Augur: The Decentralized Layer for Prediction Markets

GM GM. Welcome to what's going to be another fantastic episode of DevNTell. So if you didn't know, DevNTell is a 30-minute podcast held every week allowing founders, hackers, and anyone in between the opportunity to come on the show and showcase what they built. And today, I'm ecstatic to welcome Phill, also known as Augus, who is the co-founder of the Lituus Foundation and a steward of Augur. So if you didn't know, Augur is building open-source modular oracle infrastructure for decentralized, trustless resolution of real-world assets on-chain. So if you stick around for today's episode, you'll get to meet Phill, learn all about Augur's ongoing Moon Fork, their origin story, and how you can get started building with them today. All right, let's get into it.

GM GM. Welcome to the show, Phill. I'm ecstatic to have you on today, man.

Hey Narb, nice to meet you. I like your background with the Lord of the Rings there.

Oh, thank you, thank you. Yes, it's always a great conversation starter. I added it ever since we all got on Zoom from the COVID times and yeah, I've always kept it on ever since. And Rings of Power is around the corner as well, I think in November or something, so...

Is that thing still on? I don't know, I was following along in the first season, then it's kind of... maybe it'll pick back up, who knows.

I think they're on season three if I'm not mistaken, but yeah, we'll see how that progresses. But today, we're here to talk about Augur. And I guess before we get into that, would you just like to give an introduction about yourself?

Yeah sure, the great topic of Augur, the old-school project that's been around for years. So myself, my name is Phill. I've been part of the Augur community for about six years. You know, I've been in crypto full-time for the last six years. When COVID happened, I saw the value of freedom even more so than I have before. And so I decided to do something about it. Decided to kind of play my hand and try to get out there in the industry and make a difference, and allow and empower people to really act in ways that they want to act and be able to deliver value in a way that isn't kind of constrained or permissioned or has any sort of moats built up to it. So that's kind of what got me into crypto in the first place, and I've been part of the Augur community ever since.

Augur is a really old-school project. It was born in 2016 in the initial ICO days, and it was a prediction market and oracle platform. Prediction markets nowadays, we got Polymarket, we got Kalshi, we got a bunch of sports betting and everything, but before all those, there was Augur. Augur was sitting on the main Ethereum network, and it ran for about four years pretty well up to about 2020. It did the presidential election market in 2016, it did it in 2020, it collected quite a bit of open interest and volume at the time. Now, I'd like to say it was millions and tens of millions, but Polymarket completely blows that out of the water. So I'm glad Polymarket came around, solved some of the issues that maybe Augur had on the prediction market side, and really got people into the prediction market realm.

And I think that is a fantastic thing that happened because I truly believe prediction markets—what we see today with sports betting, wagering, gambling—these are just minor detours on our journey of true prediction market potential. Prediction markets are capable of a lot more than just giving people a way to bet on things. I think prediction markets are the best way to aggregate information because people have little buckets of information spread around the entire world. What a prediction market does is provide a meritocratic playground. It provides a way for anybody, if they are good at predicting things, to make money. We incentivize people to use their capacity for information and let this information be known out to the world. It provides this global dashboard of probabilities.

With crypto, the other side of it is the cypherpunk side. I would call myself a cypherpunk personally. I'm a big believer in libertarian values, freedom, and allowing people to act in self-autonomous, self-sovereign ways. Crypto is a Swiss Army knife for freedom: it's decentralized, permissionless, trustless. Back in around 2020, Augur on Ethereum mainnet was slowing down. We had DeFi summer, and gas fees went way up. People were not willing to pay $30 or $40 in gas to make a prediction or bet when they wanted to bet $50.

So usage really slowed down in Augur. Around that time, Polymarket came out on Matic/Polygon, which allowed them to solve the scale problem by processing transactions for cents. But what we missed out on from the Augur perspective is that Augur was both a prediction market AND an oracle.

So now the question is: what is an oracle? From a crypto perspective, an oracle tells the blockchain what happened. The blockchain only knows what's on the blockchain itself; it does not have access to external sources of information like the weather, asset prices off-chain, or who won a sports game. How do we put external information onto the blockchain in a decentralized, permissionless, and trustless way?

Why is that important? In crypto, we have a concept called economic security. Basically, we want to make the cost of doing something bad higher than the benefit of doing that bad thing. If you have a bank with $100 inside, we want to make it cost more than $100 to rob the bank, so rationally nobody will do it. That is the principle of economic security.

