TokenGazer Crypto Review | Augur: Overall Rating: 3.9, Indicator Trend: Neutral
Issuance Time: Oct. 2015
Total Suppply: 11 million
Circulation Ratio: 100%
Augur is one of the earliest projects on Ethereum. Most of its technical development work has been completed. It is popular on Github with a large volume of code commits and high code frequency. [Bullish]
Anyone can create or participate in a prediction market on Augur. Augur utilizes the decentralization and immutability of blockchain to ensure the fund security and process transparency of the prediction market. [Bullish]
Augur’s user experience depends on the development of Ethereum. [Bearish]
Augur has a long prediction process and it takes a long time to reach consensus, which affects market efficiency. [Bearish]
Augur has many followers on social networking sites including Twitter and Facebook. [Bullish]
Augur raised more than 1.1 million ETHs during ICO. Most of its technical development work has been completed and it has no cash flow problems in later stages. [Bullish]
Augur has no geographical boundary or fund threshold, which leads to great potential in liquidity and trading volume. [Bullish]
Augur’s anti-censorship feature makes it very suitable for political election predictions. [Bullish]
Augur 2.0 plans to introduce the stable coin DAI to reduce risks for users. [Bullish]
New Augur users may find it difficult and confusing to use the platform. Augur requires improvements in user experience. [Bearish]
Augur is in lack of liquidity. Currently only contrarians can complete large-volume betting transactions on the Augur platform. [Bearish]
Augur is no match for traditional centralized prediction market in terms the number of users, markets, filled orders and trading volume. [Bearish]
As a mainstream cryptocurrency, REP is listed on many exchanges with impressive trading volume and turnover rate. [Bullish]
The REP distribution is very decentralized. The top ten REP holders possess 38.68% of the total, and two of them are exchanges, so there is no centralization risk. [Bullish]
1 Technology Assessment
1.1 Technology Vision
Augur is a trustless, decentralized, Ethereum-based oracle and platform for prediction markets where any user can create or participate in a such a market. Unlike traditional prediction markets, Augur is a free open source software consisting of a series of smart contracts deployed on Ethereum. It utilizes the decentralization and immutability of blockchain to ensure the fund security and process transparency of the prediction market and eliminating the possibility of hidden operations.
1.2 Key Technical Details
Aurgur’s prediction process falls into the following steps: market creation, trading, reporting and settlement.
(1) Market Creation
Augur allows anyone to create a market about any up-coming event. The market creator sets an event, the event type, the market type (including Yes/No, Multiple Choice and Numerical Range), a resolution source, a designated reporter (which can be the creater him/herself), the event end time and a creator fee, then submit some limit orders on the market.
Four types of fees/bonds are involved in market creation.
Ø Market Creator Fee
Set by the creator, the percentage of Market Creator Fee is from 0% to 50%, and most creators in the market set this fee at around 1%. Users participating in the prediction will have to pay the fee to the creator in accordance with this percentage during settlement. It should be noted that if the creator sets the Market Creator Fee too high, it may result in users not willing to participate in this prediction.
Ø Validity Bond
The validity bond incentivizes market creators to create markets based on well-defined events with objective, unambiguous outcomes that are included in the options. The validity bond is paid in ETH and is returned to the market creator if the market resolves to any outcome other than invalid.
Ø No-Show Bond
The no-show bond, paid in REP, is returned to the market creator if the market’s designated reporter actually reports during the first three days after the market’s event end time. The creator can choose himself as the Designated Reporter.
Ø Ether Gas
Since Augur was developed based on Ethereum, creators have to pay gas fees with ETH when they place limit orders to gurantee an initial liquidity. Although optional, the initial liquidity may serve as a reference for users who would like to participate in the prediction market.
Users can participate in any prediction market they are interested in. The Augur trading contracts maintain an order book for every market created on the platform. Orders are filled by an automated matching engine and requests to buy
or sell shares are fulfilled immediately if there is a matching order already on the order book.Orders are never executed at a worse price than the limit price set by the trader, but may be executed at a better price. Unfilled and partially-filled orders can be removed from the order book by the order’s creator at any time.
