Fun fact: The first DApp on Ethereum is the prediction market Augur

Original Title: https://foresightnews.pro/article/detail/91130
Original Author: Eric, Foresight News

In recent days, while organizing which Web3 prediction markets exist, I suddenly remembered Augur. After searching for related information, I found that Augur announced it would restart in March this year, but I had no idea when it stopped operating.

The reason for this sentiment is that Augur was the subject of my first translation article when I entered the field. The article was published on March 19, 2019, and I particularly remember the requirement to add my personal understanding on top of the translation. I also recall that the article I published on the public account used a poster from the movie "The Butterfly Effect" as the cover, because my personal understanding was that prediction markets have the ability to change the future.

I wonder if that whimsical viewpoint from over six years ago can be considered prophetic. My view on the current nearly $10 billion valuation of leading Web3 prediction markets remains unchanged: when an event will definitely have a certain outcome in the future, and the betting on that outcome is mixed with economic interests, the betting itself will have the ability and motivation to change the final result.

The First DApp and First ICO on Ethereum

Augur is hard to beat in terms of being "early." Since Ethereum is a permissionless network, I find it difficult to verify whether Augur is indeed the first true DApp on Ethereum, but some things can be confirmed. For example, Augur began developing on the testnet while Ethereum was still in its testing phase, and Augur can be considered the first project to attract attention from the overall industry that was not yet called "Web3" at that time, leading to a plethora of subsequent ecological projects. Although Augur officially launched in 2018, calling it "the first DApp on Ethereum" should not be an exaggeration.

As for Augur being the first successful ICO on Ethereum, that can be verified. An article published by The Economist in 2018 titled "Blockchains could breathe new life into prediction markets" also mentioned that Augur's ICO took place in 2015, specifically in August 2015.

This timing is somewhat ridiculous: Ethereum's genesis block was born on July 30, 2015, and the ERC-20 standard was not officially proposed until November 2015. This means that when Augur initially sold REP tokens, REP did not conform to the ERC-20 standard.

Regarding which institutional investors participated in this legendary ICO of Augur, I have seen many versions, including well-known institutions such as Founders Fund, Pantera Capital, Blockchain Capital, 1confirmation, and Multicoin Capital, but I have not found authoritative sources of information.

This ICO successfully raised over $5 million for Augur, while Bitcoin's price in 2015 was only around $300 to $400, and Ethereum fell to about $0.4 in the month of Augur's ICO. Over eight years ago, a Reddit post asked, "What was the first ICO/ERC20 token to run on Ethereum smart contracts?"

In the discussion below, a user with the nickname xETHeREALx stated that at that time, Ethereum had no wallets or GUI interfaces, and transactions had to be done through the Geth client using command line operations. Someone quickly corrected this, stating that there was no Geth client at that time, and the Ethereum co-founder was using the CPP Ethereum client developed by Gavin Wood.

Continuing the Legacy, but with a Poor Experience

Counting from the ICO, nearly three years later, in July 2018, Augur officially launched.

At the time of its official launch, Augur provided a desktop application for PC and a web application. The reason for launching a PC application was that the number of Ethereum nodes was relatively small, and using an application with a built-in full node might be more efficient. The team behind the Augur ecological project Guesser described the design of the desktop application:

The Augur App is a lightweight Electron application that bundles the Augur UI and Augur Node together and deploys them on your local computer. The Augur UI is a reference client (similar to Geth for Ethereum) used to interact with the core smart contracts of the Augur protocol on the Ethereum blockchain. The Augur Node is a locally running program that scans the Ethereum blockchain for event logs related to Augur, stores them in a database, and provides the corresponding data to the Augur UI.

Although there were other early projects such as Crypto Kitties and purely gambling applications like Fomo3D at the same time, Augur was still considered "the most handsome guy" in the industry. In addition to genuinely implementing the functionality of prediction markets on-chain, Augur also developed a decentralized oracle to provide results, which was nearly a year earlier than the official launch of the Chainlink oracle.

