
Introduction to Augur, an open-source, decentralized betting marketplace - ilanhz
https://litepaper.com/resources/intro-to-augur
======
hedgew
Augur will probably be used for betting but really it's a prediction market.

[https://en.wikipedia.org/wiki/Prediction_market](https://en.wikipedia.org/wiki/Prediction_market)

Prediction markets are an interesting tool for determining the most likely
answer or result for almost any question. Some economists hope that we could
use prediction markets to make difficult political decisions. Many companies
already use them internally.

Sadly there's only one prediction market that's accessible from the US, and
it's an academic project with a 10% fee on profits and a 5% fee on all
withdrawals. It's also limited in what you can predict or bet about. Augur or
some other decentralized solution is probably our best bet for developing
prediction markets further.

I really think these markets are the key to overcoming our failure to make
good political decisions. It is a wild idea, but I don't know of any other
solutions that directly incentivize truth-seeking.

Vitalik Buterin actually wrote about these concepts in more length

[https://blog.ethereum.org/2014/08/21/introduction-
futarchy/](https://blog.ethereum.org/2014/08/21/introduction-futarchy/)

~~~
anoncoward111
There is a much larger global prediction market that comes with its own set of
nuances and quirks, and that of course is the stock market. You can even get
involved with no fee at all through Robinhood, but you will have to fill out
some annoying and potentially costly IRS forms.

If I could paraphrase Charlie Munger, in the stock market, the only people who
are successful long term are those who bet massive sums, very rarely, when
they are sure that the price of a security is severely and unproperly valued.

If Tesla is currently trading at $355, and you have evidence for yourself that
it should be worth something like $0 or $3,000, then this would be an example
of the current market prediction being extremely wrong.

A stock's price is really just a prediction of the company's future cash flow
in the event of profits, losses, sale of assets, so on.

~~~
hendzen
Actually, there are also people [0, 1, 2, 3, 4, 5] who are very successful
betting small sums (relative to their total investable capital), _very_
frequently, on securities they believe are slightly over or under valued.

[0] - [https://www.rentec.com/](https://www.rentec.com/)

[1] - [https://www.twosigma.com/](https://www.twosigma.com/)

[2] - [https://www.citadel.com/](https://www.citadel.com/)

[3] - [https://www.mlp.com/](https://www.mlp.com/)

[4] - [https://www.deshaw.com/](https://www.deshaw.com/)

[5] - [https://www.worldquant.com/](https://www.worldquant.com/)

~~~
yellow_postit
Depends deeply on the time period and this list is most likely due to survivor
bias. See Warren Buffet's hedge fund bet as a good semi recent example.

~~~
kirillseva
He was daring a human-managed fund to outperform S&P500. I don't think Warren
is an authority on market's microstructure and quant trading, which these
companies exploit.

Basically on very quick trades machines outperform humans. For long term
investment a prediction market (stock market index) outperforms humans and
machines.

------
camjohnson26
The main problem on Augur right now is volume. Only a few markets have orders
to trade against, and it seems like the cryptocurrency markets are the most
actively used. I tried to use the platform to make a small bet against Tesla,
but obviously you need someone to take the other side of the bet.

Still a very cool platform. A lot of people use predictions.global to get a
birds eye view of the markets.

[https://predictions.global/](https://predictions.global/)

And the Discord channel is always busy. The mods there are very responsive.

[https://discordapp.com/invite/faud6Fx](https://discordapp.com/invite/faud6Fx)

~~~
drcode
I think the "volume" problem breaks further into two critical sub-questions:

1\. A big selling point of these markets is that there are theoretical
commercial value to predictions- i.e. a company could get information of the
likely success of their new product line ahead of time, to help them make
strategic adjustments. However, Robin Hansen (one of the top economists
working on betting markets) says, counterintuitively, that industries have
been very luke warm about actually doing this in reality, for various
psychological and economic reasons (he got into this in his econtalk interview
I think)

2\. Suppose bets on Augur start ramping up- How do we know these are real bets
from real customers? The Augur company has immense funds on hand and its easy
on blockchains to simulate fake volume through anonymous accounts. I have no
reason to doubt the ethics of the Augur team, but it's unfortunate that if
their marketplace starts taking off that it'll be so hard to tell how organic
the growth is.

