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Introduction to Augur, an open-source, decentralized betting marketplace (litepaper.com)
373 points by ilanhz 7 months ago | hide | past | web | favorite | 171 comments



Augur will probably be used for betting but really it's a 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/


Have you seen the Good Judgment Project, founded by Philip Tetlock, author of Superforecasting?

https://www.gjopen.com/

https://www.gjopen.com/questions/813-before-1-october-2018-w...

https://goodjudgment.com/superforecasting/index.php/2018/06/...

It's karma-driven rather than wager-driven but seems fairly active.


I participate in Good Judgment, but I think it will be great to compare Augur's results on certain questions to GJP's results (whenever there is a question that overlaps at least).


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.


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/

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

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

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

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

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


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.


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.


It's called survivorship bias. With hundreds of millions of people making investments in the stock market, almost any strategy has many examples of people who "won" with it.


I understand survivorship bias.

These firms make many thousands of trades per day, year after year. They have multi-year track records of exceptional returns.

If their edge was truly no better than random then they would have been bankrupted years ago. You can do some back of the envelope math to easily convince yourself of this.


nobody said it's totally innefective (or random), just that it is vastly less effective (and you're exposed to terminal risk more often) than throwing lots of money on an index.


But never forget: Market Can Remain Irrational Longer Than You Can Remain Solvent


You have to fill pay taxes for earnings in something like Augur as well


prediction markets are not well regarded academically , outside of the cristall ball economics.

the academic consensus is that as soon as you create a second incentive (the prediction market itself) you lose all the insight you could gain from external factors. At that point they are no better than simply looking at the stocks (the predicted market). hence prediction markets are by definition, useless.

the cristall ball people still trying to make it happen are now trying to see how much they can limit the prediction market itself for it to not affect itself (hence the limitations you don't like on the one you mention)


The stock market is already a prediction market. Using a prediction market to predict a prediction market is a silly idea. But that doesn't make prediction markets bad at other things, like predicting the weather.


The stock market is already a prediction market. Using a prediction market to predict a prediction market is a silly idea.

If you have a prediction market on a prediction market, that mess reduces to a prediction market. Quelle surprise!


> At that point they are no better than simply looking at the stocks (the predicted market).

Are you assuming that prediction markets are only over stock prices? What about a market about the winner of the next US presidential election?


> What about a market about the winner of the next US presidential election?

IIRC, those exist, were the focus of attention a few cycles back (because cherry picked just right they were arguably better than polling in the cycle preceding the attention), but as soon as media started paying attention to them, people started diverting money to them to manipulate the results, because there are plenty of people that care more about influencing the result of that question (and it's one where perceived likelihood influences the actual behavior that controls the result) more than predicting it.

That kind of thing is actually a significant problem in many of the areas where prediction markets have been hyped.


That's a big claim.

What's the evidence for people putting in large amounts of money to influence betting on elections?

Isn't it making a bit assumption that people vote in a certain way because they see things in prediction markets?

Regular people are surely not checking odds on who is likely to win an election.


> What's the evidence for people putting in large amounts of money to influence betting on elections?

Going back and reviewing things it seems my memory was wrong: the risk of coordinated efforts of this type if the prediction markets became seen as strong bellwethers of electoral success was discussed in the wake of some isolated, apparently single-trader incidents that momentarily moved the prediction markets in 2004 and again in 2008, but there doesn't appear to have been any detected widespread manipulation.

> Isn't it making a bit assumption that people vote in a certain way because they see things in prediction markets?

No, there's a pretty strong well-known effect that media coverage of electoral momentum reinforces that momentum; it's not doing much changing cited as impacting enthusiasm and turnout.

> Regular people are surely not checking odds on who is likely to win an election.

People—especially the people who are reasonably likely to vote—to consume political news, including news relating to whatever the media sees as strong horserace indicators. For a few cycles startibg around 2000 that had started including prediction markets, though it seems to have faded the last couple cycles.


if you have a market where I can make tons of money of it, at which point do you expect me to start contributing to PACs just to win the bet?

see the problem?


The thing is it is supposed to solicit insider information exactly like this. Potentially it incentivises people to change outcomes if the have the resources available, but at least we will all know in advance.


Sorry, I don't understand what you're trying to say.