According to DappRadar data, Augur's DAU peaked at 265 when it first launched, but by August 8, this number had dropped to 37, and by the end of the year, there were fewer than 30 daily active users. As of December 11, 2018, a total of 1,635 markets had been created on Augur, with 11,825 orders, and a total of 6,331 transactions. During the U.S. midterm elections at the end of 2018, there were more than 200 transactions in a single day. These numbers, which seem insignificant now, were considered quite good at the time.

Moreover, if you understand how Augur works, you would think that having a few dozen people playing and still managing to complete thousands of transactions is nothing short of a miracle.

Saying that Augur had a poor experience is not only due to the overall bad experience at that time, including MetaMask, but also because Augur's design had fatal flaws. First, Augur did not design arbitrage opportunities to automatically balance probabilities like Polymarket; instead, it required a one-to-one correspondence, meaning that in that era without market makers, you had to find someone whose opinion was exactly opposite to yours.

Taking the second market in the trading market interface as an example, the theme of this market is the price of ETH before the end of April (2019), with three options: less than $50; between $50 and $500; greater than $500. If we choose the second option to place a bet, you would see a page like this:

Users need to choose the share and the limited price (probability), and the numbers in the image represent betting 0.3 shares, believing there is a 36% probability that the final price will fall between $50 and $500, costing a total of 0.108 ETH. Like Polymarket, Augur also has an order book, but the two order books are completely different.

The lowest selling price shown in the image is 0.3605, which does not mean that someone believes there is a 36.05% chance it will not fall within the $50 to $500 range, but rather that they believe there is a 63.95% chance it will not be in that range. Therefore, when you want to bet in the opposite direction, you need to calculate the probability yourself; otherwise, you may not be able to match the order. The order just placed needs a user who believes or is willing to believe there is a 74% chance it will not be in that range to appear for a successful match, and both parties can then match successfully and win the other's chips after the final result comes out.

The sticking point is here: Augur only offers the choice of "yes" for each option; users must choose to go long "yes" or short "yes."

The permissionless nature of Augur led to many invalid markets. For example, the end date of the aforementioned market might be set for mid-April, and the results provided by the oracle network could support multiple challenges, which caused Augur to have markets that should have settled in the short term dragged on for nearly five months, going through countless disputes before closing. This market environment, combined with the need to find "evenly matched" opponents, resulted in only 6,331 transactions out of 11,825 orders.

Finally, the costs of using Augur were surprisingly high. In addition to gas fees, and the fees for users who were not accustomed to using wallets and traded through fiat channels, both the reporters providing results in the oracle network and the market creators needed to stake a certain amount of REP, and users had to pay fees to both parties.

Although the fees charged by market creators and reporters were relatively low (1-2%), users had to pay multiple layers of fees to use the platform, which added up to a considerable amount. In Augur, these fees ranged from low to high: reporting fees (0.01%), market creator fees (1-2%), Ethereum gas fees (depending on order size), and fees for converting fiat to ETH (4% for debit card payments on Coinbase, 1.5% for ACH payments). Therefore, the total fees for trading on Augur ranged from 3.5% to 9% or even higher.

The poor wallet experience, one-to-one matching mechanism, logical flaws, and high costs made it difficult for Augur to scale, but this did not diminish Augur's influence as an almost "pioneering" force in the development of Ethereum and DApps. The team that developed Augur back then has some members who have now become key players in the industry.

Internal Conflict, Ex-Partner Seeks $150 Million in Damages

Augur was launched by the Forecast Foundation, and public information shows that the organization includes co-founder and core developer Jack Peterson, co-founder and chief architect Joey Krug, early marketing and community lead Jeremy Gardner, full-stack engineer Stephen Sprinkle responsible for front-end and contract integration, and researcher Austin Williams who wrote the game theory proof appendix for the Augur white paper.

Among them, Joey Krug has also served as co-CIO of Pantera Capital since June 2017 and is currently a partner at Founders Fund. Stephen Sprinkle left Augur in 2019 to join ConsenSys as a product manager and later became the engineering director at BlockFi; after BlockFi's restructuring in 2022, he moved to Coinbase to continue overseeing institutional products.

However, according to a lawsuit filed by Matt Liston in 2018, a story before Augur's birth was revealed.

