Augur is a decentralized protocol where users can launch prediction markets powered by smart contracts. It provides the technology required to bet on the potential outcomes of events. Not only that, the entirety of the process, including betting and settlements, occurs on the Ethereum blockchain. This means that there is no room for intermediaries and the associated costs. In this article, we’ll look at what is Augur and how it works.
According to the project's white paper, the goal is to provide an enabling environment where users can test their forecasting skills and potentially profit from it without being hampered by the restrictions associated with traditional prediction market platforms. For example, with Augur, users don't have to trust a centralized entity to verify that bets are valid or award winnings to users.
So, what is REP, and how does it come into play in the Augur ecosystem? Simply put, REP, also called Reputation, is the native token of the Augur ecosystem. It's primarily used to authenticate the outcome of events and settle disputes.
What is Augur? Highlights
Augur is a decentralized prediction marketplace.
Users can create prediction markets and invite other users to bet on the potential outcomes of events.
REP is the native ERC20 token of the Augur protocol
REP holders are expected to stake their coins to ensure that the integrity of Augur's prediction market is preserved.
How does Augur work?
Augur is a decentralized protocol designed to resolve traditional betting platforms' limitations. The protocol brings elements of a predication marketplace to the blockchain ecosystem. Here, users rely on self-executing contracts, which theoretically should reduce the cost associated with participating in a prediction marketplace and eliminate the occurrence of manipulations. The idea is to remove the human element from the system so that users are adequately compensated for predicting the outcome of events.
In summary, users bet on the potential eventualities of events just like they would on a wagering platform. Once the event occurs, users who predicted the outcome correctly receive rewards, while those that didn't lose their capital.
Key Augur processes
Notably, users can bet on a wide range of events, like the price of cryptocurrencies, the winner of an election, the result of a football match, and so on. However, since these events occur off the blockchain, it's a little tricky to confirm that valid outcomes are reported and used to determine who receives rewards and who doesn't.
Below are the operations Augur has adopted to resolve this issue.
Market creation: Anyone can create prediction markets on Augur. The creator chooses the events they want other users to bet on and incorporate into a smart contract. Part of the market creation process requires the creator to establish rules and conditions to validate bets. Creators are also expected to stipulate the percentage of traders' winnings they get to keep.
Market trading: Once the prediction market is live and running, Augur's users can start wagering based on what they believe will be the outcome. At this stage, users purchase a share of an outcome with DAI or ETH to join the market. Also, participants can trade their shares among each other, even as the price of the shares of each outcome continues to fluctuate based on the total amount wagered. Depending on the outcome, you may earn rewards or lose all you have staked. As with traditional betting platforms, the least probable outcomes tend to fetch the highest profits.
Reporting: This is perhaps the most important process in the Augur prediction system as it helps resolve disputes and confirm that the winning outcome matches the result of the event in the real world. Here, REP holders stake their tokens and report the outcome of events. The reporters are expected to reach a consensus, and the result of this consensus is considered truth. Reporters whose report contradicts that of the majority run the risk of losing their staked REP tokens.
Settlement: Once the reporting phase is over, the protocol will automatically pay users holding shares of the winning outcome.
Types of Augur prediction markets
There are three main types of prediction markets you'll find in Augur. The first and perhaps the most straightforward is the binary market, which only requires a yes or no outcome. So, for example, a prediction market asking whether the price of Bitcoin would hit $40,000 before the end of 2022 requires a yes or no answer.
The second one describes markets with multiple potential eventualities. For instance, a prediction market asking users to predict the winner of the FIFA World Cup must consider that each team in the competition has a chance of emerging as the winner.
Lastly, some markets rely on an upper and lower bound to determine the winning bets. An example is a market asking users to pick where REP price will fall within the $1 to $10 range in the next ten days.
Where is Augur used?
REP is the ERC-20 token native to the Augur protocol. However, unlike most decentralized applications, you can use the Augur protocol without holding REP. Therefore, you only need to own REP to become a reporter. If this is the case, you need to stake your REP coin on one of the potential outcomes. You're eligible to receive a reward if your report matches the consensus report of other reporters. Note that you may lose all your staked REP when your report contradicts the real-world outcome.
In addition to the staking feature available to Augur users, they can potentially profit off long-term and short-term Augur price movements. Notably, holders tend to take advantage of the speculative nature of REP and the fact that it has a fixed supply. Those interested in capitalizing on Augur price swings ought to have at the back of their minds that the protocol penalizes holders that don't report on prediction markets. Hence, if you intend to hold REP for the long-term, it's advisable to take up the role of a reporter on the Augur protocol.
Augur's founders and history
The concept that birthed Augur was first introduced in 2014 by Forecast Foundation, a non-profit organization founded by Jack Peterson and Joey Krug. Jack and Joey sought to create a system that reduces the need to trust prediction market operators by initiating all of the processes involved on a smart contract-enabled blockchain. And since Ethereum was the only blockchain solution providing the smart contract infrastructure required to develop and operate Augur at the time, Forecast Foundation naturally opted to build its protocol on Ethereum.
