An augur is software aiming to incentivize a global network of computers to maintain a prediction market platform on top of Ethereum (ETH).

A prediction market is not unlike an exchange, except instead of trading assets, users wager on the outcome of events. With Augur, users can create and exchange “shares” representing a portion of the value of outcomes, without trusting a company to make or oversee these markets.

The software itself maintains an order book for each market created, and there’s no limitation on what events can be traded, meaning markets may be created to help predict the outcome of everything from election results to the weather.

As with any wagering system, when users predict an outcome correctly, they are rewarded. If they do not, they lose the capital they bid. The idea is market participants gain value by helping outside observers leverage crowdsourced knowledge to gather global data points.

If and when users predict outcomes correctly, they are then rewarded with REP, the crypto asset that powers the Augur network.

REP itself can be used to create a prediction market, dispute an outcome of a known result, or purchase participation tokens. Users can also obtain REP by purchasing it from exchanges, reporting on a betting outcome, or being on the correct side of an outcome dispute.

Still, traders don’t even need to own or use REP to bet on the platform. Rather, its primary purpose is for users wishing to participate in the event outcome reporting process.

How does Augur work?

Augur runs on the Ethereum blockchain, meaning purchases of the shares in its prediction markets are made using ETH, Ethereum’s native asset. Traders wishing to use a less volatile asset can also bet in markets using DAI, a stablecoin running on top of Ethereum.

The platform leverages Ethereum smart contracts to execute all final bet outcomes, ensuring the correct outcomes are reported and that winners are paid.

To facilitate the user experience for betting on event outcomes, Augur divides its execution process into four distinct steps:

• Market Creation – Anyone can create a betting market based on real-world events. Creators set the resolution source (where the outcome will be determined), and a creator fee (a percentage of a trader’s winnings) they will collect once the market has settled.
• Market Trading – Users buy shares in an event’s outcome, the price of which fluctuates depending on the amounts of bets placed.
• Reporting – The outcomes of each event are determined by Augur’s oracle, which brings real-world information onto the blockchain. Reporters report on the market, and the consensus outcome from all reporters is considered “truth.” Those whose report was not part of the consensus lose their staked REP which is then distributed to those who reported with the consensus.
• Settlement – Traders close out positions and collect payouts.

Source: https://www.kraken.com/learn/what-is-augur-rep/