What’s the problem? Public companies with the majority of shares owned by the executives have this same incentive.


Do you have citations for this? The academic papers I've read on prediction markets are (broadly) positive.


To quote a prior Senate Minority Leader Tom Daschle on the floor of the Senate:

"How long would it be before you saw traders investing in a way that would bring about the desired result?"

As in, if one found a way to bet against your car remaining in tact and realized sabotaging your car was cost effective to manipulate their bet, then they reap the market pay out. Is this good?

https://en.wikipedia.org/wiki/Information_Awareness_Office#F...


> As in, if one found a way to bet against your car remaining in tact and realized sabotaging your car was cost effective to manipulate their bet, then they reap the market pay out.

You just described insurance fraud. And just like in insurance, the fix is to be very careful about how you describe the "win" condition—not just "will the car become damaged" but "will the car become damaged through no fault of the owner" (to begin with; the actual terms would be much more complex).


We already have a much more liquid terrorism futures market, i.e. the regular stock market. Worrying about incentives for a large attack from a prediction market is missing the ocean for a hypothetical raindrop.

Incentives in smaller markets (e.g. local elections, or personal car crashes as you say) are super interesting though.


this is the idea behind assassination markets


Interesting...so when enough "life insurance" has been taken out on someone, it becomes more profitable to protect them or to kill them, depending on what the relative odds are, and which side the potential assassins have placed their money?


you are probably reading crystal ball economists. do they also write about other means to pick stock besides analyzing the company?


Mind suggesting the economists to read, rather than just suggesting he is reading the wrong economists?

I'm admittedly naive in this subject, but the name calling doesn't help.

On the second point - there is solid evidence that, yes there are ways to pick stock besides JUST analyzing the company - see Momentum investing https://www.aqr.com/Insights/Research/Journal-Article/Fact-F...

I've seen plenty of critics of the efficient market hypothesis, and Fama himself has said that the market is not efficient.


Maybe you're agreeing with GP? Analysing the companies would not be a profitable way of picking stocks in a genuinely Efficient Market.


> Augur will probably be used for betting but really it's a prediction market.

A prediction market is an attempt to leverage a hypothesized predictive power of aggregated betting, so being used for being is essential to being prediction market.

> Some economists hope that we could use prediction markets to make difficult political decisions.

Political decisions aren't verfiable fact questions, so they aren't really subject to prediction markets. You could use them as a tool to get possible answers to fact questions supporting policy decisions, but there is no real compelling case for them being better than the best available other methods in most domains for that, and in any case getting answers on fact questions related to policy decisions isn't even the hard part of getting good policy decisions.


> > Some economists hope that we could use prediction markets to make difficult political decisions.

> Political decisions aren't verfiable fact questions, so they aren't really subject to prediction markets. You could use them as a tool to get possible answers to fact questions supporting policy decisions, but there is no real compelling case for them being better than the best available other methods in most domains for that, and in any case getting answers on fact questions related to policy decisions isn't even the hard part of getting good policy decisions.

i wish this comment/POV had gotten more traction in this thread. i am increasingly of the opinion that building consensus on values and goals is more of a problem in politics than is building consensus on facts.


The thing I don't like about prediction markets is the capped liquidity. I want to put my money where my mouth is but then find out there is only 1 share to buy in the market.

What I like about financial/forecasting crypto projects like Pareto Network is that there is no capped upside, and you can still determine the conviction some people have about an outcome

A close runner up is Numerai, given that you can tell the 'confidence' someone has, but the capped upside is arbitrarily capped, and the purpose of the project has nothing to do with censorship resistance and is beholden to the whims of the Numerai hedge fund.


I'm confused. With Augur, "complete sets" can, aiui, be created by anyone, so I don't see why there would be a problem with only one share being available?

Unless I guess if you want to make sure the trade goes through immediately?


the problem is the limited amount of money one can make off of a random market.

makes it less appealing to some (or many) and less efficient in determining an outcome

yes assassin markets and popular political events can now be traded in the US even if the Augur company gets sanctions, but for everything else this is an inefficient system.


Well, the money has to come from somewhere. In any case, someone has to be willing to take the other side of your bet, whether it is other participants or the people running the market/betting thing.