~~~
berberous
Why is 2 a problem? I'd love to use Augur, but the liquidity is low. If the
Augur team wants to seed it with liquidity and good bets, I'm game to take the
other side. This is also how many startups start out -- for example, the
Reddit cofounders faked a lot of usage and self-submitted posts in order to
get early traction.

~~~
drcode
Sure, it's fine for them to be market makers, if they're transparent about it.

------
ordinaryradical
Misplaced hype.

“Today, Augur had 30 active users and 123 transactions in the last 24 hours.
The market cap is roughly $269.2 million. That means that each active user is
now worth roughly $9 million.”

[https://mobile.twitter.com/lawmaster/status/1027188396291235...](https://mobile.twitter.com/lawmaster/status/1027188396291235840)

~~~
snarf21
Yeah, and the only real crazy stuff that happened was people put up "death" or
"assassination" contracts. Famous person X will die in 2018.... The problem
with decentralized betting like this is who is the authority that determines
who the winner is. External and honest oracles are hard.

~~~
DennisP
Solving that problem is pretty much Augur's claim to fame. It's a combination
of outcome reports by randomly-selected REP holders, possible disputes by
bettors who post a bond and trigger a larger group of REP holders, and (after
several escalating rounds of that) a potential fork of the whole thing on the
theory that the version of REP that reports the truth will have more market
value. (I think in that case REP holders have to choose which fork they'll
migrate to.)

Whether this actually works over the long haul, we'll have to see, but it's a
pretty interesting experiment.

~~~
cryptobeanbaby
It looks like Augur has no way to validate the "REP holders" though?

This means a sybil attack can be launched by anyone behind the Augur project
(assuming they set aside large reserves of REP for themselves, how would
anyone know?), or anyone who acquired thousands of ETH in the presale for
$0.50USD, or anyone with excessive capital can attack any Augur "prediction"
and manipulate the outcome in their favor.

Augur essentially gives total power to manipulate "truth" though tokens /
capital.

(edit, downvoting to suppress information? please explain why this post is
wrong)

~~~
DennisP
They make no attempt to validate individuals. The more REP you have, the more
influence you have. It's not exactly a sybil attack since you can't add
influence without cost.

I was about to say they do depend on a REP-weighted majority attempting to
maximize the amount and value of the REP they hold. But that's not actually
true since the forking mechanism lets a significant minority fork off in their
own direction. This is the final backstop that (theoretically) prevents
outcome manipulation by a majority REP holder; the general public can just
switch to the fork that told the truth. On that fork, the liars will no longer
hold REP.

This would be a big deal but it shouldn't happen often, since the credible
threat helps dissuade liars in the first place; they'll lose money and fail
anyway.

But I don't know what happens to the ETH at stake in this scenario.

(Btw it wasn't me downvoting, these are good questions. I'm not with Augur and
don't even hold REP. Have an upvote.)

------
wskinner
> Settlement - once the reporting has been complete, and it’s verified by the
> community, the bettors who bought shares on the correct outcome are paid -
> as is the market creator.

Can anyone comment on how settlement actually works? A persistent problem with
new tokens is handwavy explanations of absolutely core features. With a human
legal system, humans can argue over intent. When “code is law”, pure
intentions alone will not do.

I would love to use a functioning prediction market, and I believe it may be
one of the legitimately useful non-money applications of blockchain. But I
really wish they would focus on explaining how it solves the key problems
rather than marketing the concept.

~~~
prepend
Likewise, I was trying to figure this out. And haven’t yet. In most prediction
markets the reason for centralization is as the market maker or arbiter. For
example predictit.com will definitively say if some testified or not during
the market term [0]. So arguments over what testifying means get handled
fairly.

