Augur: a decentralized oracle and prediction market platform

TL;DR

Augur is a decentralized platform enabling prediction markets with a trustless oracle system, incentivizing honest reporting through a reputation token that aligns user profits with truthful outcomes.

Contribution

It introduces a novel reputation-based incentive mechanism for decentralized, trustless prediction markets ensuring honest outcome reporting.

Findings

Reputation tokens incentivize truthful reporting.

Dispute resolution involves splitting tokens into outcome-specific versions.

Market outcomes are reliably determined by user-staked reputation.

Abstract

Augur is a trustless, decentralized oracle and platform for prediction markets. The outcomes of Augur's prediction markets are chosen by users that hold Augur's native Reputation token, who stake their tokens on the actual observed outcome and, in return, receive settlement fees from the markets. Augur's incentive structure is designed to ensure that honest, accurate reporting of outcomes is always the most profitable option for Reputation token holders. Token holders can post progressively-larger Reputation bonds to dispute proposed market outcomes. If the size of these bonds reaches a certain threshold, Reputation splits into multiple versions, one for each possible outcome of the disputed market; token holders must then exchange their Reputation tokens for one of these versions. Versions of Reputation which do not correspond to the real-world outcome will become worthless, as no one will participate in prediction markets unless they are confident that the markets will resolve correctly. Therefore, token holders will select the only version of Reputation which they know will continue to have value: the version that corresponds to reality.