Augur is a decentralized prediction market platform.

Prediction market platforms allow betting on the outcome of an event. One common type of such events are sports matches, and there is a whole industry of sports betting. Some other examples where prediction markets can be formed are weather, election results, and the price of the goods.

Before Augur, all existing platforms were centralized in a way that there is a trusted authority that serves as an escrow and outcome provider. If you want to make a bet, you need to trust this authority. However, this person or organization can run with the money or provide fake outcomes. In Augur, you don’t need to trust anyone. The escrow is implemented via Ethereum smart contracts, so no one, even Augur can steal the money. As for providing the outcome, it is done in a decentralized way, as there is no single party who is going to provide ground truth. Instead, there is a complex process of settling each prediction market, with the incentives set to reward those who provide the real state of the world, and punish those who provide fake data.

Augur has a native token, Reputation (REP). REP is used for the creation of prediction markets and for making a prediction of outcome. REP is also used to fund a dispute bond if there is a disagreement on the provided outcome.

There are three groups of users: creators, market participants, and reporters. Creators create prediction markets. Market participants buy, trade, and sell market shares. Reporters provide the outcome of the market’s event.

Users can create a market for any real-world event. Each market goes through several stages: creation, trading, reporting, creating a dispute, network fork, and finalizing (settlement). Disputes and forks are optional stages which arise only when there is a disagreement on the outcome of the event.

During market creation, a user sets the event name, the end time and the designated reporter. The market creator also chooses a resolution source, which is a source of data that should be used to determine the outcome. It may be a common knowledge or a finely specified description. Then, he sets the creator fee, which will be paid to the creator during settlement.

The market creator needs to provide two bonds. The first bond is validity bond. If the reporters decide that the market is invalid, i. e. none of the listed outcomes are correct, or the market wording is vague, the market creator loses validity bond. If the market is valid, the bond is returned to the creator. The second bond is no-show bond. If the designated reporter didn’t provide the outcome in 3 days during reporting stage, the creator loses no-show bond. Otherwise, the bond is returned to the creator.

After the market is created, users can freely start trading on the outcome. The betting is done by buying outcome shares with ETH. The shares can be acquired either from the escrow contract or from other traders. In the first case, the ETH is locked in the contract, and the new shares are issued. In the second case, two users exchange shares with ETH, while the number of shares and the amount of locked ETH is not changing.

Once a market’s underlying event occurs, which is defined by the end time provided by the creator, reporting process starts. During reporting, a designated reporter chosen by the creator should provide an outcome. If the reporter didn’t provide an answer after 3 days since the event happened, the market goes to the open reporting, which means that anyone on Augur can provide an answer. The person who will provide the outcome first will become the first public reporter. This reporter receives the no-show bond from the market creator.

After the outcome is submitted to the market, it goes to the dispute round stage. It goes for 7 days. During that round, anyone can dispute the outcome by staking REP tokens. There may a series of disputes or none of them. If no one staked his tokens during the dispute round, the outcome is said to be finalized and the market goes to the settlement.

However, if at least one user stakes his tokens, the series of disputes starts. There may be one or more disputes, but each new dispute requires more and more coins to stake to start the dispute. The dispute stake may be collected in collaboration: multiple users can stake their tokens together to reach the required amount. All staked tokens go to the escrow account.

If the stake in the current dispute round exceeds 2.5% of all REP supply, the market goes to the forking stage. When the fork is initiated, the 60-day forking period begins. A fork’s final outcome can’t be disputed.

Every Augur market and REP tokens exist in some universe. At the start of the network, there is a genesis universe where all markets and tokens exist. But that lasts only until the first fork. During the fork, new universes are created by the number of the possible outcomes of the forked market’s underlying event. That way, if the event has 3 outcomes, then 3 child universes will be created. After the fork, the parent universe is locked: new markets can’t be created or finalized, though users may still trade their shares. Users can also migrate REP tokens to one of the child universes. This migration can’t be reversed. The movement of tokens between the sibling universes is also prohibited. The child universe that receives the most migrated REP by the end of the forking period becomes the winning universe, and its corresponding outcome becomes the final outcome of the forking market. That way, the whole idea of universes is to pick the legitimate outcome using all REP tokens of the system.

When the market is finalized, owners of shares can trade them back by one of two methods. First, they can sell the shares for ETH to another user. Second, they can settle their shares with the market, by unlocking some of the escrowed ETH and removing a set of shares from the circulation. If the market was declared as invalid, all shares have equal value when settling them on the market.

If the market is finalized without the fork, the staked tokens collected during all dispute rounds go to those stakers who opened the last dispute. Since there were no disputes after that last one, it is considered that the result of the last dispute represents the truth, at least in the eyes of the majority. That way, REP holders are incentivized to stake on disputes that point to the factual outcome.


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