What is Augur?
Augur is a cryptocurrency that powers prediction markets. It can be used to bet on sporting events, political outcomes, economies, and just about everything else in the prediction markets. Online gambling is a $52 billion a year industry and Augur intends to carve a tiny percentage and make the REP coin a winner.
Introduction to Augur REP
This isn’t digital poker or roulette – Augur smart contracts come in the form of prediction markets, where participants use ETH and DAI to place bets on all manner of sports, weather, politics, scientific and medical discoveries, economics, current events, and more.
It’s known as novelty betting (also proposition betting, alternative betting, and special betting), and this decentralized prediction market is potentially huge. People are even using the Veil dApp on Augur’s platform to bet on how many likes a meme will get.
Blockchain solutions mean fans across the world can bet directly with each other on the World Cup, Superbowl and presidential race. They can lay their own odds and conditions with the smart contracts taking trust out of the equation.
But Sin City isn’t all glitz and glamour. Augur thus far relies on a warning to users to abide by their localized gaming laws, a move that’s certain to draw government ire. Also, its cofounders are already embroiled in legal disputes over who created the project and whether it’s legal.
Before diving into the Augur blockchain project, let’s examine Reputation Tokens (REP), the native cryptocurrency of Augur.
Breakdown of REP
The peak price so far of Augur was $107.70 on January 12, 2018, and the total coin supply is 11,000,000 REP.
The Augur ICO occurred from August 17-September 5, 2015. 8,800,000 REP tokens were sold at the time, with the remaining held by the founding team. The ICO raised 19,053.92 BTC and 1,176,816 ETH.
REP can’t be mined. Instead it’s earned by people who provide truthful reports on the outcomes of market events. It can also be earned by market creators, and there’s a bounty program that occasionally rewards REP for performing certain actions.
Creating a market also entitles you to fees based on wagers placed on the market, and, in case you can’t tell from the name, the amount of Reputation Tokens a person owns determines his or her reputation on the system.
Reporting truthful outcomes (as determined by the majority of reporters) earns REP, while untruthful outcomes costs REP. Also, if you hold REP and aren’t reporting on markets, you could be fined up to 20 percent of your tokens. This means hodling REP isn’t possible long term without participating in the Augur ecosystem.
REP is divisible by 10^18 and is tradable on Kraken, Bittrex, and other crypto exchanges that support ERC20 tokens. Nearly $10 million worth of REP is traded on a daily basis, and trading pairs include ETH, BTC, USDT, and fiat currencies.
On July 9, 2018, Augur went live on the Ethereum mainnet, and all current REP contracts were frozen while balances migrated to the new system.
Gambling (or ‘Prediction Markets’) on the Blockchain
Although lucrative, the gambling industry is heavily regulated (and often banned) throughout the world. And online gambling laws often differ from in-person gambling.
Online gaming began in 1994, after Antigua and Barbuda passed the Free Trade & Processing Act to allow online casino licenses. InterCasino, which is owned and operated by CryptoLogic Operations Ltd., took the first real-money wager in 1996. Registered in Malta, it’s regulated by the Lotteries & Gaming Authority of Malta.
It wasn’t long before founder William “Billy” Scott was charged by U.S. prosecutors for illegally taking online sports bets. In fact, online sports betting is still federally illegal per the Federal Wire Act, but the Supreme Court ruled in May 2018 on Murphy v. National Collegiate Athletic Association that each state should be able to determine its own laws on the matter.
A state license is required to open an online gaming company in the U.S., and the only state to ever issue such a license was Nevada granting 888 Holdings a license in March 2013.
Like cryptocurrencies, marketing and advertising of gambling is restricted around the world. Many countries allow these ads but only within strict guidelines. This puts Augur in a more precarious position than most blockchain projects.
“Sports” is a category on the Augur beta platform, and there are already two sports markets – “Will the Golden State Warriors win the 2019 NBA Championship?” and “Who will win the University of Georgia vs University of Florida football game in 2019?”
In April 2019, Augur released version 2 of its platform. A variety of breakfixes were added at this time, as well as support for the Maker (DAI) stablecoin for bet placement.
