Dan, this is sick, crazy in the most amazing way.
Sports betting is a trillion $ deal every year. And that's just football. Your proposed solution solves so much I don't think you have any idea how big this is. And I don't only mean this ina financial way. This might sound insane but in your vision of making the world a better place by replacing violence or in this case abuse with open markets.
The most amazing things usually gets invented by chance or side effect. I think this just happened to you.
The key here is:
no cost betting. This changes the game entirely. From gambling and abuse to a skill game that people can play for free or money and actually will provide value to society.
the fact that you can combine any bankroll and cover fantasy players who just do this for fun, to professional gamblers who do this as a living and anyone in between.
-don't forget that this can replace Wall Street as well.
Like you said, augur and any other system that charges even 1% does not solve the problem. You just happen to build the perfect blockchain for this.
Even a fraction of a % of fees in these markets is huge, because the markets are usually quite efficient. As such even a very good pro can only make a few % per bet. If your a champ you might be making 3-10% before any fees. This is why online even if the fees are less than 5% over 90% of players lose in the long run. This makes betting on sports a slot machine, that's almost a scam. Except for very few elite players.
I play poker regularly and this game is a serious income for me. The problem there is the same. 90% of players lose because 80% of the losses are fees. Every time I sit a table half the players are watching games because they have bets on them. The excitement and discussions around sport betting is amazing energy. I don't bet on sport but I can tell you the feeling these people have and the love for the games and their bets is truly spectacular. Unfortunatley today these guys all just give all their money to the casinos.
Everyone is betting illegally. With bookies and offshore sites. Then there are 100s of millions that love these games and would love to make a bet without $$$.
To me if you fix this rigged game, that would really make the world a better place. I hope you go ahead with it.