A year after Augur was introduced, Forecast Foundation conducted an ICO, which raised $5 million. It's worth mentioning that this crowdsale was one of the first sets of ICOs ever.
Although a beta version of Augur went live in 2016, it wasn't until 2018 that a mainnet version went live. Interestingly, Augur had a record-breaking first month of operation as it processed over $1.5 million worth of ETH on its protocol.
As with most decentralized applications, Forecast Foundation claims that no one, not even the development team, has control over the Augur protocol. In other words, the project is designed to run without the input of a centralized authority.
REP's tokenomics
During the ICO conducted in 2015, Augur created 11 million REP tokens, which remains the maximum digital asset supply. In essence, no new REP tokens can be created. Forecast Foundation sold 8.8 million REP at $0.6 each during this crowdsale, while the remaining 2.2 million tokens were allocated to the founding team, which included Forecast Foundation and early backers.
Another interesting bit about this ICO is that it was conducted in rounds. Depending on the round, investors purchased REP tokens at a discounted price. During the first round of sales, the foundation sold REP at a 15% discount. The second and third rounds offered a 10% and 5% discount, respectively. In contrast, the fourth and final rounds didn't offer a discounted REP price to buyers.
How is REP created?
All of the REP tokens that'll ever exist have already been created, and all these coins are already in circulation. Therefore, there's no need for Augur to implement a special system to regulate the emission of REP. Simply put, it's impossible to mine or stake REP to receive newly minted REP tokens. Instead, when you stake REP, you're eligible to earn a share of the transaction fee paid by bettors.
Augur's competitions and how it fares
Although the concept of a prediction market existed way before the advent of blockchain technology, it wasn't until 2018 that we got our first iterations of decentralized prediction marketplaces. One of the notable decentralized prediction market protocols introduced around the same time Augur launched is Gnosis.
While Gnosis remains one of the strong competitors of Augur, it's a little tricky to objectively compare the successes of Augur and Gnosis, since the latter offer features that fall beyond the realms of the prediction marketplace.
Not only does Gnosis provide infrastructure for building prediction markets, but it also enables decentralized exchange-focused services. In other words, activities on Gnosis aren't only linked to the protocol's prediction market functionalities. Regardless, it remains one of the most prominent alternatives to Augur, which is fully decentralized. In terms of adoption, Gnosis edges Augur, according to data from DeFi Pulse. The total asset locked on Gnosis is $10.3 million, while that of Augur is a meager $1.5 million.
The same level of disparity was noticed when comparing the market metrics of the native tokens of the two projects. On the one hand, GNO, the native token of Gnosis, has a $472.2 million market cap. On the other hand, REP has an $86.2 million market cap, according to CoinMarketCap.
Apart from Gnosis, another platform competing for the top spot in the decentralized prediction market is Polymarket, a Polygon-based solution. Launched in 2020, Polymarket has quickly emerged as one of the most popular prediction market protocols, thanks to its near-zero transaction fees and fast settlement time. According to DeFi Llama, Polymarket has a total of $7.6 million wagered across its prediction markets. This means that Polymarket also trumps Augur when it comes to adoption. Unlike Gnosis and Augur, though, Polymarket doesn't have a native digital asset.
Augur's partnerships and investors
One of the early backers of the Augur project is Vitalik Buterin, the co-founder of Ethereum. Buterin reportedly influenced the development team's decision to build Augur on Ethereum.
Due to the low adoption rate of Augur and the fact that core founding team members have left the project, Augur's partnerships have been few and far in between. However, following the launch of Augur on Polygon in 2021, Polygon announced that it plans on initiating a $1 million incentive program, called Augur-Matic Rewards, to bolster the adoption of Augur on the layer-2 protocol.
Augur's strengths, weaknesses, opportunities, and threats
Strengths
Augur's major selling point is its use of decentralized technology. Thanks to this design decision, Augur can provide its users with autonomous and trustless means of betting on real-world events. This design also ensures that users are paid as when due, which is usually not the case with centralized prediction markets. Since Augur is decentralized, no centralized authority has the right to penalize users and withhold their funds.
Weaknesses
Right from the beginning, Augur has faced several technical and legal uncertainties. One of the limitations reported revolved around user experience or the lack thereof. Like most blockchain applications at the time, Augur was slow and difficult to navigate. In addition to this, it was expensive to use due to the scalability issues associated with the Ethereum blockchain. Reports have also suggested that some prediction market creators can manipulate the system for personal gain. This is in addition to the explosion of dud markets, which may never finalize since it is impossible to reach a definite answer or outcome. At some point, it was feared that Augur could potentially birth an assassination market as some of its users began betting on the possibility of a high-profile individual dying at a specific time.
Opportunities
Activities in Augur have been relatively historically low. The same can be said about other prediction marketplaces except for Polymarket, which has somewhat built buzzing prediction markets around the political realities of the United States.
