AI Hedge Fund Goes Live on Ethereum
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medium.com
The prediction competition is like the Netflix Prize [1]. They give you a data set and a prediction goal, you submit an algorithm, and there's a winner. OK, although if you can do well at that, you're wasting your time giving your results to Numerai. You're competing for a total payout of $15K/month.
Then, for no particularly good reason, this is combined with some smart contract / crypto coin scheme. Other than for PR purposes, it's not clear what the gain is. Everybody is dealing with Numerai; it's not a many-to-many system. It's more like airline reward points.
The hedge fund itself doesn't use Etherium; it's completely traditional.[2]
[1] https://en.wikipedia.org/wiki/Netflix_Prize [2] https://www.forbes.com/sites/laurashin/2017/02/21/this-is-th...
The data you work with from Nunerai is obfuscated, so you can't take it directly to the market.
It is an interesting no-risk way to evaluate models/algorithms. A lot of people are there to learn on a tough problem.
Edit: The reason for the coin is to allow data scientists to give confidence information about their models. There is an additional payout in USD associated with NMR staking (currently an extra ~$4000/mo for the most consistent models).
Do you have another way data scientists can give estimates of their model's ability to do better than chance and be held accountable for that estimate? Additional prize pool based on giving good reliability estimates seems like an excellent way to do it.
The tokens are not the value of the numerai fund itself. They are merely a tool for the staking process.
The main point, though, is that data scientists don't have to sell the coin. They can stake coin against their models to earn additional USD. If their model performs better than chance, then they get their NMR back to stake the next round. If they are also competitive wrt confidence in their consistency then they also get some additional prize money that is only available to staking participants.
If they are overconfident and do not do better than chance then the coin they staked is destroyed.
All these cryto ico things are premined or centrally allocated in a way where they get a cut. If you have access to the printing press, then you make all the money, no matter what happens with the currency.
Sure, maybe they gave away some of the coins to datascientists, but I am sure they kept a healthly cut for themselves.
This is the fundamental break down in proposals like this (Numerai, Quantopian, etc).
For anyone who can consistently generate alpha, why bother with a crowdsourced model? They can just go join any one of the hedge funds that will pay half to several million each year in compensation for that acumen.
I'm not saying someone is going to do well and leave with the data. I'm saying anyone who can do well should probably just participate in the real market.
And as another point, Numerai lacks entire categories of data outside the conventional "core financial" that is useful for finding alpha.
Sure. Now go get "transparent data"...oh wait, that's also time-consuming (and much less interesting). That's why, if one doesn't have to search for tradable data, it might be interesting to validate a signal/strategy on data that someone with stake says is tradable.
Agreed that if one starts making numerai money with numerai data, one should definitely go get some transparent data and start trading it. Trouble is, now one doesn't know what transparent data one has actually learned, so it's hard to know what to go and spend time on trading.
At that point, though, (I guess this is the theory, at least), numerai presumably know that one has a good signal, and one also knows one has a good signal for something, so both parties know that one's signals are valuable. That should be enough to get one a job at a place that does have good, transparent data.
Worst case scenario you get some "free" money and some other people you don't know get rather more money out of it.
This single line, appended to pretty much anything, describes the latest crowdfunding fad of cryptocurrency or token ICOs.
Oh, it is entirely clear what it gains.
Cryto currency backed equity is just free money that you don't have to pay back if things go south.
There are basically zero protections for the "investors". Numerai could just walk away with the money and they'd probably get away with it.
Why wouldn't you turn down free money that the market is throwing at you?
Has anyone seen any returns for Numerai? They've been around for a while and I wish they would "put up or shut up" as the saying goes. I see that they have paid out money to developers but its not clear if the fund itself is generating alpha above their benchmark index or not.
One of my jobs is to review people who claim to have created algos that can generate alpha. Sadly it's very common for people to talk a big game about the returns they can generate, but then are unable to show any reliable track record when pressed.