I'm not sure what alternative you are considering to not have that problem, or what it would look like for something to not have that problem.


> I'm not sure what alternative you are considering to not have that problem, or what it would look like for something to not have that problem.

I gave two examples. One isn't in production yet so we'll see


> determine the conviction some people have about an outcome

But in order to do that, wouldn't you also have to know a lot about those people?

If you bet $1 and I bet $50 that could just mean I have a lot more money than you. Or for a million other reasons, I'm pretty likely to have not exactly 50x your conviction. I may even have less conviction than you.

And even this is assuming good faith, because I might have reasons other than "winning" for placing my bet.


It could work, in democracy, if everyone is issued the same amount of "tokens". If it works with real wealth you have a recipe for disaster.


What's the difference between using prediction markets for politics and having a direct democracy?


In direct democracy, you vote for what you want to happen. In a prediction market you vote for what you think will happen.

The whole point is that a sufficiently large and diverse groupe of people is better at predicting the future using those system than an individual. Being able to correctly predicting the future can lead to better decisions.


Is there evidence of this working though, or is it the same concept as the 'wisdom of the crowds'


Yes, it works very well but not for the 'wisdom of the crowds' effect. It works because the people with the most information and best models sharpen up the price. Over time, the sharpest bettors grow their bankrolls or capital exponentially and place larger bets and have a disproportionate weight on the markets and their opinions matter more, making markets more efficient.


In theory you're right - but this isn't how it works in practice. The people who earn the most money are the best traders, not necessarily the people with the "most information and best models." The overall forecasts tend to be accurate, but you cannot look to individual participants, see who has the most money, and assume they know the most about the subject at hand.


Both right: on an individual level the people with the most money might or might not be the smartest, but in aggregate the money moves towards the smarter bettors, weighting their votes higher in future rounds, improving the aggregate intelligence of the market.


How can one make money with that knowledge put to work?


The stock markets are basically prediction markets. Over the short term they are wildly inaccurate and are determined mostly by fear, greed, and crowd psychology. But averaged over the long term they are very accurate.


but are they accurate in a predictive sense, or only in their reaction to events? If the latter, which I think is more likely, it seems kind of a useless way to try and answer questions...


The idea is that they create an incentive to discover all possible information that may effect the price of the stock in the future, and so the eventual market price ends up reflecting all that information. That in turn lets people use that price as a signal for how to allocate capital and make decisions in the future.

It's not that they're totally accurate, it's that they're as accurate as it is possible to be. Why? Because if you knew of a better way to determine the truth, you would do so, trade on that information, bump up (or down, if shorting) the price to reflect that information, and take your profits so you could do so again. Conversely, if you're just trading randomly, somebody with better information will take all your money and you won't be able to continue trading.

The price that's reflected in a market could be considered residual uncertainty that nobody knows, i.e. if the prediction market for "Will Donald Trump win the 2020 election ?" sells at $0.60 on the $1.00, it means that after all the market participants have crunched their models, aggregated their polls, gone out and canvassed neighborhoods, ran their economic analyses, spoken to campaign insiders, and whatever else they can do, the equilibrium price assumes he has a 60% chance of winning. You don't have to actually perform all those information-gathering tasks to figure this out, you can assume that other people have been incentivized to do so and their results are now reflected in the price.


> discover all possible information

Plenty of market participants are not actually doing this. Day traders, high speed traders, even index funds come to mind. And even "real" investors are influenced by psychology that has little to do with an impartial analysis of all possible information. (It's not what you know, but what "everybody knows that everybody knows" [1])

[1] http://www.epsilontheory.com/the-fundamentals-are-sound/


Sure, but markets ensure that traders who don't effectively do this lose money and get flushed out. That's the case with most day-traders, who are losing money they would otherwise put into consumption and using it to get an emotional high off price movements. Gambling, basically.

