Augur Network, a decentralized prediction market protocol

Augur Network, a decentralized prediction market protocol

What is a Prediction Market?

In their simplest, most basic form, prediction markets offer a form of prediction done on particular outcomes of future events. The markets may also be used to forecast the probability of any outcome (or class of outcomes) arising from a known process.

In this segment today, we will learn about one of the popular Web3 prediction market platforms.

About Augur

Founded in 2014, Augur is a decentralized prediction market platform for Ethereum and EVM compatible chains. It has done massive development in the last few years.

Augur is a no-limit betting platform that allows anyone, anywhere to purchase, and sell shares in event results. The betting can be on anything from the cryptocurrency price to the number of sales the industry or sector will reach.

About Augur’s chain

Augur protocol is built on Ethereum blockchain which means it is run by global users without any central authority facilitating trading, creating, or settling markets. The user creates a market by defining its rules and resolution and then starts trading outcome tokens. Reporters tell the smart contract about the winner once the market ends and then proceeds are paid to the winning outcome token holder.

As its decentralized, it is loaded with some great features like no fees for operations, no possibility of termination/ modifications, or restrictions on usability. The fees are paid by winning traders which are distributed between creators and reporters approx. 1-2%.

How Augur Contract Works?

There is a four-stage progression that Augur market follows: Market Creation, Trading, Reporting, and Market Resolution :

Market creation

Markets are created by users to get answers to questions about future activity. Users can create 3 types of markets:

  • YES/NO
  • Multiple Choice
  • Scalar

The market creator sets the event end time and chooses a designated reporter to report the outcome of the event. The reporter cannot individually decide the result, the community has the right to correct reporters’ reports.

The market creator has to set a resolution source which can be common knowledge or a specific source like news publication or govt. department. The reporter must use this source to decide the result.

Creator also set a fee which is paid by traders with market contract and then they post two bonds:

  • Validity bond is returned to creators in DAI token if market outcomes are other than invalid. Creators are incentivized only for the markets based on well-defined events with objectives.
  • Creation bond is returned to the creator in REP after the reporter reports within 24 hours of the market end time and if the market outcome is similar to the reporters’ outcome. If the reporter does not submit the report within 24 hours the creator forfeits the bond and gives it to the first public reporter. Creation bond incentivizes creators to select a trustworthy reporter.

Here is the number of Augur markets created so far:

Source: https://dune.xyz/CBB/stats-for-augur-v2

Trading

Trading is where participants forecast the outcomes of events by trading shares of those market outcomes. A complete set of shares is created by an on-contract matching engine and comprises one share of each possible valid outcome.

Buy & sell requests are fulfilled by matching orders from the order book.

Reporting

The reporting procedure is where market resolution begins. At its most basic level, reporting occurs when a group of participants gathers to determine the results of a market to pay the winners and conclude the market.

The reporting phase begins once the Market’s end date has been reached, with specified reporting. When a market enters reporting, the designated reporter (usually the creator) has 24 hours to report on the market’s outcome. Whichever outcome the chosen reporter and community chooses becomes the preliminary winner. Once a designated reporter presents the preliminary winning outcome, it is open to debate.

Disputes can last up to 16 rounds, with each party doubling the previous round’s dispute bond until the threshold for continuing is not reached. After 16 rounds, if neither side has won the dispute, the conflict can fork Augur, which is a rare occurrence.

When a market isn’t challenged within the first 24 hours, or when a disputed outcome doesn’t fill the required dispute bond, the Market closes. Individuals who hold winning outcome tokens are eligible to receive proceeds.

Reporting Fee

The current open Interest of the platform and the current value of the Reputation Token are used to calculate the reporting fee. The goal is to give the REP token enough value that it is 5x the amount of all assets locked in the platform. The reporting fee will continue to rise until the Market Cap in REP is high enough to provide the desired ratio.

The initial reporting charge for any new Universe is 0.01%, and it is updated weekly according to demand.

Reputation Token

A universe’s reputation token, or REP, is an ERC20 token used to stake on and therefore determine Market payout resolutions. Supplies are generated by migration of tokens, Legacy reputation tokens for the origin universe’s supply and REP for all other universes’ supplies.

The current REP token price is ranging between 16USD and 17USD.

REP migration means migrating REP from v1 to v2 of Augur:

https://www.augur.net/migrate

Here are the REP migration details:

Source: https://dune.xyz/CBB/stats-for-augur-v2

REP Bond

When a market is established, a REP deposit is needed to meet the demand of two separate bonds. The needed REP is the highest of both:

  • No Show Bond: The No Show Bond is a REP deposit made to the Market if the designated reporter fails to show up and does not provide the Market with an initial report. It will fluctuate over time based on the number of No show REP bonds available in the market and the frequency with which designated reporters to fail to show up. When an initial report is required, this bond is always utilized to pay for it.
  • Initial Reporting Bond: The Initial Report Bond is the amount that must be paid out for the very first payout reported during market resolution. Depending on the percentage of Initial REP bond payments and the number of markets that resolve to the initially announced payout, it will fluctuate over time.

