s) in that particular market. A reporter also stakes a particular quantity of REP tokens to back up their claim. As a reporter, in the event you realize that the event is yet to occur, you can label it as “invalid” since you not only won’t be in a position to report on it, but you may as well suffer the unfavorable consequences of failing to report.
Market creators on the Augur platform are required to assign designated reporters. Consequently, these reporters are given up to three days to give reports of the events. Also, worth noting is that reporters are at liberty to challenge the reported outcome within three additional days. In case no one challenges the designated reporter, the market automatically enters its next round.
For cases where an event goes unreported, the system automatically takes it to an open reporting period in which anybody can report. The moment the 1st report is generated, the event is taken into a holding period up till the start of the upcoming seven-day payment period. As soon as the event enters the seven-day fee window, a contention can be made in the next seven days.
In case no disputes/contentions are made, payment can be effected upon the conclusion of the seven-day dispute period. If on the other hand there is a contention, the event is taken back to a provisional outcome and is as such open for further contention. These seven-day dispute rounds will recur until there is an accurate result.
On the assumption that the reported outcome is challenged, the challenging reporter will as such be required to stake a certain amount of REP to achieve this. Augur terms this staked REP as a “Dispute Bond.” On condition that the challenge successfully goes through, the proposed outcome will be countermanded and the challenger is refunded the “Disputed Bond” funds.
Worth noting is the fact that REP was neither devised to be, nor is it deliberated to become a lasting source of value. Rather, the token is utilized on the Augur platform to veraciously report on the outcomes of events. As suggested by its name (the Reputation token), the coin was devised to be a store of reputation for those generating factual reports. In this regard, to further clarify, here is what the Augur team had to say:
“REP is a token that comes with both responsibility and reward; it is not a currency.”
Rather confusing is the fact in a way or another, REP does not exemplify a digital currency, or any currency for that matter. This particularly owes to the fact that the coin is publicly tradable and is monetarily valuable. This is imperative considering the only means of accessing the network-generated Reporter fees entails owning REP tokens. With this in mind, it is as well worth mentioning that holding the REP tokens at this point ought to be deemed immensely speculative and risky.
Based on the fact that the Augur network is still in the beta phase, there isn’t a way to ascertain the amount that will be generated in trading fees. It is speculated that the Reporter pool will eventually get 0.5 percent of the trading fees. It is as well improbable to tell the demand for a such a prediction market as Augur. As such, it is impossible at this point in time to determine the amount that will be generated in trading fees. As per the speculation of the Augur team, for the first few years these trading fees might not be anything more than pennies for every REP.
REP’s Price History
Augur’s ICO was launched in Aug 2015 with an 8.8 million distribution of REP tokens. Thus far, a total of eleven million REP tokens are in circulation, and this is all there ever will be. Right after the ICO, the REP token traded between the ranges of $1.50 USD and $2.00 USD. As from that moment the coin has seen 3 notable price skypes.
The first spike came with the release of Augur’s beta version in March 2016, putting the trade price at slightly over $16.00 USD.
The second spike occurred in Oct 2016 when the organization released the ICO tokens to investors. This as a result raised the token’s trade price to slightly over $18.00 USD, but quickly receded, reason being, a considerably good number of ICO investors ditched their coins for quick profits. This is a habitual phenomenon for digital currencies upon the release of their ICO.
The 3rd and last price spike took place in Dec 2017 and Jan 2018, when the price traded fleetingly over $108.00 USD. There was no admissible news to bring about this spike. Rather, the spike occurred alongside an overall rise in ICO prices. Quite a number are of the speculation that the spike resulted from rumors of REP going aboard Coinbase. Nonetheless, these were merely rumors.
Where to Purchase REP
By volume, Kraken is the biggest cryptocurrency exchange for REP. Notably, the latter owes to the fact that Kraken allows REP purchases in USD, EUR, BTC, and ETH. The exchange accounts for approximately 25 percent of REP’s trading volume. If, however, you prefer to purchase your REP in an exchange other than Kraken, you can make the purchase at either Poloniex or Bittrex, or you could head to Coinmarketcap.com to see a more detailed list of exchanges that offer trading in REP.
Even though the Augur platform has no built-in wallet support for REP, there is the option of using either the Jaxx Wallet or the Exodus Wallet to store your REP coins. Augur advises users to store their REP coins a cold storage wallet for security reasons. The Ledger Nano S hardware wallet is as well a worthwhile safe alternative.
The Team Behind the Augur Project and its History
Established in October 2014 by a 13-members’ team spearheaded by J. Patterson and Joey Krug, Augur was among the very first blockchain-based applications to be developed on the Ethereum network. The two spearheads, prior to beginning work on the Augur project, gained experience on blockchain technology when they developed Sidecoin, a Bitcoin fork.
Augur’s inaugural public alpha version was emancipated in June 2015. It was the same year that Coinbase selected Augur as one of the most enchanting blockchain projects of the year. This is probably where the rumors of Augur’s REP tokens being added to Coinbase rooted from. The latter, however, has so far not turned out. As earlier mentioned, the project’s beta version was released to the public in March 2016.
Augur’s biggest competitor is Gnosis (GNO), which is as well built on the Ethereum network. The project (GNO) is a lot similar to the Augur project, with an equally polished and highly capable dev team.
The key distinction between Gnosis and Augur stems majorly from the economic models these projects used. While Gnosis’ fee structure is on the basis of the number of outstanding shares, Augur utilizes a fee-based structure based on trading volume.
Without doubt, the potential market for prediction markets is huge enough for both of these projects to thrive and prosper in a much similar way as options, bond, and stock exchanges do.
Augur was among the first radical blockchain-based projects to be developed, and among the first to utilize the ERC-20 token as well as the Ethereum network. Be that as it may, it remains in the beta phase following roughly 3 years of development. The platform leverages “The Wisdom of the Crowd” to amass predictive data and report on the outcomes of events. In so far as working with prediction markets goes, the team is vastly experienced and has been iterating on the project for more than 2 years now. Other than the organization’s highly skillful team, Vitalik Buterin, Ethereum’s founder and CEO, serves as an advisor to the Augur project.
Following a triumphant launch in the books, the Augur project ought to light the way for other decentralized applications on the Ethereum network.