We often find ourselves answering the same questions when on the road for Augur.
Thus we have created this FAQ to address the most frequent ones.
Have others? Please contact us using the form on the homepage.
What’s a prediction market (PM)?
Similar to a stock market, a PM is a market where individuals can buy and sell shares. But unlike a stock market, which speculates on the future value of a company, a prediction market exists to determine the likelihood of an outcome of a future event. For a example, a prediction market could ask, “Will Jeb Bush be elected president in 2016?” If “Yes” shares cost $0.43, that can be understood as the likelihood of Bush being elected (43%). Repeated economic and academic studies have found prediction markets to be one of the world’s most accurate forecasting tools, especially when seeded with real money, and enough liquidity and trading volume (a problem that has traditionally existed with PMs.)
What makes Augur different from InTrade?
Many elements separate Augur from traditional prediction markets, but most important, is the fact that our software is global and decentralized; anyone, anywhere in the world can access and use Augur, potentially bringing unprecedented liquidity, volume, and a diversity of perspectives and topics unseen in prior iterations of prediction markets. This is one of the things that makes Augur fundamentally different than anything previously seen in the prediction market space.
How do you plan to manage the massive volatility issues that exist in most cryptocurrencies?
The Augur platform intends to be currency agnostic meaning that it'll eventually accept any currency including bitcoin, ether and otherdigital currencies, including stablecoins under development that mitigate currency risk and others that act as proxies for fiat currencies.The platform will also allow for the creation of prediction markets of all kinds that could function as hedging tools, including
Why a nonprofit? Don’t you want to be financially sustainable?
A few core misunderstandings engender this question:
- Just because the Forecast Foundation (the legal entity behind Augur) is a not-for-profit corporation, that does not mean we cannot receive salaries for our work that are commensurate to our effort (although we do pay ourselves less than market rates.)
- A nonprofit does not mean we are tax-exempt (we are not.) However, we believe that because the Foundation’s stated and intended purpose is to build “open-source, public forecasting tools”, we could easily fall under 501(c)(3) tax-exempt status.
- We are a fully decentralized organization/application. Just like Bitcoin. We have zero control over Augur or what is done on it. That being said, like Bitcoin, there are core developers that have the ability to push out updates, patches, and changes, upon the agreement of the Augur community.
Because Augur is fully decentralized, we actually have zero reason to be a for-profit entity. There is no ownership of the software. There is ownership of Reputation (REP), but Reputation should be seen more as a maintenance tool than any sort of investment token. This leads to the next question…
So HOW do you make this project financially sustainable?
The money raised in our Reputation token offering will be used to pay the Forecast Foundation’s employees, mostly core developers, salaries for the foreseeable future.
A small (16%) percentage of all Reputation (which will be entirely distributed at the end of the token offering) will be allocated to the Augur team and to some of our key advisors. Because half of all trading fees are allocated to responsible Reputation holders after each reporting cycle (explained below), this gives us a strong incentive to maintain and build this software over the long term, as REP only becomes valuable as volume and usage grows over the course of time.
How does Reputation (REP) work?
Reputation can be thought of as a sort of “score” attached to an individual’s public and private address and is both divisible and exchangeable like bitcoin. However, that is where the similarities to cryptocurrency end.
REP is not mined. It will be fully distributed at the end of our token offering. That distribution might change based on the amount of responsibility (and money) individuals decide to put into the software. We emphasize responsibility, because that is what holding REP requires. Augur can only be decentralized so long as there is a decentralized oracle solution to our software. That is what Reputation provides.
Those who hold REP are expected, in regular installments, to report on the outcome of a random selection of closed events/predictions in the system. This is done by simply selecting three options: Yes (event occurred), No (it did not), or Ambiguous /Unethical (which, if this option achieves a consensus, pushes the reporting back to the next period, before eventually being closed without resolution.) Reporters have a time limit in which to do this. We expect each reporting session to initially be quite quick, but may take as much as an hour as Augur grows in popularity.
Reporting should be a fairly intuitive process, as most markets will have had time before the voting period to auto-resolve themselves (as rational actors will be incentivized to sell their losing shares before a market reaches zero value, leading most markets to have 99-to-1 odds at closing time.) If markets have not resolved themselves, this may require Reputation holders to do some Googling; but in such cases it is more likely the decision in question will have been poorly worded, undeterminable, or unethical, and thus reporters should mark the decision as such.
If Reputation holders fail to report on the outcome of events assigned to them during the two-week voting period, or report dishonestly, our system redistributes the lazy or dishonest Reputation holders’ REP to those who have reported both regularly and honestly.
They can lose up to 20% of rep if they don't report each reporting period. If everyone else reports
accurately the "lazy" person will lose 20%. If there are some other lazy people, and some people who outright lied, you'll lose some, but a bit less than 20%.
Also, only such REP holders will collect the trading fees from each voting cycle. This makes Augur the most meritocratic system in the blockchain space.
For more on detail on reputation, please visit this blog post.
What about the legal / regulatory aspect of this?
This legal analysis was written by one of our advisors (and two other friends of the project). Page 67, section b "Decentralized Applications," pg. 70, 2. "Predictions Markets," and pg. 73, section c "Law and Decentralization" are the parts that relate to us. We think it captures our views on how regulators will approach this.