According to a report written by Block客 in 2018, Matt Liston claimed that he initially registered a company named Dyffy in Delaware and hired Jack Peterson. At that time, Liston proposed the idea of developing a prediction market on the blockchain, but Peterson initially did not support it.

Later, Liston saw the Truthcoin white paper written by Yale economist Paul Sztorc and believed it could be the basis for developing a prediction market and issuing tokens. Liston successfully persuaded Joseph Ball Costello to invest and also convinced Peterson to support the idea of developing on-chain through Paul Sztorc. With this foundation, Liston hired Joey Krug and Jeremy Gardner, with the latter suggesting naming the project Augur.

In the following months, the team argued endlessly over technical and business strategy choices, and the result of the argument was that Matt Liston, who tied everything together, was kicked out in October 2014. Krug replaced Liston as a director, and Peterson became the CEO. In December of the same year, the nonprofit organization Forecast Foundation was established in Oregon, USA.

Matt Liston stated that it might have been a desire to completely separate himself from Dyffy, as Costello repeatedly urged Liston to accept not taking legal action against Dyffy and to acknowledge Dyffy’s acquisition, exchanging equity for cash or REP tokens. Under continuous pressure, Liston was forced to sign the agreement and, due to the so-called "concealment of the specific allocation plan for the ICO," gave up 5% of his REP share, choosing to take $65,000 in cash. Based on Augur's market value at the time of the lawsuit, the tokens he gave up are now worth over $20 million.

Against the backdrop of Augur's market value exceeding $450 million at the time, Matt Liston sought $38 million in general damages and $114 million in punitive damages, totaling $152 million, which exceeded one-third of Augur's market value and became the highest claim in cryptocurrency history.

Several defendants from Augur were surprised that Liston suddenly changed his mind three years after signing the agreement. Additionally, both Jack Peterson and Joey Krug believed that Liston was not a founder of Augur, with Krug stating, "Liston made no contributions to the open-source repositories on GitHub or any other Augur repositories; he cannot be considered a founder of Augur." Reports indicate that doubts about his true identity caused Liston to suffer from unemployment, and his LinkedIn profile shows that he has not had any new job records since resigning as Gnosis' chief strategy officer in 2017.

Reports cited insiders saying that the main reason for the internal conflict was Liston's insistence on developing Augur on Ethereum, while the team insisted on developing it on Bitcoin. Interestingly, Augur ultimately launched on Ethereum and became the first successful ICO project after the Ethereum mainnet went live. It is worth mentioning that there have been no further public updates on the progress of the case, and given that Augur managed to last until the end of 2021, this matter either reached a peaceful resolution or faded away.

Three and a Half Years of Silence, A New Start

In March of this year, Augur suddenly announced its return on X, with the last tweet from this account dating back to November 18, 2021.

In 2020, Augur launched an updated v2 version, making adjustments in various aspects, including user experience. In July of that year, Forbes referred to it as "a significant leap in the field of decentralized applications." In the article "Ethereum's First ICO Blazes Trail To A World Without Bosses," Forbes journalist Michael del Castillo stated, "Its functionality is similar to the internet but does not require a trusted third party. If successful, this far-reaching upgrade will not be limited to betting on horse races without bookmakers; it may mark a turning point for the next generation of the internet."

Although Augur also saw individual markets with participation exceeding $10 million during the 2020 U.S. presidential election, the brilliance of DeFi overshadowed it, and Augur ultimately fell at the peak of the roaring bull market in 2021. Perhaps the breakout of Polymarket brought prediction markets back into focus after nearly a decade, prompting the new team behind Augur to choose to restart this year.

The restart of Augur will be managed by two teams: the Lituus Foundation will handle token and operational matters and develop the oracle, while Dark Florists will be responsible for implementing specific prediction markets. The Lituus Foundation claims to be composed of long-term community members of Augur, but there is currently no information about its members.

