Augur: A Peer-to-Peer Prediction Market Platform
The flexibility and security of blockchain technology have the ability to opened up industries that were previously difficult to operate, and there is no clearer example than the prediction markets.
A prediction market is an exchange-traded market created for the purpose of trading the outcome of events. While there are platforms already available, like PredictIt, they are all centralized, meaning information regarding the prediction markets might be withheld by a central authority to give them an advantage over the market participants. What’s more, these centralized markets bring extra liability and security risks to each party involved.
With a decentralized system built on the blockchain, there is no central market maker, and all information is publically available to everyone. This system provides a more flexible and trustworthy ‘betting’ ecosystem through the use of publicly-auditable data sources via oracles and token-based incentives.
One blockchain project that hopes to become the premier prediction market platform is Augur, which leverages real-world, crowd-sourced information to enable the creation of decentralized, peer-to-peer prediction markets. Using the Augur platform, users can create prediction markets, trade shares in markets, and even participate in the reporting system to keep the Augur oracle honest for token rewards. Augur functions entirely on the Ethereum blockchain and is rapidly gearing up for a public launch of their beta in 2018.
Interested in Augur? Here’s a quick rundown of the project:
Platform & Development
In short, Augur markets follow a four-stage progression: creation, trading, reporting, and settlement.
Creation: Anyone is free to create a market for any upcoming event, where they set event start and end times, a designated reporter, resolution source, and settlement fee.
Trading: Market participants forecast the outcomes of events by trading shares of those market outcomes. A complete set of shares consists of every possible valid outcome of the event and is created by Augur’s on-contract matching engine.
Reporting: After the market event occurs, the outcome is determined through Augur’s oracle, which consists of randomly chosen (staking) REP token owners. Anyone who owns REP may participate in the reporting and disputing of outcomes. According to the Augur white paper, reporters whose reports are consistent with consensus are financially rewarded, while those whose reports are not consistent with consensus are financially penalized
It’s important to note that if a consensus is not reached following a dispute, the market will either undergo another dispute round, or it will enter the fork state. If the size of the dispute is greater than 2.5% of all REP tokens in circulation, then the market will fork, otherwise, it will undergo another dispute round to reach consensus. Those who successfully dispute an outcome are rewarded with a 50% reward on their stake.
Settlement: A trader’s position is closed either by selling the shares to another trade in exchange for currency or by settling with the market contract that has escrowed Ethereum in order to create the shares involved with the market. The Augur network takes a nominal fee on payouts during the settlement phase to reward creators and reporters.
The test platform current lists 11 different market categories, but that number is likely set to increase substantially once the beta is opened to market makers.
This test platform also gives some examples of markets that users might expect when the beta is live, including questions like, “Will SpaceX successfully complete a manned flight to the International Space Station by the end of 2018.”
Augur has a life roadmap on Reddit that is updated at least monthly. The upcoming milestones include finalizing the platform and UI for the official beta launch, which will also include the launch of a bug bounty program.
Augur (REP) currently has a market cap of ~$275 million with a circulating supply of 11,000,000 REP.
Augur is one of the more intriguing projects of 2018, and we are actively awaiting the public launch of their beta. Given that similar, centralized platforms have been wildly popular, especially areas like politics, we anticipate Augur to drive a significant amount of user interest. REP token value is directly linked to overall platform adoption, so we will have to watch the beta launch closely to get an indication of the project’s long-term value potential.
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Disclaimer: The author(s) of this article may have a position in one or more of the securities mentioned above. This article is for informational purposes only and should not be taken as investment advice. Always conduct your own due diligence before making investments.