Therefore, there's still a lot of room for growth only if Augur does enough to rebuild its reputation in the crypto sphere. This starts with addressing some of the limitations highlighted already. Interestingly, Augur has begun to move in this direction, judging by introducing a Polygon-based iteration of the protocol. This implementation solves the cost-inefficiency and slow nature of the original Augur protocol. Moving forward, it'll be interesting to see how this implementation will impact the growth of Augur.
Threats
The biggest threat to betting platforms is regulatory uncertainty, since they usually have to own licenses in all of their operating jurisdictions. For most betting platforms, adhering to this wide array of regulations is a difficult feat to achieve. For Augur, the situation is further complicated as it needs to implement centralized infrastructure to establish a regulatory-compliant system. As a result, it's almost inevitable that the explosion of activities on Augur will draw the attention of regulators, similar to how Polymarket is currently in the crosshairs of US regulators.
Augur's roadmap
From our research, there's no defined roadmap designed to help guide the development of the Augur protocol. However, this doesn't necessarily mean that the development of Augur has been static, as we have witnessed up to three major upgrades implemented over the years. These upgrades are:
Augure v1: This was the first version of the Augur protocol launched in 2018. The goal was to establish a decentralized prediction market protocol that allows ETH to be used to bet on the outcomes of real-world events. One of the features introduced in this version is the order-book-based trading user interface. Unfortunately, this version became obsolete when Augur v2 launched in 2020.
Augur v2: While acknowledging that Augur v1 lacked the seamlessness required by a user-focused application, the development team decided to launch Augur v2 in 2020 to improve user experience and integrate a stablecoin. Once Augur v2 launched, it became possible to bet with DAI, a more stable crypto alternative to Ethereum.
Augur Turbo: The launch of Augur Turbo in 2021 marked a move from the order-book model to the automated market maker system on Polygon. With this switch, Augur's users can execute almost instant transactions at near-zero cost. It also optimized the settlement process so winners could claim their winnings instantaneously. As a result of this upgrade, Augur can now cater to recurring market types like sports, politics, and economics. Following the launch of Augur Turbo, the development team released another user interface for Turbo contracts that focuses on sports betting.
Augur's updates, news, and highlights
In the first month of Augur's operation in 2018, the protocol processed over $1.5 million worth of ETH. Unfortunately, this remains one of Augur's biggest highlights in terms of volume and usage.
While this is a given, other notable events have become the bedrock for Augur's evolution. The first was the Augur v2 launch in 2020, which also introduced REPv2 tokens, the upgraded version of REP compatible with Augur v2 and Augur Turbo. Following the launch of Augur v2, the development team enabled a means of manually migrating REP tokens to REPv2 tokens.
The latest Augur protocol upgrade, Augur Turbo, went live in 2021. This implementation was anchored by an incentive program powered by Polygon.
Where to buy REP
As with most cryptocurrencies, you can buy and sell REP on crypto exchanges that support the token, such as OKX. Alternatively, you can buy REP on a decentralized exchange.
How to store REP
Regarding the best storage options for cryptocurrencies, settling for a non-custodial solution is advisable. Examples are hardware wallets like Ledger and Trezor. This is an ideal option for those looking to hold their REP tokens for the long term. However, if you would instead opt for a solution that allows you to access the crypto market instantly, you should consider OKX's crypto exchange wallet service.
How to stake REP
The only staking feature associated with the Augur protocol is the mechanism that incentivizes REP token holders that take up the role of reporters. When you become a reporter, you stand a chance of earning a share of the protocol's revenue accrued from transaction fees paid by other users. Notably, there are third-party solutions that provide staking services that support REP tokens.
FAQ about REP
What blockchain supports Augur?
Since it launched in 2018, the Augur protocol has remained in the Ethereum ecosystem. While this is a given, the development team of Augur recently launched an upgrade to the protocol on Polygon, which also exists within the Ethereum ecosystem but offers improved performance in dApps.
How can I generate interest with my REP tokens?
An interest-generating opportunity peculiar to REP requires holders to stake their coins and report real-world outcomes on the Augur protocol. However, you must note that you can be penalized if your activities make it difficult for Augur to achieve consensus over the outcomes of events. In addition, you can also earn REP from an interest-yielding third-party service that supports REP.
What are the security threats associated with Augur?
The Augur protocol relies on the Ethereum blockchain for security cover against certain threats. Nonetheless, most of the threats associated with using a protocol like Augur revolve around the coding proficiency of the developer. This is why it's advisable to confirm that reputable software auditors have audited software protocols and their upgrades before you deposit your coins in them.
Can I use Augur to bet on sports?
The Augur protocol supports sports betting. Also, an Augur Turbo user interface is specially designed for betting on sporting events. In addition to sports betting, Augur also supports prediction markets for politics, economics, crypto, and much more.
Is Augur available on a Layer 2 protocol?
Augur launched on Polygon, a Layer 2 blockchain scaling solution, in 2021. With this, Augur has made sure that users can execute almost instant trades at near-zero fees while still enjoying the security cover that Ethereum provides.