In augur the community seems to determine this based on how much they spend to
reconcile the transaction. So lots of people could tip the scale. On big
tickets this would likely attract attention, but on smaller items it could be
a problem unless members of the community have reputation and identities.

It seems like, from reading the faq [1], that it really just boils down to a
proof of stake consensus method with multiple rounds of dispute before and
after a market is finalized. With a documented fork procedure. So if consensus
gets manipulated, it is very clear and the market itself loses reputation
through that they tried to design in their fork process. But would also get
likely checked by a “hard fork” away from whomever is running that particular
blockchain and manipulating accounts.

The “ethics arbitrage” opportunity would be to look for markets where the
outcome is realistically fuzzy “did someone lie” or has an invalid outcome and
tip the scales without detection.

[0] [https://www.predictit.org/Contract/9262/Will-Trump-
testify-t...](https://www.predictit.org/Contract/9262/Will-Trump-testify-to-
special-counsel-in-2018#data)

[1] [https://docs.augur.net/#tentative-
outcome](https://docs.augur.net/#tentative-outcome)

~~~
JackFr
Yeah, so I read the white paper -- fairly closely at first, but as I got
bogged down in the details of 'first public reporter' and the formula for the
size of the 'dispute bond' and disputes etc., it became very clear that
despite all of the thought and hard work that went into this, that the link
between the real world and the reported outcome is reliant on trust and
community norms.

And the more one thinks about it the more obvious it becomes. Two ways to
think about it:

1) The initial market is betting on an outcome -- how is that different from
the dispute resolution phase, which can also be reduced to betting on an
outcome.

2) Imagine a purely imaginary event -- and read the whitepaper with that in
mind. All of the the processes set up still function perfectly -- as designed.
In fact there is no need of a real event. So if there is no need for a real
event, why is there an impetus to report a real outcome even if there is a
real event.

That isn't to say it can't work, but if it does it will be through trust and
community norms, not Ethereum.

------
adbge
For an interesting/insane/revolutionary application of this technology, check
out Robin Hanson's futarchy[1], a theoretical governance structure which would
use prediction markets to make decisions.

[1]
[http://mason.gmu.edu/~rhanson/futarchy.html](http://mason.gmu.edu/~rhanson/futarchy.html)

------
briatx
Augur is down to < 50 users.

[https://thenextweb.com/hardfork/2018/08/20/dapps-userbase-
dr...](https://thenextweb.com/hardfork/2018/08/20/dapps-userbase-drop-
blockchain/)

~~~
MusaTheRedGuard
Please note that an "active user" is an active address( i.e one that has made
a bet on the platform) in the past day.

This doesn't take into account users that made a bet in the past( most bets
have long term horizons, >4 to 5 months) or users that have a current position
but aren't betting anymore or users simply observing the markets( looking at a
front end like predictions.global)

Also note that active users is probably not a great metric for this
application, as it's not a consumer app/ time sink thing.

Money at stake is much a better metric

~~~
kornish
What's the money currently at stake?

~~~
vvpan
According to predictions.global: $1,358,603.63

------
guiomie
"Reporting - once an event has happened, Reporters are members of the network
who verify the outcome. They place a bet on how much they believe their
reporting is true. If they’re right they get a share of the pot. If they are
wrong - or are at odds with how other reporters have documented the outcome -
they are penalized and lose REP."

Isn't the reporting part qui susceptible to a sybil attack?

~~~
eyezick
Reporting weight is based on amount of REP held, not just anyone can report
and not all contributions are equal.

[https://www.augur.net/whitepaper.pdf](https://www.augur.net/whitepaper.pdf)
covers the security assumptions pretty well.

------
whazor
The maker of Augur, Joey Krug, recently posted an analysis[1] providing the
arguments why Augur is at the moment still too expensive. For me this is very
insightful into why Ethereum applications are not yet super successful.

[1] [https://medium.com/@joeykrug/fees-fees-and-
fees-8939c2b5ecae](https://medium.com/@joeykrug/fees-fees-and-
fees-8939c2b5ecae)

------
inputcoffee
Arbitrage opp:

Write a program to take the opposite side of any bet that you can hedge in the
public market.

For example: if someone bets against Tesla, and you can take the opposite
side, but (more) cheaply offset your risk in the option market.

