Veil Just Fattened the Augur Protocol
Leif’s first words to me last week as he clocked into his shift at the office: “Are you still holding that REP? Augur’s up like 25%.”
I’m not here to hype a coin. But the price of Augur over the past two weeks tells an interesting story about how protocol-based technologies experience growth differently than their SaaS-monopoly counterparts.
Augur is an Ethereum-based protocol for prediction markets. By this past weekend its token (REP) was up over 100% since January 14th. My first thought was that it was probably reacting to rumors that it was going to be listed on Coinbase, which has lately begun offering its clients access to a handful of ERC-20 tokens. Although the increased demand from Coinbase buyers can absolutely send a price upwards, it’s usually a superficial gain.
Turns out the price action had nothing to do with a Coinbase listing. It was a response to an interesting product development from within the Augur ecosystem: the launch of Veil, a new front-end for making bets on Augur’s prediction markets.
Augur was one of Ethereum’s first notable ICOs. In 2015 it raised $5.5 million, which seemed like a massive sum for an early stage technology project with an open source business model. On the date of their ICO one REP token was priced at roughly $0.69. Today it’s trading at ~$14.
I don’t actually care about the price of Augur tokens. I bought a little, sure, but mostly because I’m intrigued about the project. (And I’ve got an established history of making ill-advised public wagers.) What I respect about the Augur team is that they actually shipped a product. It may have taken them three years but they’re one of the only so called “Web 3” projects with actual user adoption. The interesting thing about blockchain projects is that the facts about exactly how much user adoption are right out in the open. And here’s the thing — Augur’s user base has been extremely small. It sees about 35 active users a day, at the moment.
This isn’t because people don’t like to bet on things. Sports, politics, entertainment — other platforms have proven that there’s a great business to be had in letting people wager money on the outcome of future events. But for anyone that’s attempted to use the current Augur client, it’s pretty clear what the current barrier to adoption is: it’s hard to use. The core Augur client requires time to sync with the blockchain upon first launch, so first time users are forced to sit and wait before diving into the fun of making wagers on the 1,800+ markets available for trading.
This is why everyone’s excited about Veil. It launched last week, and new users don’t have to wait for anything to sync. They can just create an account, connect a Web 3 wallet like Metamask, and start placing bets on anything from Oscar winners to the hashrate of Ethereum.
The user interface is incredibly polished and the Veil team has done a great job abstracting away some of the fundamental complexity of the Augur market structure. But under the hood, it’s still Augur. After kicking the tires of Veil upon its launch last week, it was pretty easy to guess that it’ll be a conduit for Augur user growth, and that should be good for the long term value of REP. So the price jumped.
Which brings us to the lesson learned about protocol-driven growth. The Veil team and the core Augur team are separate entities. Rather than rely on the core team to fix the UX problems in the Augur client, innovation was open to anyone who’d like to take a swing at improving the experience of trading shares in prediction markets. They could have launched a competing protocol, but instead they choose to build on top of the solid foundation provided by Augur. As a result, the Veil team saved the tremendous expense of the 3 year technical investment made by the core team. And because Veil is powered by REP, financial gains may accrue to the entire ecosystem.
This was all foreseen by Joel Monegro in his 2016 post, “Fat Protocols.” In it, he contrasted the value of two layers of technical infrastructure in Web 2.0 companies vs blockchain ecosystems.
This is what Facebook looks like, from a value-creation standpoint. A thin slice of TCP/IP and WWW on the bottom, the Facebook application on top. Zuckerberg was the one made into a platform barron — not Tim Berners-Lee.
Here’s a look at how value creation is (theoretically) structured for Augur. Veil may have a killer product on its hands but the majority of value may accrue to token holders, including the maintainers of the core protocol.
Here’s Joel’s key insight: “the market cap of the protocol always grows faster than the combined value of the applications built on top, since the success of the application layer drives further speculation at the protocol layer.”
So maybe Veil cracks the UX problem at the heart of the Augur protocol and sparks the movement that allows turns our entire culture into a liquid financial market. Maybe another interface will. Maybe none of them will.
But this is what decentralized growth looks like. Anyone can play, and all coin holders share in the winnings.