Augur’s smart contracts match opposite orders. For someone to buy an outcome, there must be somebody who is willing to invest in the opposite outcome. For example, consider a market that has two possible outcomes, A and B. Alice is willing to pay 0.6 ETH for a share of A and Bob is willing to pay 0.4 ETH for a share of B. First, Augur matches these orders and collects a total of 1 ETH from Alice and Bob. After the event occurs, the person who makes a correct prediction will receive one ETH and his/her profit is the one ETH minus his/her cost. And the one who made the wrong prediction will lose what he/she paid.
While new users might be confused when using Augur. According to the figure above, in a Yes/No prediction market, users can only trade Yes orders but can not trade No orders because Buy is the equivalent of Yes and Sell, as an opposite order, is the equivalent of No.
For example, Alice is willing to risk 0.6 ETH for a share of ‘Yes’ and Bob is willing to risk 0.4 ETH for a share of ‘No’, namely, he is willing to sell a share of ‘Yes’ for 0.6 ETH. The Augur protocol matches these orders together and collects 1 ETH total from Alex and Becky. If the outcome is NO, then Bob gains one ETH, otherwise he will lose 0.4 ETH. It is worth noticing that users placing Sell orders do not have to actually hold any orders at all.
Outcomes are determined by Augur’s oracle, which consists of profit-motivated reporters, who simply report the actual, real-world outcome of the event. Anyone who owns REP may participate in the reporting and disputing of outcomes. Reporters whose reports are consistent with the consensus are financially rewarded, while those whose reports are not consistent with consensus are financially penalized.
When the event ends, the designated reporter has up to three days to report on the outcome of the event. If the designated reporter fails to report within the allotted three days, the market creator forfeits the no-show bond, and the market automatically enters the open reporting phase. As soon as the designated reporter submits its report, the market enters the waiting for next fee window to begin phase, and the reported outcome becomes the market’s tentative outcome.
Once the next fee window begins, the market enters the dispute round phase. The dispute round is a 7-day period during which any REP holder has the opportunity to dispute the market’s tentative outcome, as long as he/she stakes twice as much REP as the reporter did and then the market enters a new seven-day debate window phase.
It seems that the dispute may continue endlessly, while if the size of the filled dispute bond is greater than 2.5% of all REP, then the market will enter the fork state, which is the ultimate solution to the dispute. When a fork is initiated, disputes for all other non-finalized markets are put on hold until the end of this forking period. Currently, Augur’s total market capitalization is about 160 million US dollars, and 2.5% is about 4 million US dollars, so generally no one is willing to risk such a large sum of money to argue over some obvious results.
Users can settle in two ways. One is at the trading stage, where users can sell shares to other users at any time; the other is that when the event results are confirmed and the market enters the settlement stage, users get reward based on the event result, and market creators obtain the Market Creator Fee, reporters receive the reporting fee.
1.3 Influence on Github
Augur’s code is at https://github.com/AugurProject. There are currently repositories including Augur UI, Augur Desktop Electron Application, and Augur Core, with a large volume of code commits and a high code frequency is also high. As of March 20, 2019, Augur’s rankings of of watchers, stargazers and forks on Github among secondary market projects are shown in the table below, with each indicator’s ranking roughly between 20–30.
1.4 Technology Review
Augur is a very early application on Ethereum, on which any user can create a decentralized prediction market and ensure the fairness of results with blockchain technology. Augur has a large volume of code commits and a high code frequency on Github. However, new users may feel confused when using Augur. if there is a disagreement in the reporting process, it might require a long time to reach consensus, which affects market efficiency. In addition, Augur’s user experience depends on the performance of the Ethereum blockchain.
2 Business Model and Ecosystem
2.1 Current Appliacation
Unlike traditional centralized prediction markets, Augur allows users around the world to create or participate in prediction markets. In theory, Augur has no geographical boundary or financial threshold, which leads to great liquidity and trading volume, but this has not been the case.
As can be seen from the following three figures, there are only a few dozen of users in Augur’s ecosystem every day and with only a few dozen markets created and a daily trading volume of several hundreds of ETHs, worth about tens of thousands of US dollars, which are no match for traditional centralized prediction markets.
2.2 Use Cases
At present, there are 191 prediction markets in the Augur ecosystem, with main event types including political elections, cryptocurrency and sports gambling, as shown in the table below.
