What is Augur? | Beginner’s Guide
What is Augur?
Augur is a decentralized prediction market platform that utilizes the Ethereum network. In a prediction market, you can bet on the outcome of future events to get monetary prizes. The less likely an event is to occur, the bigger the reward you can earn predicting its success.
Augur uses “The Wisdom of the Crowd” from predictors on the platform to create real-time predictive data that’s oftentimes more accurate than the leading experts.
By bringing blockchain technology to the prediction community, Augur provides you an option with fewer fees, greater accessibility, and better accuracy than other markets.
In this Augur guide, we’re going to talk about:
- How does Augur work?
- REP (Reputation) tokens
- Augur Team & Progress
- Where to buy REP
- Where to store REP
- Additional Augur resources
How does Augur work?
The two primary actions available to you on Augur are:
- Creating markets
- Trading event shares
You need to spend a small amount of Ethereum to create an Augur market. Markets can be anything from “Will the price of Bitcoin hit $20,000 before the end of 2017?” to “Will aliens show up on Earth in 2018?”
When you create a market, you set the taker and maker fees (the cost to buy and sell shares on the books). Taker fees must be between 1.0% and 12.5%. Maker fees can’t be more than half of the taker fee. As the market creator, these are the fees you receive when the market closes.
Although this is the current fee structure, discussion on the official Stack Exchange page suggests that this will be changing.
Soon, market creators will instead set a creator fee, and there will no longer be maker/taker fees. The creator fee is taken from the rewards of the traders that hold winning positions and are given to the market creator.
As a market creator, you want to keep the settlement fees low enough to incentivize people to bid using your market. However, they need to be high enough to cover the initial Ethereum cost you spent to create the market.
Trading event shares
Besides creating markets, you can buy and trade shares that represent the odds that the event in a market will happen. For example, you see a market, “Will Bitcoin Cash reach $6k by 2018?”
(For the sake of simplification, we’re going to stick with binary, yes/no, markets in this article. You can find a full explanation of the different markets here.)
Because Coinbase recently added Bitcoin Cash to their platform, this market interests you. You’re fairly confident that it’ll reach $6k before the end of the year, so you put in a bid to buy 50 shares at 0.6 ETH a share.
Shares are worth anywhere between 0 and 1 ETH. The higher the price you buy a share for, the more likely you believe that the event will happen.
There are two ways to make money as a trader. With fluctuating share prices, it’s possible to buy positions at a low cost and sell them higher as sentiment changes. Real world catalysts may cause an event to be more/less likely to happen over time.
You can also earn money if you predicted an event correctly and hold shares when the market closes. The amount of your payout equals:
Payout = Number of shares * Price / Number of ticks
The number of ticks is the number of possible price points between the minimum and maximum prices in a market.
You need to pay settlement fees from each of your winnings. The settlement fees include the creator fee set by the market creator and the reporting fee used in the Decentralized Oracle System. The larger your earnings, the higher the fees you’ll have to pay.
REP (Reputation) tokens
The REP token powers the Augur Decentralized Oracle System. You stake REP to report on the outcome of events for the different markets.
When a market closes, you report on the outcome of the event and put up a certain amount of REP to back your claim. If the event hasn’t occurred yet, you should mark it “Invalid” seeing that you won’t be able to report on it.
You have 27 days after an event closes (the reporting phase) to submit a report. If you report the same outcome as the majority of reporters in your market, you’ll receive your REP back plus a portion of the reporting fee. The reporting fee uses the following formula:
Reporting Fee = Current Reporting Fee * ( Augur Open Interest * 5 / REP Market Cap )
Augur calculates the new reporting fee every 30 days.
The more REP that you stake when submitting a report, the greater proportion of the reporting fee you earn.
Making things slightly more complicated, markets can also be reported on by a designated reporter. The market creator delegates a designator reporter to report a proposed outcome for the market within 3 days after the market closes.