Augur was created by Joseph “Joey” Krug, Jeremy Gardner, Jack “John” Peterson, and (allegedly, which we’ll discuss in more detail below) Matthew Liston. They initially created it through Dyffy, Inc., which is registered in San Francisco, CA, and shifted it to Forecast Foundation, which has entities registered in both Oregon and Estonia.
Online discussion revolves mostly around how the Augur team is just a group of developers, and it’s the people creating markets that are enabling. Krug says it can be used as a search engine instead of for gambling. It’s also argued that Augur REP is decentralized, so it can’t ever be stopped. None of these arguments hold any legal merit.
Consider loot boxes, in-game purchases which are being heavily scrutinized as a form of online gaming. Also look at Megaupload, which Kim Dotcom based in Hong Kong but was still seized on January 19, 2012, despite Dotcom’s assertion that he’s simply the developer of a file-sharing platform.
The U.S. government also seized and froze player funds when it shut down the three biggest online poker sites: Full Tilt Poker, PokerStars, and Absolute Poker. REP hodlers and Augur users alike should be wary of the risk presented by investing time or money into this blockchain project. It’s not out of the realm of possibility that the U.S. (or any other country) government seizes funds from the entire project along with the web UI.
And Augur’s legal battles have already begun.
Legal Troubles Already Brewing
If the almost-inevitable legal issues outlined above aren’t enough, the infighting among the project team already turned litigious.
The founders of Augur are currently embroiled in a $152 million civil lawsuit, Matthew Liston v Jack Peterson et. Al. Liston filed suit against the three other co-founders, along with the Forecast Foundation, Dyffy Inc, and angel investor Joseph Ball Costello.
Liston claims he was strong-armed out of the project and given no credit as a founder. He also claims he was not given a proper severance package. He’s seeking $32 million in general damages and $114 million in disciplinary damages.
The suit was filed May 10, 2018 with the San Francisco Superior Court of California, and a hearing is scheduled for September 2018.
The ruling in this case has far-reaching implications for the Augur project. If the full amount is awarded, it could shutter the company. Ownership of the project could switch hands, and the judge could determine it was never legal in the first place.
Augur certainly made a lot of money for early investors, but its future is cloudy. In fact, because BTC and ETH are used for placing bets and the project resides on the Ethereum blockchain, even Ethereum is at risk of violating the Unlawful Internet Gambling Enforcement Act of 2006.
It’s one of stickiest situations in the crypto industry and may be hard to defend in court. Augur is a great example that just because something is technologically possible doesn’t mean it’s wise… or legal.
On top of everything, an April 2019 Binance Research report found Augur design flaws that leave markets vulnerable to manipulation. The platform was designed to scale but low usage numbers makes gaming the system simple.
Augur (REP) Summary
Augur’s prediction market is one of the oldest ICOs and first dApps on the Ethereum blockchain. It removes centralized authority in gambling markets, instead relying on the wisdom of the crowd. While an ambitious project, it’s so far riddled with legal issues. Here’s a quick breakdown of the important points of the Augur project.
- Augur lets users spend ETH and DAI to invest in speculative outcomes in a wide range of categories, including weather, current events, and entertainment. Each issue being bet on is called a market.
- Reporters earn REP tokens by accurately reporting market outcomes. Reporting incorrect outcomes causes a loss of REP tokens.
- Although its founders say Augur is more than a gambling platform, it runs the risk of violating a plethora of online gaming laws. In the U.S., its sports markets violate the law.
- None of the entities credited with ownership of the Augur platform holds a gaming license in any of the states or countries they’re registered in.
Despite the hurdles, Augur can (and should) become compliant. Otherwise there’s a good chance this project may get buried in the courts. That makes hodling Augur REP a risky decision that is in the lap of the courts, as much as the markets and the tech space. The Augur cryptocurrency has a functional purpose, as an integral part of the smart contract-based betting system, but that could mean it ends as little more than a utility coin.
The cryptocurrency legislation that takes aim at Augur will define its success as much as the free market. Keep watching the cryptocurrency news for the latest.