For prediction markets, there is a lot of money tied up inside the market dependent on what happened in the real world. Some people make a false assumption when betting on prediction markets: they think if their team wins, they get paid out. But they overlook that somebody or something after the event must push the button to route the funds. If you have $10 million at stake in a prediction market, that button-pressing mechanism has a $10 million incentive to lie and rug the market by mis-resolving it.

This is why having a robust oracle is essential. Is the resolution source an internal team or developer who presses a button? At small scales, that might be fine. But when you grow to millions or hundreds of millions of dollars, putting that much trust in an internal dev team creates a dangerous incentive.

Augur's design did not rely on a centralized person, security council, multisig, or standard token voting. Multi-sigs or security councils just multiply single trust assumptions. Standard token voting also fails at scale.

In a naive token-voting design with a $1 million market resolved by 51% majority, an attacker needs $2 million market cap of tokens to attack it. But an attacker can buy 50% of supply delta-neutrally or short the token on external markets. They attack the protocol, profit from shorting the token as it crashes, and win the market collateral. So simple token voting doesn't work.

Augur's main innovation solved this issue: it forces the attacker to buy the token in a way that guarantees they lose all the value of that token with no way to short or remain delta-neutral. As long as the cost to attack exceeds the potential payout, economic security holds. That's why I co-founded the Lituus Foundation with long-term Augur community members to revive the project in a fully open-source way.

We took possession of leftover treasury funds from the initial ICO days to revive Augur. We funded two separate development tracks. The first track is Augur Lituus: separating the Oracle from prediction markets and offering it as an Oracle-as-a-Service B2B product to all prediction markets in the space.

By using Augur Oracle, prediction market projects don't need to hire teams of lawyers to write criteria or deal with community resolution backlash. Augur provides an open, permissionless, non-biased resolution layer. If all prediction markets used Augur Oracle, we wouldn't hear about the resolution scams and headaches happening in the industry today.

No, I really appreciate that in-depth history of Augur and what made its design strong. As I understand, you guys are also going through a major fork right now—the Moon Fork. I wanted to give you an opportunity to speak on that as well.

Uh, I think you're still on mute...

Can you hear me now? Sorry, I unplugged my mic and I'm using the laptop mic now.

All good, all good!

Okay, so the question was the Moon Fork. Augur's design is a two-step dispute mechanism: phase one is escalation games, and phase two is an algorithmic fork. In game theory, there's a concept called backward propagation: if there's lava at the end of a tunnel, you never start digging the tunnel. Because the threat of an algorithmic fork is so economically scary to attackers, Augur ran for six years without ever triggering a fork.

We wanted to test this dispute system in production to showcase it to the industry and test our economic assumptions. Furthermore, REP token holders are service providers for the protocol; REP is not a passive investment. REP holders are required to participate to rug malicious attackers during disputes. If token holders sleep on their hands, un-staked REP reduces the cost of attack and undermines oracle security.

Therefore, part of the Moon Fork is a migration. Every REP token holder must convert their REP token during a 2-month migration window. After the window closes, unmigrated REP tokens lose their fundamental utility and ability to participate in the new protocol. That deadline is coming up in two days, on August 1st! If you hold old REP tokens right now, check our Twitter and migrate immediately.

You heard it here folks, deadline is approaching! Definitely get on it if you want to stay involved with the Augur project. For the developer crowd watching, what is the best way to get started building with Augur or contributing to the codebase?

Please get involved! Join our Discord. All of our internal development calls happen in public on Discord, and everything is on GitHub. If you're a high-potential developer and this speaks to you, reach out to me directly on Discord or submit a PR on GitHub.

Love to hear that! Links are in the description. As a founder yourself who has seen a lot over the years, what key piece of advice would you offer to aspiring builders and founders?

The one thing I would say is: be your own motivation. Believe in yourself. There are three types of founders: 1) Privileged founders with safety nets, 2) Status seekers who just want to call themselves founders, and 3) Driven builders who lack resources but want to change the world. For that third group, be a lighthouse in the storm of uncertainty. Do not rely on external validation, because that will run out. Believe in yourself.

I love that. Couldn't have said it better myself. Thank you so much Phill for taking the time to chat with us today, and wishing you and the team much success with the Moon Fork and Augur Lituus. Thanks everyone for watching, and we'll catch you on the next DevNTell! Cheers.