Augur’s core developer, Joey Krug, said he joined the project because Augur could disrupt fields “ripe for disrupting.” He listed corporate governance, governments, healthcare, and the financial industry. So what is Augur and how is it poised to disrupt areas that intersect with the law?

Augur is a decentralized prediction market that anyone can use. Augur rewards a user for correctly predicting market events. Users purchase shares as a means of wagering on the outcome of an event. A share has a value of one dollar. If a “yes” share is selling for fifty cents and the event occurs, the purchaser gets a dollar. It’s an even odds payout.

The price of a share at the time of purchase represents the current probability of an event occurring. The predictive value of the share’s price relies on the wisdom in a crowd theory. The thought is that a large group’s response to a question will be more accurate than a given expert or small group of experts. A large group of people making yes and no bets on an event’s occurrence provides a surprisingly accurate forecast. If enough people use Augur, it could potentially provide accurate probabilities on many topics.

Prediction markets like Augur are not new. InTrade allowed users to wager on political races, the likelihood scientific events occurring, entertainment, and categories including commodity futures. It shut down in the U.S. in 2012 when the Commodities and Futures Trading Commission (CFTC) sued. InTrade was centralized, meaning it relied on a central authority to report the outcome of an event, making its markets prone to errors and fraud. These vulnerabilities and the fact that Intrade was forecasting the price of commodities like oil and gold led the CFTC to sue. Before InTrade, The University of Iowa created the Iowa Electronic Markets (IEM). The IEM has correctly predicted the outcome of every presidential election since 1988. But the IEM operates in close conjunction with regulatory authorities and under the cover of a CFTC non-action letter. So how can Augur escape the problems posed by centralization and the imposition of regulatory agencies?

Augur exists on a blockchain that stores the market data on hundreds of thousands of computers all over the world. There is no central server to hack or shut down. Software controls everything from setting the odds to dispersing the winnings and the fees paid to those who create the markets and report on events. The crowd reports the results, and the system rewards reporters for providing the correct results. Augur builds in self-regulation and protections and only pays out when reporters reach a 65% consensus. The system will rely on Bitcoin and other digital currencies, so there will be no need for banks or credit cards. As Jim Epstein said in an article on Augur’s use as a platform for sports betting, “[i]f the system runs afoul of regulators—and if it’s successful, it most certainly will—they’ll find that there’s no company to sue, no computer hardware to pull out of the wall, and no CEO to lock up in a cage.”

Take sports betting. Augur could provide a means for placing bets that governments cannot touch or at least only touch by prosecuting those who participate in the market. If enough people participate in Augur, current gambling law and regulatory agencies will struggle to regulate it. While Augur may potentially upset the regulatory regime, it could also be a powerful tool for lawyers. It could provide enormous predictive value. Augur’s underlying technology could also be used to ease regulatory concerns by distributing authority once held by a centralized agent.

Augur could provide the most accurate predictions available about the likely outcome of a high profile case or the chances of Congress enacting a new law. If markets for predicting litigation outcomes are accurate, information from a service like Augur could help structure settlements or help attorneys decide whether legal action is worth pursuing. The market data could also help companies plan for legislative contingencies when creating compliance programs or planning mergers and acquisitions. The technology used to create Augur could become a tool for regulatory agencies because it disperses authority and, therefore, makes systems less prone to manipulation. While the potential is exciting, there will be problems and a need for lawyers who understand the technology.

Tyler Ricker

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