Quant high-speed traders (and arbitragers) are using information in a different way. Typically, the way these strategies work is that they discover correlations between prices. For example, when China enacts tariffs on soybeans in response to Trump's tariffs on steel & aluminum, that's going to depress demand (and hence prices) on soybeans. However, it will also have a lot of knock-on effects on other industries: shipping companies transporting soybeans will lose money, railroads connecting soybean farms to the Great Lakes will lose money, railroads connecting soybean farms to domestic demand will gain money, ranchers and chicken farms and other domestic food producers who use soybeans as feed will gain money, commodity traders could go either way, house prices in wealthy Chicago neighborhoods might increase if commodity traders are making a killing, etc. Say that the inside information entering the market is "China is enacting tariffs on soybeans". A bunch of people with that information will short soybean futures, and then it's the job of an HFT to spread that information through all the other markets that it may affect, updating the relevant prices on their securities before the profits actually trickle down through the economy.

Index funds are the freeriders of the markets. The philosophy there is that all of the work that people do is going to produce some value, and the shareholders will capture some of that value as returns to equity. And if the rest of the financial system is functioning effectively, all of this will be reflected in prices. So rather than worry about what the price will be, just buy & hold securities in proportion to their value, let the price mechanism do its job, and profit in proportion to the initial amount of capital you put in.


What does being "predictively inaccurate" mean in the context of the stock market? I assume that any time a stock jumps or falls is a symptom of inaccuracy--investors were surprised by some previously unknown--and unpriced--event.

So the low volatility of the stock market would indicate that it is actually predictively accurate, and that it is getting more so.

Then again, volatility is kind of a silly measure, because we also care about the frequency domain. The market could be very good at predicting the very short term or the very long term or both.

I wonder what a Fourier transform of the market would show?


> But averaged over the long term they are very accurate.

That doesn't make sense. Sure investors can be accurate in the long run, but the market itself just reflects the price today.


It doesn't though, because people are often short term emotional thinkers. Hype/FUD driven decisions cause short term volatility.


The Signal and the Noise by Nate Silver talks about this a lot. From predicting politics to economics to sports to climate change, group predictions are almost universally better than individual expert predictions.



In theory. But from my experience, it's the opposite, and you can tell by the comments. I made a lot of money betting on Trump to win PA, FL, and POTUS on predictit. The only one I was unsure of was POTUS, but it was good odds so I took a gamble. The fact that FL, and to a lesser extent PA, had underdog odds meant people weren't betting logically. And the comments were akin to youtube comments.


Is there any well established study which outlines this? It feels very counter intuitive that masses are better at prediction than specialists of that domain.


Well, a simple average is a pretty reasonable ways to make predictions when you have no better information... like a regression model with 0 predictors.

But really the idea is more about a feedback mechanism in which successful predictors those who are successful at making predictions end up with more money to invest back into the market making more predictions. So its a weighted average of the masses, in which those who are successful predictors get weighted more heavily in virtue of their having more financial capital with which to invest. For that to work well, you really need a reasonable level of participation. Also, if the inputs from new participants continually outweighs those from experienced quality participants, you are not going to get good predictions. Also, you have to have a rock-solid mechanism to decide the market, or it will be gamed.


You should visit the good judgment project website. They've studied this for a while and have documentation outlining and explaining their claims.

The idea is not that an untrained mass of people are necessarily better than experts. Instead, it's that some people, with training, can learn how to make good predictions about many different fields. These predictions exceed the predictions of domain experts.


Sorry, no citation handy, and this might be semi-tangential (more "wisdom of he crowds" per se), but I recall a study that reviewed those "guess how many jellybeans are in this jar" -type contests, in which the guesses' median value converged with the correct answer...


Isn't that going to turn into a voting system as soon as those predictions are used for making political decisions?


Then those who can make actual realistic predictions can simply predict the truth and exploit them


that's called futarchy


not sure how they are comparable to begin with, since one is people guessing an outcome, and another is people voting for an outcome. in the first, you are trying to guess how everyone will vote, in the second you say what you want. sorry if thats not what you are actually asking.


Also one is weighted roughly by number of individuals and one is weighted by the amount of $ that individuals are willing to pay


theres definitely more than one prediction market available in the us. for instance, https://www.predictit.org/ (assuming you were referring to IEM in your comment)


The iCash team is working to solve the governance issues in blockchain. Their work towards creating an automated & self-sufficient economy has really impressed me.

Especially being their work is in the prediction market space and covers a lot of the current limitation issues we face.

Source Link: https://medium.com/@iCash.io/processes-for-arbitration-on-sm...


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/

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

https://discordapp.com/invite/faud6Fx


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.


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.