~~~
toine_toine
The only problem is you don't know what the value of ETH will be 2-3 days in
the future.

~~~
somebodythere
You could hedge the value of ETH in fiat markets, or you could wait until
Augur supports betting with Dai.

~~~
theptip
How would you hedge the value of ETH? I'm not aware of a way to short it.

~~~
MusaTheRedGuard
Multiple ways to short ETH, as mentioned by another user. Including on augur
itself!

See: [https://augur-cfd.com](https://augur-cfd.com)

~~~
theptip
Sure... in theory. I'm skeptical that there is going to be anywhere near as
much demand for 5x levered exposure to ETH as there is for shorting ETH.

------
blanderman
"In the summer of 2018, assassination markets became popular among bettors. If
those markets are seen to incentivise people to take illegal action, Augur
could be shut down completely."

~~~
DennisP
I'm having a hard time seeing a way assassination markets are actually a good
business model for assassins.

If the prediction is tightly bounded (e.g. "Mr. X will be killed on Sept. 3,
2018") then you warn the victim.

If the prediction is loosely bounded ("Mr. X will be killed within the next
year") then the odds won't be nearly as good, since many non-assassins may bet
in favor. The assassin will have to put up a larger bet for a given payoff.
Having done that, the assassin wins even if a different assassin does the
work, so there's a public goods problem among assassins, and they all have
some incentive to stay home playing Call of Duty instead.

~~~
the_cat_kittles
make a market, buy up all the yes shares when the price is low, kill the
person, collect your reward.

~~~
camjohnson26
Why would anyone take the other side of that bet?

~~~
flyingfences
Because they don't think you're gonna go out and kill someone.

~~~
camjohnson26
Still they would get low odds and the risk/reward ratio makes that a terrible
bet since it would only take one accident to lose all your money. For like a
1% return.

~~~
the_cat_kittles
if you think the odds of something happening are lower than the share price,
you sell / short / buy "no". if you think they are more likely, you buy. the
odds are 100% if you plan on killing someone, and surely some people will
think its less than 100%. they will buy "no" shares because they think that
its less than a certainty that someone is going to be assassinated.

------
AnthonyAguirre
A real challenge for prediction markets (with real-money stakes) will be to
get sufficient liquidity on relatively small-ticket items outside of sports
and politics.

For such items platforms like metaculus.com and Good Judgement seem more
likely to provide more useful predictions, but without the ability to hedge
against events that prediction markets have.

I discuss this in depth in this podcast:
[http://rationallyspeakingpodcast.org/show/rs-214-anthony-
agu...](http://rationallyspeakingpodcast.org/show/rs-214-anthony-aguirre-on-
predicting-the-future-of-science-a.html)

------
busterarm
Hard pass. Blockchain and Gambling still don't really go together yet.
Moreover, I wouldn't touch anything intersecting this space that doesn't have
Rick Dudley directly involved. Not only does he have a 15 year headstart
working on some of these problems, but he also owns patents on provably fair
online gaming systems.

The site acts like the main challenges are legal when really they're
technical.

~~~
ericb
Have you actually looked at Augur? It is up and running and working well.

