The Three Powers of Augur

Augur has three powers: it can help us predict the future, prepare for the future, and persuade the future.

Predict

The first thing that comes to mind when most people think of Augur is forecasting future events. By efficiently absorbing both public and private knowledge via financial incentives and borderless participation, an open prediction market can help us better predict elections, the economy, sports…you name it.

Research has indicated that prediction markets make more accurate forecasts than existing alternatives. But this research is based on centralized markets that have limitations like low trading caps, closed access, regulatory risk, and high fees. When you strip away these constraints with decentralized markets, predictive powers could greatly expand due to greater liquidity.

More broadly, prediction markets not only allow for more accurate predictions but more accurate prices for any (financial) asset, since they facilitate frictionless speculation on anything. For instance, traders can, in theory, get exposure to any asset from Amazon stock to Chinese real estate by speculating on their future prices.

Prepare

Augur can be used to hedge risk or insure against undesired outcomes and thus prepare for the future. From my post, The Radical Potential of Augur,

Imagine a Chilean farmer whose livelihood depends on rainfall. He could protect his family from drought by creating a market forecasting rainfall, and betting on a low amount. If it ends up raining, great. But if it doesn’t, he still ‘makes it rain’ on Augur where he earns a payout from his hedge. Traditionally it would cost millions of dollars to start a market like this. With Augur it could be a few bucks.

The potential advantages of a platform like Augur over existing insurance alternatives are more customizable and granular conditions to insure against, lower prices due to a global liquidity pool and the absence of intermediaries, more flexible “claims” and the the ability to sell them at any point, and perhaps someday, faster payouts. Augur markets are particularly well-suited for parametric insurance, which triggers payouts based on specified, measurable events like X amount of rainfall, rather than indemnifying losses or damages.

Persuade

Augur may also be used to “persuade” the future, as in motivate certain outcomes. “Incentivize” might be more apt here, but I wanted to keep with the Ps to make this easier to remember.

Augur can incentivize traders to produce favored market outcomes in the “real world” in order to win payouts. For example, a YouTuber created a market for whether his tutorial video on how to use Augur would reach 5,000 views. At least one market participant bought YouTube views leading the market to resolve YES.

Or, by betting that a vulnerability will not be found in a given codebase i.e., taking a NO position, one can create a bounty for hackers to discover and reveal bugs and earn a payout by taking a YES position.

Other Use Cases

These three powers are not the end of the story. Augur could be used, at least in theory, for other things like Futarchy, determining present reality and filtering out fake news, and creating accountability for public figures. But I like The Three Ps as a simple mental model to classify the most promising use cases.

These three powers are not distinct. A single market could, in theory, be used for forecasting the future, hedging risk, and creating incentives. As capital amasses in a market, the lines may blur. Any outcome with enough at stake can effectively become a bounty, even if it was intended as speculation.

The relationship between “prediction markets” and reality is a two way street: external events influence the markets but the markets can influence external events as well.

The Meta “P”

Finally, we have what may be called the Meta “P” of Augur: Participation. Augur lets anyone, anywhere at any time create and trade in markets on anything.

So one can think of Augur as a sort of “Wikipedia for markets.” Before Wikipedia, encyclopedias were elitist entities curated by a few. Augur markets are like Wikipedia pages: anyone can create them, participate in them, and add their knowledge to them, and anyone can access the resulting collective insight for free.

Both are instances of knowledge becoming easier to create, share, and access.

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