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Nov 8, 2015

Augur Future REP Value

If you’re not familiar with Augur, you can learn more about it here www.augur.net .

Over the weekend, I noticed the Twitter handle @REP_ticker tweeting Augur REP prices. Current REP price, $1.828. Since I just purchased 800 REP during the software sale for a tad under $500, I was pleasantly surprised to see my purchase triple in value.

So I thought, is Augur REP overvalued?

Here’s the basics.

Augur REP is limited to 11,000,000.

1% of all wagers on the Augur platform will go to REP holders for verifying wager outcomes.

So lets throw a large number out there that everyone loves, unicorn. If Augur takes one billion in wagers in 2016, Augur will redistribute $10MM to REP holders ( 1% x $1,000,000,000 = $10MM / 11,000,000 REP = $0.909 ) or $0.909 per REP.

Since Augur is decentralized, it can’t be owned as an entity. However, if you own REP, you own the partial rights to 1% of the wagers.

It’s estimated that the sports betting market is a $1,000,000,000,000 a year market. That’s just sports betting and the Augur platform has all the potential to be far bigger than just a sports wagering platform.

Now that the $1,000,000,000 in wagers seems plausible for Augur, lets run some numbers.

How much is a recurring dividend worth to you? 3X, 5X, 10X the original purchase price?

For the sake of picking a number, I’ll select 4x. If I buy X, I can recoup my original investment after 4 years and earn X every year after for the rest of my life. That sounds fair to me.

So if Augur does $1,000,000,000 in wagers in 2016, Augur REP should have a fair value of $3.636 ( 4 x $0.909 REP Value = $3.636).

However, $3.636 value wouldn’t be a fair value BECAUSE the Augur platform will continue to grow year after year. As the platform grows in wager volume, the REP dividend also grows.

Lets say Augur wager volume grows 100% YOY for 5 years. This would equate to $32 billion in wagers from a $1 billion base giving each REP an intrinsic value of a $29.088 payout.

Lets remember, $32 billion is JUST 3% of the sports betting market. The sports betting market typically takes a 10% rake, while Augur sits at just 2%. Who would you bet with?

Now how do you price in the growth? I’m not sure, but at 100% YOY growth, that's worth a minimal 10X multiple in my mind. Combine this with the original 4X multiple I assigned for owning the dividend and all of a sudden we’re at 40x REP price by including growth.

If Augur does $1,000,000,000 in wagers in 2016, I expect REP to trade at 40 x $0.909 = $36.36.

Right now REP is priced at just under $2.

If Augur can gain steam and reach $32,000,000,000 in wagers by 2021, expect REP to be worth well north of $1,000.