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


The Augur Foundation will never do that because it would put them in immense legal jeopardy from the SEC/CFTC, and at no point in Augur's growth would that make sense: when Augur is small, the gain from wash trading is much smaller than the potential fines (Intrade was fined $3m this year alone, and it doesn't even operate any more), and when it's large, it's unnecessary.


The main problem on Augur right now is volume

I think that the relevant term is liquidity



I wonder if the creators were aware of Robin Hanson's market maker mechanism, in which an automated market maker always accepts a trade. It limits its potential losses by offering increasingly worse terms as the market deviates from even chance of the outcome.

It also allows different predictions to be linked, so that you can bet on the outcomes of two events, or on the outcome of one event given a particular outcome of another event.


They knew of Robin Hanson's work around futarchy[1], and interviewed him[2].

Augur initially planned to implement an automated market making scoring mechanism, but changed the dynamics[3] during alpha testing.

[1] https://en.wikipedia.org/wiki/Futarchy

[2] http://augur.strikingly.com/blog/augur-advisor-chat-with-dr-...

[3] https://augur.stackexchange.com/questions/104/why-did-augur-...


> but obviously you need someone to take the other side of the bet.

Wasn't obvious to me. Can't a prediction stand alone, as in real life?


Not if you don't have skin in the game. The associated risk and payout equilibrium becomes the prediction.

Without skin in the game you end up with manipulated values.


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...


Sigh.

Copying my comment from below:

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


By any metric it's a ghost town. But I think that has a lot to do with poor UX, low liquidity, etc., all of which could change as it improves. For example, you currently have to download an app to interact with Augur. There's also very few contracts, each with very little liquidity.


You don't have to download an app to interact with augur: augur.casino

Built on top of IPFS


Cool! So why did the main team insist upon the app approach (what's the benefit?), and what's this site doing to get around it?


Decentralization. Anyone can run their own node of the software making it resistant to censorship, malicious control by the devs themselves or a third party.

Augur.casino runs their own node of Augur but runs it on IPFS, allowing others to connect to it.

Provides convenience if a user doesn't care about decentralization.

Just btw, I'm not affiliated with augur or augur.casino or any of these projects. I just find them interesting


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.


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.


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)


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.)


There was maybe one active assassination market and it didn't even have that much interest. The world cup and the current cryptocurrency markets were where most of the bets happened.


But if they scale that up to 1 billion users, their company will be worth 9000 trillion dollars. Sign me up!11!


> 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.


>>Can anyone comment on how settlement actually works?

The Augur whitepaper[1] explains the gory details, but at a higher level when the market creator defines the prediction market and event states through a smart contract, they must also specify the "designated reporter" and the "resolution source". The designated reporter should be somebody you trust (perhaps even yourself) to report on the event using the specified data source.

If the final event state is invalid, then you (the market creator) forfeit your validity bond, which is a form of punishment for creating a market that ends up in a state of ambiguity.

If the event state is valid (i.e. one of the set of outcomes that can be unambiguously determined) then the settlement proceeds.

After settlement finalizes, reporters get their REP token payout, market creators take their ETH cut, and traders who still hold shares corresponding to the settled reported outcome get their ETH. I believe each reporting cycle is still 7 days.

There are some edge cases where an event outcome can be disputed by other reporters in case the designated reporter is incorrect, but the system economic incentives are such that this type of behaviour is heavily discouraged.

[1] https://www.augur.net/whitepaper.pdf


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...

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


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.


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



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


What's the money currently at stake?


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


Total Money at Stake: $1,155,706.38

From predictions.global


"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?


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 covers the security assumptions pretty well.


Yes, but I believe their answer is that they make you hold a certain amount of REP tokens to report, and REP tokens cost $$$. So you would have to buy more REP for each new identity.


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


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.


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


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


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


You should be able to do it on BitMEX. Shorting CBOE Bitcoin futures could also get you part way there.


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

See: https://augur-cfd.com


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.


"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."


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.


Additionally, not all bets on a person's or persons' life will be made with malevolent intentions. A global non-profit can use prediction markets as an exotic form of donating. The donator takes the "bad" side of the market, and if the non-profit is successful at saving lives, or doing some other form of reportable good, they receive a payout from their bet. Now, if the non-profit pays its employees absurd salaries, operates inefficiently, etc then they stand to lose some amount of money in the prediction market.