Dark Florists is a well-known Ethereum development team. Among its main members, Killari cracked a solution for indistinguishable obfuscation (a cryptographic scheme designed to turn programs into "black boxes" that can be freely shared and executed while completely hiding their internal workings) developed jointly by the Ethereum Foundation, Phantom.zone, and 0xPARC at the 2024 Devcon, earning a $10,000 bounty. Micah Zoltu is known for discovering a significant vulnerability in MakerDAO in 2019 and is also a developer of EIP-3074 and EIP-2718.

The team hopes to launch the "new Augur" not as a purely commercial platform, but as a decentralized truth machine across chains, in the words of the Lituus Foundation. They aim to separate and modularize the oracle from Augur's prediction markets, allowing all applications to use the Augur oracle.

Augur was originally designed as a purely decentralized application, not relying on multi-signatures, management keys, or backup mechanisms. Even its token economics design incorporated original game theory to ensure the platform operates through interest-based competition. The new Augur will continue to uphold this spirit. The only information we currently have is that the new oracle will likely be deployed on L2, and the initial prediction markets will be developed based on AMM.

So far, the Lituus Foundation has released two progress reports. In the first quarter after announcing the restart, Lituus increased its REP holdings from 250,000 to 550,000 and deployed $100,000 in liquidity on Uniswap v3 while planning to launch on CEX. In the subsequent second quarter, there were four significant developments:

• · Launch of the website;
• · Research on the oracle will develop in two complementary directions, one focusing on consumer prediction markets and the other on enterprise-level oracle use cases;
• · Micah Zoltu initiated a crowdfunding campaign to intentionally push for an algorithmic fork of REP to test Augur's core security model;
• · The foundation's buyback scale expanded to 1 million REP.

The algorithmic fork is a very interesting design, and the details are quite complex. I will provide a simple explanation here:

In Augur's design, "results" do not have fixed answers. Augur allows users to dispute results by staking REP, and when the disputes reach a threshold (2.5% of the total REP staked), the system splits into two parallel universes, each corresponding to one result, and REP holders need to choose the universe they endorse and migrate their REP to that universe. If the staked REP does not reach the threshold within a given time after the dispute begins, participants supporting the initial result will be rewarded.

Micah Zoltu's crowdfunding initiative aims to raise funds to invest in obviously incorrect results during disputes, thereby "sacrificing" a portion of REP to test the feasibility of this mechanism. However, due to this testing, the plan to launch on CEX has been forced to pause until this dispute is fully resolved.

Conclusion

"Feng Tang is easy to grow old, while Li Guang is hard to seal."

Ethereum co-founder Vitalik mentioned in his article "From prediction markets to info finance" published last November that he was once a loyal user and supporter of Augur. As Ethereum's first ICO project, Augur's design seems overly advanced even today.

This advancement does not solely stem from the mechanism but rather from the overly utopian premise of its implementation. What were our discussions about prediction markets back then?

• · Farmers could establish prediction markets for harvest season weather as a hedge against climate impacts on yield;
• · Using prediction markets to establish bug bounties and smart contract insurance;
• · Conducting incentive-based public opinion polling markets and introducing conditional markets to guide policy-making;
• · Establishing trading pairs on Uniswap between RealT (real estate tokens) and tokenized positions betting on falling property prices to allow hedging positions to earn trading fees;

……

Current prediction markets are filled with trading and arbitrage, which is one approach, and it seems to be the only correct approach at the moment. We often complain that Web3 lacks innovation in recent years, but looking back at the thoughts of OGs from ten years ago, do we really have no room for innovation?

Web3 is a massive Polymarket; we used to be busy establishing new markets, enjoying ourselves. At some point, we suddenly started making markets by providing liquidity on the order book, using bots to find milliseconds of probabilities and opportunities that do not equal 1, and also arbitraging by accepting stop-loss orders before the market closed. It seems that suddenly everyone lost the courage to establish a new market and bet on a bigger future.

The article I translated six years ago mentioned the "3p theory," which is to predict the future (Predict), hedge the future (Prepare), and incentivize the future (Persuade). At that time, I wrote a passage that I had forgotten: decentralized prediction markets lay all possible parallel timelines before you, and everyone has the right to choose the future door they want to step into. The more people participate in the choice, the more likely it is to guide time toward a further destination. ```