Augur 101 with Joey Krug


I have been working on some transcripts of episodes old and new for CRYPTO 101 Media. After editing the an episode from December 2017, with core developer, Joey Krug of Augur, I noticed we had never published an episode write-up. Augur is one of the more established names in the space and deserving of a CRYPTO 101 blog. Be sure to check back in on this episode of the podcast which took place a few short weeks before the highs of the 2017 bullrun.

What is Augur?

According to its website, Augur is “A prediction market protocol owned and operated by the people that use it.” Augur deals in prediction markets, not just for sports betting but for predicting world events. It was birthed out of the felt need that cryptocurrencies had more to offer than decentralised exchange of value — perhaps they could help create value too…

“With Bitcoin, I thought it was really cool cause he had to decentralized money for the first time. But then I realized that there wasn’t really a decentralized financial system you could use it in.”

The way in which predictive market platform may be able to create value was outlined by Krug in the podcast:

“Frederick Hayek wrote a paper called ‘The Use of Knowledge in Society’. Basically it said, ‘prices are information’. And so if you had more ways to price things because you have a more efficient economy. It was the idea that if you could speculate on essentially anything then the economy would be more efficient because you could hedge against various risks… with Augur, the idea in a nutshell was to actually enable this for the first time.”

What is REP?

The Augur platform has a currency of its own called REP or ‘reputation’. The reason for the name is that there has to be something of value at stake when making predictions or declaring outcomes.

“My reputation is something that has economic value. It’s actually tradable and I’m saying I’m willing to lose this reputation if I’m lying.”

Once a predictive market has been set up, parties can speculate on outcomes which could be for fun, or for exposure to events that may not be traditionally available to them (for example Chinese investors in Wall Street listed stocks). However, in order to settle a market, an outcome needs to be reported.

“So the way it works, you just have one person report on the market because you want to make this as efficient as possible. So either that one person reporting honestly or incorrectly or they reported wrong. If they reported correct, it’s over, it’s done. That’s it. If they reported wrong, what you can do is you can challenge that. You can post what we call a bond. You’re saying ‘hey, I think this is wrong. If I’m right about this being wrong, I want to get rewarded for it. If I’m just wasting everyone’s time and it’s not really wrong, I’m willing to lose this bond that I posted’. And then what happens is a select group of people report on it. If you still think it’s wrong, you can challenge it.”

This reporting system requires that value be on the table, that reporters are taking something when they declare outcomes — outcomes that real people’s money, and world knowledge, is riding on.

Manipulation?

Surely predictive markets can be manipulated. A reporter may have malicious intent (even though this is of economic detriment to them) or perhaps simple human error or ignorance gets in the way of accurate market frames and reports.

“Basically the idea is, “what if the market’s wrong?” And the answer [is], well markets can be wrong and they’re wrong a good amount of the time. The cool thing about markets though is… you just have to be less wrong than the other people.”

The Future?

What does Augur see in their future?

“I can envision a future where you ask Siri, you know, hey, hey Siri, who’s going to win the 2020 presidential election? And she pulls it up and says, you know, well, according to Augur, you know, Kanye has a 20% chance or something like that.”

What are some of the problems that need to be solved before something like Augur is widely adopted and contributing to the wider economy?

“I think five years from now there’s basically two problems that I think will be solved…One is the tech today is not very scalable. And the other kind of big thing is, you know, we need something sort of stablecoin to denominate the markets in… Over the longer run we really need something kind of stable cryptocurrency to denominate these markets. If we have solutions to those those two problems then I think Augur can see that really large scale adoption.”

Who is Joey Krug?

Joey is a core developer of the Augur platform and co-cheif investment officer with Pantera Capital.

“I started betting on horse races and so I would do it every day after school…people were saying ‘you should invest in the stock market, it’s much safer’. So that’s when I kind of started getting involved in regular investment finance. The problem as though, this was 2008, so I put my money into the stock market and then the market crashed 50%. [2011] is when I started mining Bitcoin and really got into crypto. I was in high school at that time. And in 2013, I graduated, went to college in southern California. And then after that first year… started Augur and uh, dropped out of school.”

Be sure to check in to this time capsule of a podcast!