If you approach it this way there is no reason all bets on the "bad" side have to have "bad" intentions.


An idea I had a while back was to set up bets on breakthrough technologies, where you can fund X-Prizes by betting against them. The original X-Prize essentially did this by buying insurance against a payoff, which allowed them to significantly increase the prize amount; my idea was basically to crowdsource the insurance side of that.

https://www.climatecolab.org/contests/2015/shifting-attitude...


One possible way to implement this: Have on betting pool per person. When betting cryptographically commit to a time interval for predicted death time. After death bettors have limited time to reveal the time interval they bet on. Split pool among correct bets weighted by 1/interval-length.

Making it easy to hire an assassin anonymously is why I find privacy preserving coins like zcash scary, despite valuing my privacy highly.


Well crap that does seem to solve the problems I mentioned. I don't think that could be set up on Augur, but it could be implemented as a new contract.


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


Why would anyone take the other side of that bet?


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


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.


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.


Of course. My point is, that wouldn't actually work very well, for the reasons I mentioned above.


It’ll be tough shutting down what is essentially a bunch of smart contracts on Ethereum and an open-source client on Github.


Not sure if this is still the case, but iirc it was at least at one point part of the plan to have the reporters be able to report "this is an unethical market due to things like assasination markets" instead of yes or no, and if sufficiently many reported in that way, they would not be penalized for doing so.

But I don't know if it ended up like that in the final version


To shut down Augur you would have to shut down the Ethereum network, which would require coordination between world governments to pull off, and still probably wouldn't completely shut down the network.


I would like to bet if Buffet dies in the next 5 years because he is very old. That doesn't mean I want him killed or that someone would kill him. In fact we could diferentiate between natural causes or homicide.


Seems like a very low probability event. This would’ve been done in the stock market a long time ago if this was a problem. Buy put options on Berkshire Hathaway and then kill Warren Buffet a few days later. Profit.


Coincidental timing with the first arc of the new season of Lupin III...


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...


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.


I'd say they're neither: they're marketing. The average gambler isn't that bothered about the actuarial unfairness of their bookmaker or casino, and the bookmakers don't make fortunes because their cut is particularly large but because they are very good at hooking people on making more bets, and having enough volume to lay a big bet.

The one area where blockchain based gambling might offer a significant theoretical advance is games when all the gambling is contained within auditable code that's provably actuarially fair, but people generally don't get interested in slot machines because the ability to audit expected return is important to them (if they do, it's probably because they have a strong impulse to disregard that understanding and/or are gambling sums they don't care about...).

When it comes to bets on the outside world, crypto-gambling is arguably a lot worse than a high street bookmaker as it involves a de facto side bet on (i) the value of the crypto asset not declining during the bet duration and (ii) the oracle being reliable. It's not like you can't get odds or participate in more obscure bets or prediction markets using regular currency on p2p platforms or even with high street bookmakers either, it's just they're relatively niche interests...


> When it comes to bets on the outside world, crypto-gambling is arguably a lot worse than a high street bookmaker as it involves a de facto side bet on (i) the value of the crypto asset not declining during the bet duration and (ii) the oracle being reliable. It's not like you can't get odds or participate in more obscure bets or prediction markets using regular currency on p2p platforms or even with high street bookmakers either, it's just they're relatively niche interests...

Very well stated!


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

The main challenge, in my opinion, is volume.

The future of online betting is exchange marketplaces, where users/members can both back and lay event outcomes. This removes the reliance of a central player (bookmaker/sportsbook) to support the lay side of the market. Overlays are generally much smaller on exchanges.

However, to achieve this and also to support "trading" (multiple back and lay bets in the same market, based on in-play price movements), an exchange needs a high volume. Betfair is the best known exchange and has serious first mover advantage. I'm currently looking at the England vs India 3rd Test cricket Match Odds and over GBP44 million has been traded on that market alone. Liverpool vs Crystal Palace tonight, GBP700k and there's still four hours until kickoff. The 15.05 Thirsk 7f horse race, currently in-play and GBP650k volume.

