Augur Cryptoasset Analysis

Key Statistics 11/8/2017

Current Price: $17.47 Market Cap: $192.2 Million, Volume (24h): $794K, Circulating Supply: 11 Million REP, Top Markets: Bittrex, Poloniex, Kraken, Exrates, Liqui, Rank 31

Summary

Augur aims to create an accurate forecasting tool by combining prediction markets with a decentralized network. Users are incentivized to participate by a rewards system that pays participants for correctly predicting future real-world events. In addition to simply betting on the future, augur aims to reveal a clearer picture on the outcome of future events by using crowd-sourced wisdom.

History

Augur is a token created on the Ethereum blockchain. Development of Augur began in October 2014. Augur’s first contract was uploaded to the Ethereum network in April 2015, with an Alpha product being released shortly after. In order to fund development, encourage participation in the network and distribute their native asset (REP), a crowdsale was held in August 2015. The crowdsale lasted 45 days and raised over $5.2 million. The $5 million + haul was enough to land Augur in the top 25 most successful crowdfunding projects at the time. Since 2015, however, crowdsales and Initial Coin Offerings (ICO’s) have been extremely successful at raising capital, with some projects raising more than $200 million.

Augur released a Beta version of their platform in March 2016, which users can explore now.

Key Distinguishing Features

Focus

Augur has a clear focus – provide a decentralized prediction market for users to bet on the outcome of future events. The size of the international gambling industry is difficult to determine, but is estimated to be in the hundreds of billions of dollars. Sports betting in particular makes up 30-40% of the global gambling market. Betting on political events and celebrity outcomes is perhaps the fastest growing segment. Briton’s wagered over $150 million on the outcome of the Brexit vote on a single website. There are even places to vote on the next celebrity DUI!

Augur has not released plans to go after casino gaming (slots, blackjack, poker, etc) but it will certainly see heavy use for political and celebrity betting, and perhaps create entirely new gambling segments.

Decentralization

Funding

Online gambling is a lucrative industry, but one that faces heavy regulation. Many countries around the world have declared online gambling illegal. In the United States, gambling laws vary widely by state. There have been many attempts to create worldwide gambling companies, particularly for online poker, which requires a large user base to be effective. The most effective way for countries to take down websites that they deem illegal is to prevent credit card merchants from transacting with them. Many companies do not accept credit cards due to risk of user fraud in the form of chargebacks. If a user deposits with a credit card and then loses his money on blackjack, he can simply tell his credit card company that he does not recognize the charge and they are happy to pull the funds back. Even if the user is well-intentioned, many banks will stop or reverse these types of the transactions without the user’s approval. For this reason, many gambling companies are turning to digital currencies like Bitcoin. These types of transactions cannot be reversed. Many websites offer incentives for users to pay in Bitcoin, and are even spreading knowledge of online currencies to help users transact. Augur accounts are funded with Ether or REP tokens, which will help avoid the account funding problem.

Security

Augur’s decentralized structure has many more benefits beyond account funding. Because Augur is built on the Ethereum blockchain, it can take advantage of the world-wide computing power of the Ethereum network. There is no centralized server the runs Augur. No centralized servers mean that no country or hacker can take down Augur by taking down a single server.

Trust

Augur’s transactions take place on the blockchain, and do not require the trust of a third party. This means that users do not have to trust that a gambling company (Augur in this case) will pay them out. User’s are paid when the outcome of an event is verified and a smart contract issues payment. Betting outcomes are verified by the community. Thousands of users report on the outcome of events and agree upon the result.

New Markets

With Augur, anyone in the world can create a prediction market asking about anything. Markets will not be reserved to what a certain company thinks will be popular. This has immense implications. Not only can markets be created for local sports that might be ignored by bigger entities, but markets can even be created on local weather and harvests. This effectively makes Augur a platform for futures contracts. Imagine betting that your farm will have a bad harvest in order to effectively hedge against a crop loss.

Utility

The Beta market is currently a bit slow, and it only works off of testnet tokens. For that reason, it is difficult for the average user to create markets and participate. It is simple however to create a market, which we’ve done below.

The performance of the website will need to improve for Augur’s full release. If the user interface is slow and difficult to use, many users will stick with their existing online gambling site of choice. It is unclear if users really care about trusting third parties, particularly when large sites like Bovada have good reputations for timely payouts. It seems clear however that the ability to create your own markets will be a killer app. Centralized entities do not have the manpower to create, manage, and verify local or niche markets, only a crowdsourced application can be competitive.

Price Catalysts

Chart

Augur’s been trading for about 2 years now, and has seen a substantial increase in price, running up to a $200 million market cap from it’s original $5.2 Million crowd sale. Like many cryptocurrencies, the REP token saw significant volume and price increases in the June 2017 timeframe, hitting a top price of $36. REP has settled in at about $20/token in the last few months.

Most of the price movement can be attributed to an increase in cryptocurrency interest, particularly form larger financial players. Augur’s price has moved similar to many other cryptocurrencies during this time, not particularly due to a change in its fundamentals.

REP Asset

The actual REP asset is more than a speculation vehicle. As mentioned earlier, the Augur network works off of crowdsourced reporting to verify the outcome of events. Users who contribute to the network by reporting outcomes are paid in REP. Contributors receive half of all fees in the system multiplied by the percent of REP that they own. For this reason, REP tokens can almost be treated as stock-like certificated that can claim a portion of future earnings, like dividends. With popular betting sites pulling in Billions of dollars in income, this could be substantial. It’s important to note that this has regulation implications, as the SEC would likely deem REP a security according to the Howey Test.

In addition to reporting payments, users can of course make money by creating markets and successfully betting on the outcome of events. If Augur becomes a popular platform, the asset can also increase in value as users must buy REP (likely through an exchange) to participate.

Untapped Markets

The REP asset currently trades primarily on US/EU exchanges. The gambling industry is huge in Asia, particularly China. As awareness spreads about REP, it could be picked up by an Asian exchange and see an increase in trading volume. The Coinbase team also speaks highly of Augur, and have recently hinted at adding more cryptocurrencies in the near future.

The Augur platform can also be challenged by increased competition, however. Projects like Gnosis are coming after the same market. Centralized gambling sites are keen to keep their profits flowing, are are solving the problem of fraud by encouraging the use of Bitcoin for account funding.

Conclusion

Augur is an interesting project that seems like an obvious fit for tokenization. Prediction markets are a lucrative field, and the implementation of a decentralized system can lead to markets being created that were never dreamed of. If the Augur project can launch a stable, fast product in the next couple of months, it can gain a large first-started advantage in the world of decentralized prediction markets.

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