The decentralized prediction market has been gaining notoriety in recent months, and was even considered a finalist for the biggest breakthrough technology as voted upon by Singularity University at the Exponential Finance Conference for the XCS Challenge at the Exponential Finance Conference. Other finalists in the Breakthrough category were EatLimmo (grand champion), Vendedy, LabMinds and SwiftTram. According to the Singularity University website, Augur is the “future of forecasting”:
What if you could take one of the most ubiquitous human pastimes, betting, and virtualize the behavior, to create the world’s most powerful, and uncensorable, forecasting engine? That is what Augur, a peer-to-peer prediction market platform, does through the “Wisdom of Crowds.” When individuals buy “yes” or “no” shares in the outcome of events (e.g. “Hillary will be elected president”), the price can range between less than a penny and a dollar. With volume, the price of a share can be used as a indicator of the likelihood of an event occurring (65¢ = 65% probability.)
Harnessing the blockchain, Augur has created the first online platform for a global market of predictions. Anybody can create a market for an event, and anyone can wager whether that event will occur or not. And instead of relying on an individual entity or API to report what has happened, Augur introduces to the world the first-ever distributed oracle system, using a token called “Reputation” (REP.) REP allows its holders to report on the outcome of events and be rewarded for doing so.
This is the future of forecasting.
Augur has created one of the first applications built on top of the Ethereum network, having worked closely with Ethereum along the way.
Augur is a decentralized prediction market, open-source, and meant to “revolutionize the manner in which information consensus is collected and aggregated.” As the team explains, “Augur could be used by farmers in Argentina to hedge against weather cycles or by Chinese traders who are unable to access the US stock market.” Here is the team’s introduction video, narrated by musician Shooter Jennings.
CCN sat down with the Gardner and Krug to learn more about Augur, and how it could revolutionize prediction markets.
How could Augur become a “world-changing forecasting tool?”
Jeremy Gardner: Due to the peer-to-peer, uncensorable nature of a prediction market platform built on a blockchain, Augur holds the potential to be the first truly global, and popular, prediction market. The resulting volume and liquidity could lead to the most powerful forecasting engine in history, as every market’s price creates a probability.
What is novel about the way in which Augur collects and aggregates information?
Joey Krug: In general, prediction markets are great information aggregation tools because they incentivize revelation of information. If someone has expertise or knows something, they can bet on it in a market and both profit and improve that market’s estimates. Crowds are better at aggregating information than individuals. For instance, the company that manufactured the o-rings for the Challenger mission had their stock drop lower than any other company which made parts for Challenger the same day as the crash, even though the US government didn’t determine the cause for months.
Most prediction markets have never let their users create their own markets on events, with Augur anyone can propose a question that bettors can wager on. This creates a much wider amount of information that can be collected from Augur’s markets, because not only do we allow the market to predict events, we also allow the market itself to choose which events to predict.
What precedent is there for Augur and why are prediction markets such important information hubs?
Jeremy: Intrade was a hugely popular, and correspondingly accurate, prediction market website, co-founded by one of our advisors, Ron Bernstein. Unfortunately, it was shut down due a handful of regulatory and internal issues. DARPA, the CIA, and DoD also tried to create a public policy prediction market for reasons the CIA outlined as incredulous in this essay. Prediction markets are massively important in cutting through the noise found in the media and polls, and getting people to put their money where their mouth is, which is what makes them such hugely valuable sources of information.
How can one make money on the Augur platform as a market maker or reporter?
Jeremy: One of the best parts of Augur is the full loop of reward mechanisms. First, bettors get rewarded when they are correct, or arbitrage off of incorrect odds. Then, market makers can make money from creating markets, providing liquidity, and setting a trading fee, of which they receive half. The other half of trading fees are distributed among those who hold Reputation, or REP, a cryptographic token that allows its holders, Reporters, to report on the outcome of events (thus facilitating bet payouts). Having reporters allows Augur to be a fully decentralized system, with no single point of failure!
What sort of legal and regulatory hurdles does Augur face?
Jeremy: Backed by a nonprofit open-source software foundation, Augur itself faces very few hurdles as writing open-source code is a constitutionally protected activity under the First Amendment. However, those making or participating in markets should be highly cognizant of the laws within their jurisdiction. We imagine that authorities will respond to Augur as they have to BitTorrent, seeking the law-breakers, not the code-writers.
Does Augur take any inspiration from the Iowa Electronic Markets and Victoria University of Wellington.
Joey: At Augur we really appreciate what the IEM have done for the field as they’ve provided a lot of useful evidence that prediction markets provide accurate forecasts. Victoria University of Wellington’s project, PredictIt, has a really simple, easy-to-use user interface, and we’d like to make Augur just as simple to understand.
Will there be any limits on what users can bet upon? Deaths of world leaders?
Jeremy: No limits. Such is the nature of decentralization. But anything unethical will be marked as unresolvable by reporters, losing the market maker money, returning bettors money, and thus disincentivizing any particularly unsavoury market.
Why open source?
Joey: For us it’s really a matter of necessity. People wouldn’t trust our software if it weren’t open source, and additionally, it’s really nice to have the community help and support that comes with open source. We have people who contribute to our codebase, even though they don’t work for us, and it’s really nice to have outside input/fresh eyes on your code. That’s a lot harder to get with a closed codebase.
For more on Augur, check out their website. Image from Shutterstock and Augur.
Last modified (UTC): June 24, 2015 12:20