Right now people are placing bets on the assassinations of Donald Trump, Jeff Bezos and Warren Buffett.
The financial size of these bets is tiny and the chance of their payout is even smaller—the only thing big about them are the shockwaves that these unregulated, illegal crypto wagers are causing among regulators powerless to act.
It’s an example of a wave of crypto-disruption that could soon wash over the $500 billion global gambling market.
The “Silk Road” of gambling
After two years in development Augur launched earlier this month, initially to little fanfare.
A “prediction market protocol” built on the ethereum blockchain which has been in development since 2015 where anyone can create a market to bet on anything—including the murder of the President and several other prominent business leaders.
Around $1.53 million has already been staked across over 800 bets in the first month and, while assassinations have made the headlines, it’s been the World Cup results and predictions on the future price of bitcoin and ethereum that have garnered the most financial action.
So far the Trump assassination markets have only received around $23,500 worth of bets, with similar markets for Bezos, Buffett and American actor Warren Beatty attracting little to no wagers, versus the $684,506 which has been bet on the price of ethereum at the end of 2018.
“It is believed that the true potential of the wisdom of the crowd remains untapped and misunderstood. But if prediction markets grow to a global scale, the data points created from the wisdom of the crowd could have a dramatic effect in several industries, insurance principal among them.”
And what makes Augur’s role as a prediction market unique is its entirely decentralized nature.
A decentralized market
By using so-called “smart contracts” Augur has been built as a decentralized protocol that runs entirely on the blockchain and could, in theory, scale infinitely.
It’s creators, the not-for-profit Forecast Foundation, also therefore have no control over what markets are made and what bets are being placed.
“Centralized prediction markets have many risks and limitations,” Joey Krug, cofounder of the Forecast Foundation told Forbes. “They do not allow global participation, they limit what types of markets can be created or traded, and they require traders to trust the market operator to not steal funds and to resolve markets correctly.”
“Augur aims to resolve markets in a fully decentralized way.”
Since raising $5.5 million in 2015 during one of the first ICOs, Krug and his team at the Forecast Foundation have grown and are today advised by some of the biggest names in crypto, including ethereum founder Vitalik Buterin and Lightning founder Elizabeth Stark.
One of the key factors of building a decentralized prediction market was removing the Foundation’s ability to ever interfere in the activity taking place on Augur, a so-called “stop-gap” that was removed by the Foundation just after Augur launched.
According to its website the Foundation now: “Has no power to censor, restrict, or curate markets, orders, trades, positions or resolutions on the Augur protocol contracts.”
Regarding the growth of assassination markets and other nefarious uses of his protocol, Krug today insists: “The Augur protocol is nothing more than open source software, and individual users of the Augur protocol are the ones that create prediction markets using the Augur protocol.”
Beyond the questionable legality of assassination markets, the Foundation faces another huge regulatory hurdle.
While the activity taking place on the Augur prediction market is clearly novel and unique, it also shares stark similarities with traditional gambling exchanges, that match punters on either side of a bet, and also with the kinds of options and derivatives traded on financial markets.
Because of this Augur poses a huge challenge for regulators.
The U.K. Gambling Commission (UKGC) has been progressive when it comes to green-lighting digital currencies as a payment method for its licensees.
But when asked about Augur, a UKGC spokesperson directed Forbes to its advice note on remote betting and betting intermediaries written in 2013, which states:
“If the operator is not a party to the bet… but is providing a service to allow two other parties to make and accept a bet, then the operator is acting as a betting intermediary and the appropriate licence is a betting intermediary operating licence.”
By that definition Augur, and the Forecast Foundation specifically, could be considered a regulated entity, however that’s far from certain given how far the technology has evolved since the UKGC’s rules were first written.
Krug, on the other hand, directs responsibility to those trading on Augur, saying the Foundation: “Encourages Augur users to follow their respective local jurisdictional laws, rules and regulations, even though it can’t and doesn’t control their use of the Augur protocol.”
According to Bloomberg the U.S. Commodity Futures Trading Commission also has raised concerns over Augur’s activities and is reportedly investigating whether its activities fall under their jurisdiction.
Don’t believe all the hype
While the disruption to the gambling sector could be vast, as could Augur’s challenge to regulators, it’s clear that today the project is still very much a work-in-progress.
For one, of the 800 markets on Augur, around half have received zero bets.
At the same time the two biggest markets (Will price of Ethereum exceed $500 at the end of 2018? and Will REP token trade above $32 at the end of 2018?) have received a combined 75% of the total volume of money bet on Augur so far.
The current lack of betting activity across Augur’s markets means most markets, outside of the biggest two, are largely illiquid.
Augur’s REP token meanwhile, used by the market to verify the outcome of predictions, has fallen to become the 70th most-traded crypto token, with a capitalization today of $335 million, down from over $1.1 billion in January.
“It’s just quite difficult at this stage to know how do you know how reliable the technology will be going forward, whether there will be issues with it, or whether it will actually pan out,” says Adi Ben-Ari, founder and CEO of blockchain consultancy Applied Blockchain.
But if you do predict a brighter future for Augur, the technology now exists for anyone to place that bet.