~~~
peteretep
So was MtGox, for the longest time!

~~~
camjohnson26
That's not a fair comparison. Mt. Gox grew too quickly and couldn't keep up
with the massive security requirements for a cryptocurrency exchange. Not to
mention they may have had employees embezzling money. Augur has taken years to
refine their strategy and do the launch correctly, and the code is working
just as expected. There could still be issues like with any innovation but to
compare this to Mt. Gox is not at all fair.

------
mherrmann
The article says Augur's main advantages are 1) it's decentralised so anyone
can create markets and 2) you don't have to trust a third party to distribute
funds after a bet is over.

The only problem I could really see being solved by Augur is that maybe it can
work around regulations that prohibit many forms of "bets". But the article
also says that Augur is facing legal challenges already, and it will be
determined in September whether they can continue.

Its decentralised, "illegal" nature reminds me of BitTorrent. Sure, there is
money to be made. But the real change will come when companies akin to Netflix
figure out how to do it centrally and legally.

~~~
rebuilder
I don't think gambling is an area where you can figure out how to do it
legally the way Netflix was able to offer digital streaming. The whole
business is illegal in many places, or a state monopoly.

------
deevolution
Augur may not have many users at the moment... but i can imagine a near future
where workers displaced by automation could make money on this platform. Who
else is going to have time to place a bet and contantly monitor these markets?
Or, more realistically the markets will be taken over entirely by bots and AI
who also operate using smart contracts. The bots would be able to analyze
billions of datapoints scraped from the web and pay for api access via crypto.
How could a human ever compete? Welcome to the future.

------
wyldfire
> September 2015 - Augur’s token sale raises $5.2 million

Conspicuously missing from this article: Augur's business model. They
presumably get a house take?

~~~
gibsons77
No they do not. REP token holders get a "house take" in some contexts. Augur
isn't a company, so a business model doesn't really make sense. Augur is a
protocol, and the Forecast Foundation is a non-profit that supports some
development.

~~~
wyldfire
> Augur is a protocol, and the Forecast Foundation is a non-profit that
> supports some development.

Who got the $5 million?

~~~
toine_toine
> Who got the $5 million?

The foundation to fund development (which they kept in Ether so is much more
valuable than $5million when the sale happened).

He's right, it's a protocol. There is no method for them to take a cut. The
protocol gives the fees to the REP holders who report the outcome by staking
their REP tokens.

------
Nursie
Not sure when this paper was written, but AFAICT Augur was launched with a lot
of noise, caused a brief storm in a teacup as assassination markets were
mooted/predicted, and then entered a steep decline as it became apparent (as
with most blockchain-relates projects it seems) that nobody was actually going
to use it, and the daily active users number was only in the double figures.

------
georgewsinger
Is the primary value proposition of Augur (at least from a USA perspective)
regulation evasion, and the ability to participate in betting markets at
scale? Supposing the USA legalized betting markets, would Augur still have a
value proposition over legal (but centralized) betting markets?

~~~
fabricexpert
Given online betting is legal in lots of places, you can answer that question
by seeing if people from outside of the USA will use Augur.

------
ponderatul
What happens when your stake is big enough in an outcome, that you start
pulling strings, legal or not ,for that outcome to happen.

~~~
bowmessage
The same (shady) things that happen today on non-crypto prediction markets
(sports betting, options chains, etc.)

------
symlinkk
Prediction markets are a really cool idea.

I don't know that there is much value to running it on the blockchain though.

------
yummybear
Doesn't this present huge challenges wrt whitewashing?

------
4bpp
What if the subject of a prediction market is a matter that is subjective
and/or politically charged? Suppose, for instance, the question asked is "Is
the Trump presidency a net positive?", or something even more seemingly
factual like "Did Hillary Clinton commit a criminal offense?" or "Is there a
correlation between race/gender and $desirabletrait?". Not only will
reporters' votes likely correlate with their political affiliation, but even
the incentive structure is not aligned with producing the truth if we only
grant that people assign nonzero monetary value to their tribe's status rising
(as would happen if a prediction market agreed with it).

------
JAdamMoore
I couldn't view the article because I'm not giving my email or joining any
stupid cult just to read some new bullshit. What a stupid fail.

------
crimsonalucard
Wasn't this done already? I thought it was called bitcoin.