Market Resolution

When a market reaches its end time, it enters Reporting, which is completing a market and receiving a reward. Below are three critical distinctions in how a market can resolve.

  • Valid: Most of the time, a non-Scalar market will resolve with a payout of numTicks attoDai for each non-Invalid outcome. In most cases, the “winner” is a normal outcome. For example, in a Yes/No market, a typical resolution is for Yes or No to win. A valid result in Scalar markets is a payout that evenly divides numTicks attoDai across the LONG and SHORT outcomes.
  • Invalid: If the outcome of a market cannot be ascertained, it should resolve as “Invalid.” Markets with confusing rules or where the event occurs beyond the Market’s end time should be handled as Invalid. Still, there are a variety of other scenarios that have historically resulted in Markets being resolved as Invalid. When a market is resolved as Invalid, all other shares are worthless and will pay out numTicks attoDai.
  • Fork: Markets’ capacity to resolve in a fork is one of the essential features of the Augur platform. From the standpoint of the forking market, the final resolution will behave exactly like a conventional Valid or Invalid resolution. The only significant difference is in how the final payout is calculated. Shares will continue to be redeemable in the same way, and payouts will be made according to the same rules.

Augur Turbo - The Sportsbook UI

Augur Turbo is Augur’s most current release, explicitly developed for recurring markets such as sports, cryptocurrency, economics, and politics. Turbo offers an intuitive user interface built on top of Balancer AMMs on Polygon to leverage the nearly-zero transaction fee. Without any human involvement, markets are automatically formed and resolved at periodic intervals utilizing Chainlink data, enabling daily and fast-resolving markets in sports and crypto segment. It uses USDC as its trading currency and incentivize liquidity miners with wMatic.

You can check the created and open markets on the Augur Turbo website.

Sportsbook is created specifically for sports bettors, and is the second UI for turbo contracts. it aims to make crypto-specific and trading-specific UX as simple as possible for user. It also comes with an Odds Converter, allowing users to convert and compare odds according to their preferences.

You can check the Sports related market on the Sportsbook UI:

This is how a market looks like when opened for trading:

What is AugurDAO?

With an aim for decentralizing and democratizing the finance system, there came the notion of AugurDAO. AugurDAO is set to use DXdao (an exiting DAO that governs the products like Omen and Swapr) structure. However, it will still be governed by its REPv2 token holders. The holders get to decide the allocations of future resources for further developments in Augur and the entire decentralized prediction market.

The DXdao Guild to be used for the AugurDAO structure is based on ERC-20 governance. It also offers a method for creating, voting, and executing on-chain proposals, just like Compound governance. DXdao Guild contracts are now customized to collaborate for working with the REP token of Augur and let the DAO vote on how to follow REP forks during the resolution process of Augur.

This is how the discussion forum of AugurDAO looks like:

With the AugurDAO, the entire community will work to ensure the Augur protocol’s success!

Conclusion

A decentralised prediction market system built on the Ethereum network is Augur. In November 2014, Jack Peterson and Joey Krug established the US-based Forecast Foundation, the organisation supporting the initiative. The price projection for Augur is significantly more optimistic. It is now regarded as one of the most exemplary investment ideas since it anticipates the betting token to increase in value.

Glossary

Outcome Tokens

Outcome tokens is a term used for tokens representing a bet in the prediction market. Mainly in the case of Augur, when a market reaches its end date and the reporters report the final result of the market, the holders of the winning outcome tokens receive the prize as the bet winners.

You send/ receive your money as well as the outcome tokens from a public address while trading in Augur.

Augur has a screening mechanism of “invalid market” outcome tokens because it can’t answer subjective markets. During market settlement, if a market resolves as an “invalid market,” all outcomes other than “invalid market” pay $0, but those who hold outcome tokens for “invalid market” pay $1. When a market isn’t challenged within the first 24 hours, or a disputed outcome doesn’t fill the required dispute bond, the market closes, and those owning the winning outcome tokens can receive proceeds.

NumTicks

NumTicks means the number of ticks in total.

In the case of Augur’s scalar market, this term means the difference between the maximum and minim display price divided by the slightest unit of price movement. NumTicks is referred in attoEth. NumTicks is also described as the precision of value/ price of the entire set of shares. It means that the maximum price in trading any market is numTicks.

The NumTicks value for a Yes/No market in Augur is always set to 100.

attoDAI

attoDAI, also known as aDAI, refers to the DAI unit. DAI is a stablecoin in the ecosystem of cryptocurrencies.

1 DAI = 1000000000000000000 attoDai