All of Betfair's competitors to date have really struggled with this aspect. Betdaq, Smarkets, Matchbook, no matter how good their service offering or how low their commission, haven't been able to attract the same level of betting volume and are thus not as attractive as Betfair. A little bit chicken and egg scenario to be sure.

Anyway, in my view the biggest hurdle Augur will need to clear is that of market volume.


Betfair was bought by the bookmaker Paddy Power. Betfair has both an exchange and sportsbook components. The former is where you bet against other punters and the latter is where you bet against the company. The site seems to steer you by default towards the latter. If you show even minimal profitability on a sportsbook and you'll typically be restricted. Does the sportsbook get first pick on odds on the exchange to lay off liabilities? Do they monitor canny punters on the exchange and take positions accordingly? Are there even chinese walls between the two parts of Betfair and between that and Paddy Power bookmakers. Is this well regulated? Paddy Power are a pretty slick operation but I wouldn't trust them as far as I could throw them.


Just wrote a blog post about Augur and its future challenges: https://www.cultivatelabs.com/posts/thoughts-on-augur

I know - just another armchair hack, but I've been running a company that builds/runs prediction markets inside corporations for the past 12 years...


Lol gambling/speculation might be one of the few places blockchain has product market fit


Product market fit surely, but a long list of technical challenges left to solve as well.

You have better odds in Vegas.


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


So was MtGox, for the longest time!


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.


MtGox held total control of the private keys, so I'd argue it was never in a position to be relied on.


You'd think that based around the context of my statements that I'm not an unaware bystander and that I might already know something about Augur, what their tech is and who is involved in it. Guess not.

In a very narrowly defined space, it is something that works, yes, but as always with tech in this space "there be dragons".

As a side note, I stg that every "new thing" built on ethereum is just a chain of underpants gnome logic. Except the "???" is something you can drive a star system through.


> You'd think that based around the context of my statements that I'm not an unaware bystander and that I might already know something about Augur

When something is currently operating, just saying it can't work because of "technical obstacles" is bound to seem like a drive-by comment. The same with saying "there be dragons."

I'm genuinely interested--so can we enumerate some dragons? Can you elaborate?


Could you point me to Dudley's patents? I attempted a USPTO search and didn't find it.

I'm interested in when the patents were issued and the methods they cover.


>>Hard pass. Blockchain and Gambling still don't really go together yet.

  s/Gambling/trading
In Augur's case the provably fair aspect seems to be restricted to the correctness of the order matching and trading engine, similar to other decentralized smart contracts that try to implement exchange functionality.


Online gambling sites like Bovada already have bitcoin deposits and withdrawals, your funds stays stable after a deposit, or you can deposit with credit card and get a check in the mail from Taiwan.


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.


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.


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.


> 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?


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.


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

Who got the $5 million?


> 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.


http://allcoinsnews.com/2015/08/27/augur-raises-over-usd-4-m...

Tl;dr is that 80% went to public, 16% to founders and 4% to foundation.


For the record, augur raised during time when ether was less than $10 https://www.coingecko.com/en/coins/augur Who knows what that fundraised amount can be worth now


My understanding is that the development of Augur was funded by the initial sale of REP, and that the organization presents itself as only developing the software, not as creating or running any of the specific markets.

So, no, I don't think they have a house take? However, the individual markets are each made by someone, and I believe that these "market makers" are financially rewarded through I guess a sort of a house take thing?


I looked at their site briefly and didn't quite see the answer to this, on the bottom of their FAQ (https://www.augur.net/faq/) it says:

Fees on the Augur protocol go directly to the market creator and REP holders who report and dispute outcomes. The Forecast Foundation does not recieve any fees from actions, trades, markets or use on the Augur protocol.

I guess this has to do with them being a decentralized marketplace, which as the article discusses does have some cool perks.

In the USA, PredictIt.org is a site that is also aimed at prediction, but they take a 10% fee on profit, and then a 5% fee on withdrawal. Seemingly a lot more volume on their markets than Augur at the moment, with some of their markets having hundreds of thousands of shares traded, and thousands of comments.

https://www.predictit.org/About/HowItWorks?page=home

Edit: After I posted I now see that Gibsons77 gave a better and more concise answer to the question


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.


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?


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.


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


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


Prediction markets are a really cool idea.

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


Doesn't this present huge challenges wrt whitewashing?


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).


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.


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




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