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 bet 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.