As can be seen from the table, the hottest prediction topics are political elections and cryptocurrency. There was an article entitled “How did Augur Attract the First ‘whale’ ?” (https://mp.weixin.qq.com/s/s5LB1X35QLhOOO9kwRw2Jw), and the Augur user in that article wanted to bet on the topic “The Republican Party will get the majority of the House of Representatives. He believed that traditional gambling sites such as Ladbrokes and BetWin have bet and profit restrictions, and they can lower the odds privately. However, there is no bet limit and fund custody on the Augur platform, and there is no need to worry that the platform would close certain market or ban the account for no reasons. That’s why he chose to trade on the Augur platform.
Therefore, the prediction for political elections is a very appropriate scenario for using Augur. Prediction for such events is often intervened or banned by the government in the traditional centralized prediction market, but Augur can avoid such risks due to its anti-censorship features. In addition, the political elections often last for a long time, so Augur’s shortcoming of long prediction process would not be so obvious. On the contrary, events with real-time changing odds such as horse betting and soccer gambling are very unsuitable for using Augur. This also means that although the traditional centralization prediction market is vast, the scenario that is really suitable for using Augur may take up only a small portion of it, and the Augur team should make the best of its advantages in political elections.
2.3 Participation Strategy
According to the above figures, Augur’s liquidity is far from sufficient. At present, a user who invests a large sum of money in accordance with the general expectation can hardly find anyone who invests on the opposite outcome . Only contrarians can conduct large-amount betting transactions on the Augur platform. Therefore, if you have obtained some inside information, and these information are contrary to the expectation of most people, then you can create a prediction market on the Augur platform. This provides enough “contrarian” liquidity to attract other users to participate in the transaction, and make successful predictions and receive rewards.
2.4 Ecosystem Development
As is mentioned earlier, new Augur users will find Augur difficult to use and confusing. However, the Augur ecosystem is expanding and projects listed on the official website are shown below. Programs such as Veil and Guesser use Augur as a back-end to develop a more user-friendly UI that allows users to discover markets worthy of participation and provide introductions and suggestions to participants.
Currently in the Augur prediction market, users use ETH for betting. However, the price of ETH is changing and there may even be extreme cases where a user predicts correctly but eventually loses money (with the fiat currency standard). To solve this problem, the Augur team plans to introduce the stable coin DAI in version 2.0.
3 Governance and Operation
3.1 Institutional Investors
Augur carried out its ICO in October 2015. It is one of the earliest projects on Ethereum and has raised over 5 million USD.
3.2 Core Team Members
Jack Peteson: Co-founder. He developed several SDKs for the programming language Julia.
Joey Krug: Co-founder. He is the co-founder of the hedge fund Pantera.
Vitalik: Advisor, founder of Ethereum.
Paul Sztorc: Advisor, statistician of Yale University and founder of Truthcoin.
3.3 Organization and Operation Cash Flow
As one of the earliest projects conducting ICO on Ethereum, Augur raised more than 1.1 million ETHs at the time. There are only 600 ETHs in its current wallet addresses. Most of the raised ETHs have been sold. Considering the increase in ETH price in recent years, the project team should have sufficient funds. Most of Augur’s development work has been completed, and there will be no cash flow problem in later stages.
4 Market and Community Assessment
At present, REP’s market value is about 158 million USD, ranking 36th and its turnover rate is 1.35%. The market value and trading volume are ranked high. Due to the overall market downturn, REP’s active addresses, on-chain transactions and trading volume have decreased significantly compared to early 2018, but the price of REP has rebounded recently.
The total amount of REP is 11,000,000, all of which are in circulation. The distribution, which is very scattered, is shown in the table below. The top ten REP holders possess 38.68% of the total, and two of them are exchanges, so there is no centralization risk.
5 Community Assessment
Augur followers on major social networking sites are shown in the table below.
As an early project on Ethereum, Augur is very popular and has many followers on several social networking sites.
6.1 Estimate Value Range
According to TokenGazer’s valuation model, REP’s current market capitalization is close to the lower boundary of the estimated value range.
6.2 Marketcap Trend and Strategy
Judging from the figure above, the price of REP has dropped significantly compared with the beginning of 2018, and the market value share is very close to that at the beginning of 2018.
6.3 Valuation Review
The figures above show that REP’s current market capitalization share is low, close to the lower boundary of the estimate value range. Therefore, TokenGazer believes that if the overall market trend is reasonable, the REP market capitalization is not likely to increase significantly in the short term.