Community-driven markets can be Augur’s first success story
This post assumes familiarity with Augur, the decentralised prediction market protocol built on Ethereum. For an overview, I recommend reading the project’s whitepaper: https://www.augur.net/whitepaper.pdf.
What is a prediction market?
On their website, Augur describes itself as “a prediction market protocol owned and operated by the people that use it”.
Becoming a globally known prediction market is the potential end result for Augur, but underlying the protocol consists of relatively simple ideas for creating, participating in, and verifying the results of, markets in an open and trustless fashion. Through betting on those markets, once sufficient liquidity builds, those market can be considered odds of future events — prediction markets.
The current state of Augur
Technologies seldom develop in isolation, but in a series of infrastructure-application-infrastructure cycles. New infrastructure enables new applications and those applications in turn demand more infrastructure for their full potential to be realised.
Augur’s cycle started off with the of introduction of Ethereum. Smart contracts enabled Augur to be built, but price volatility of Ethereum hinders Augur from reaching its full potential. Thus, new infrastructure for decentralised cryptocurrencies like MakerDAO’s DAI being implemented is a crucial building block for the Augur protocol to become more useful.
Today, Veil.co and Guesser.io are making it simpler to use Augur. However, due to MetaMask and other Web3 wallets still being a clunky user experience for most non-technical users, these services are unlikely to compete with traditional services on UX/UI alone. Further, for a new service to be adopted globally, it cannot be an incremental improvement over existing services, but something that is 10x better.
If user experience is not what Augur or other UIs that connect to the protocol can hang their hat on, what’s the best path in the short- to medium-term for the growth and success of the protocol?
Online communities will unleash the power of Augur
Circle’s research report outlines the benefits commonly attributed to decentralised prediction markets:
- Potential for lower fees. For example, a typical betting site will charge 3–7% on every market. For Augur, can be an order of magnitude lower once liquidity improves.
- Global participation. Access to many markets is limited by geography and capital costs.
- Censorship-resistance. Centralised prediction markets have previously been shut down, and are limited in the number of markets they can offer.
- New markets. Potential to create markets that do not exist today, because they are costly to create.
The feature that is perhaps the most interesting is the ability to create new markets, since creating new markets is the crypto-native feature of the protocol and not an improvement on existing services of centralised operators.
One thesis for building a killer application on Augur would be to think about how online communities could use the protocol as a tool to express ideas and arguments in discussion, through the creation of markets.
To give a practical example — I’m a big NBA fan and spend time on NBA Reddit (a community of 1.8 million subscribers). Every front office decision, when it comes to trades and player signings, is argued about and analysed to exhaustion — and this is going on 24/7 and 365 days a year.
It’s easy to imagine these arguments being turned into markets. For example, post-trade a market could form for a team’s win total in seasons three-to-five years from today. Users who are confident that the trade was good for the long-term could then put their money where their mouth is, and trade their insight on a market. Being able to put skin in the game in markets that are created by (and for) the community brings a creates a new means of expression online.
Communities that fill the following criteria are important to engage and onboard into Augur:
- Global and large community.
- Active storylines 24/7 that continuously evolve 365 days a year.
- Subjective (but fanatic) thoughts and objectively verifiable results.
- Reasonably tech-savvy and young demographic.
The first runaway success of Augur could be the UI (or tool) that best enables the formation of community-driven markets. Finding a way to put a tool like Augur into the hands of these communities drives a unique bottom-up approach to the creation of new financial markets.
Markets live from liquidity, and the straightforward way to create that liquidity for novel markets is through virality. Viral effects around new content and topics happens organically within online communities every day.
Augur has a learning curve (beyond UX) that is tied to how people learn to convert ideas into markets. Like Twitter’s character limit or Snapchat’s short videos, Augur’s format for creating markets both limits the kind of behaviours it enables, while enabling creativity to emerge. This is why it may be hard to forecast beforehand what markets are born.
The ideas in this post are intended to highlight Augur’s capabilities as a platform and the development of decentralised prediction markets. Companies providing interstate betting services are currently illegal in the US and that may place a barrier to adoptio for companies operating on Augur.