As a reporter, you have an additional 3 days to challenge the proposed outcome of the designated reporter. If there’s no challenge, then the market enters the next reporting round skipping the usual 27-day reporting phase.
You need to stake some REP in order to challenge a proposed outcome. The REP that you stake is called a dispute bond. If your challenge is successful and the proposed outcome is reversed, you’ll get the funds from your dispute bond back.
Augur team & progress
Started in October 2014 as one of the first platforms built on Ethereum, Augur is an OG in the crypto world. Jack Peterson and Joey Krug lead the 13-person team. The two have ample experience working with blockchain technology and previously created Sidecoin – a Bitcoin fork.
Vitalik Buterin, the creator of Ethereum, is an advisor to Augur.
The team released the first public version of Augur in June 2015. Shortly after, Coinbase selected Augur as one of the five most exciting Bitcoin projects of 2015. The beta version was released in March 2016.
Augur’s biggest competitor is Gnosis. Both projects have teams with significant prediction market and blockchain experience and are using similar technology to create almost identical products. The major difference between projects is within their economic models. Augur collects fees based on trading volume while Gnosis fees are proportional to the outstanding shares.
Even with similar products, the market is large enough that both of these platforms could realistically exist amongst each other.
Augur held an ICO in August 2015 in which they distributed 8.8 million REP tokens. There are and only will ever be 11 million REP tokens in circulation.
REP traded between $1.50 and $2.00 (~0.0047 and ~0.0050) immediately after the ICO. The price has had three significant spikes in its history since then.
The first occurred in March 2016 as a result of the beta release.
The second was in October 2016 when investors received their REP tokens from the ICO. This caused the price quickly increase before dumping as exchanges added support for the tokens. Although this seems like strange behavior, this is a common occurrence after ICOs. Many investors do this to get profits caused by the price increase that occurs between the time of ICO and when the company releases the tokens.
The third and largest price increase occurred yesterday, December 19th, in which the price rose to over $100 before settling in the $90 range. There was no significant news that seemed to cause this increase.
Some people have speculated that this spike is a result of a classic “pump and dump” while others think that it may be insiders trading on the rumor that the token will soon be added to Coinbase.
Where to buy REP
Bittrex is the recommended exchange to purchase REP. Poloniex also offers REP, but you should exercise caution if you choose to use that exchange.
As with most altcoins, you can only exchange for them using Bitcoin or Ethereum. To get started, you can buy Bitcoin or Ethereum on a platform like Gemini and transfer it over to your preferred exchange. From there, you can trade to get REP.
Additionally, you can use Kraken to purchase REP directly with EUR.
Take a look at CoinMarketCap for a complete list of exchanges where REP is available.
Where to store REP
The recommended way to store REP is with a hardware wallet. Using a hardware wallet protects your funds from malicious software and hackers. The Ledger Nano S and Trezor wallet support REP tokens and are both great, secure options.
Augur is one of the oldest projects out there and was one of the first to be built on top of Ethereum. The platform is a decentralized marketplace for prediction markets and event likelihood stock trading.
Augur uses “The Wisdom of the Crowd” to accumulate predictive data and report event outcomes. The team is experienced in working on predictive markets and has been iterating on their product for over two years.
Even with the recent price increase, it’s not unlikely that you could see another big run-up coinciding with the release of the official Augur main net within the year.
Additional Augur resources
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ABOUT THE AUTHOR
ABOUT THE AUTHOR
Based in Austin, TX, Steven is the Executive Editor at CoinCentral. He’s interviewed industry heavyweights such as Wanchain President Dustin Byington, TechCrunch Editor-in-Chief Josh Constine, IOST CEO Jimmy Zhong, Celsius Network CEO Alex Mashinsky, and ICON co-founder Min Kim among others. Outside of his role at CoinCentral, Steven is a co-founder and CEO of Coin Clear, a mobile app that automates cryptocurrency investments. You can follow him on Twitter @TheRealBucci to read his “clever insights on the crypto industry.” His words, not ours.