Some of reasons I've heard:
- well we weren't actually trading, this is just all theoretical results
- well we didn't include the first 6 months of the year as we weren't profitable yet
- yes if you don't include theses particular trades we were profitable.
- yes we made money, its just that the market itself made more with less volatility.
I really would like Numerai to succeed, mostly because I'm interested in if the idea of mixing 1000's of models together and letting people vote on their weightings can succeed.
This is one of the biggest falsity. If someone invest in any one share, there is very high chance you will be above average for a long time.
In the very long run, yes. But if you apply this to a short term (a week? a month?), that might lead to a rather fatal ego boost. I believe, that this is something that everyone interested in trading has to be aware of.
The market doesn't just go irrational. There are always reasons, just that sometimes they are non-obvious even in retrospect.
In fact, one could argue that markets are fundamentally irrational since no one has perfect information!
The only rationality is the reaction to change!
Here's some more:
- I don't know what the capital requirement is.
- I don't know what agreements we need.
- I don't know what machines/networks we need.
I'm also intrigued by the Numerai story. Haven't seen any numbers, though.
Ever heard a poker player tell a "bad beat" story?
So, you want an index fund work the additional overhead of a cryptocoin mining operation?
In the absence of learnable signal, am index fund is essentially what you'll end up with...
2) they had problems with overfitting leaderboards based on validation sets, now they pay out based on live results resolved over 4 weeks. That was solved several months ago before the crypto currency went live or really had anything to do with it.
3) Payouts are now in both USD and NMR for the competition (based on live data).
So, they did have some problems at first, but that was solved by paying out on live results rather than a leaderboard based on validation data. That solution didn't have to do with the cryptocoin.
The purpose of the cryptocoin is that data scientists can earn more USD (in addition to the well functioning direct competition) by staking NMR. The NMR and conversion rate they require tells the fund how confident they are in their model. This additional confidence information, outlined in the paper you link, gives the fund a better idea of how to weight individual competition submissions for their meta-model that determines asset allocation.
IMO, creating a new deflationary currency skews incentives towards hoarding the coin.
In this case it is basically just a colored coin, the point of which is for the people who hold them to be able make stakes on their long term performance (hence plain ETH would not be useful).
1) Bullshit marketing where they advertise the usage of "homomorphic encryption". If you've looked at their datasets they are most likely taking some fundamental and pricing factors and then performing min/max scaling. Nothing too crazy... and I think it would be possible to reconstruct which stock each observation corresponded to given some effort.
2) Professional quants care a lot about the way their features are constructed. The type of data you are looking at affects the type of model you would use... e.g. some kind of GARCH process for lagged time series data vs something different for sector betas, etc.
3) Given (1) there is an insider trading opportunity to reconstruct the underlying data and then submit predictions based on unknown or illegally sourced features.
Well I know the guy that wrote it - he's one of the smartest and most talented people I know and he's not bullshitting. But by all means, try to break it!
The problem is that it's a complex undertaking to build it, because a lot of the building blocks have to be invented, and they have to be built to the highest standards, both in terms of efficiency, given the cost of Ethereum computing resources, and in terms of security, given the underlying platform is immutable and does not allow reversals of hacks.
The rest of that comment in nonsensical. No one can know for sure the fate of either currency- the speculative component is too large.
https://qz.com/1004892/the-bancor-ico-just-raised-153-millio...
Think crowd funding meets IPO with digital contracts.
Which, to me, is just begging for another DAO fiasco... I know I have my popcorn ready!
Well, Bancor itself is... interesting. The background section of the whitepaper provides the motivation:
https://www.bancor.network/static/Bancor_Protocol_Whitepaper...
So, unless I'm grossly misunderstanding things, during the ICO, Bancor BNT tokens were purchased representing some fraction of the 150M contributed. Those tokens can now be exchanged by participants in Bancor's exchange, and purchased or liquidated freely to the underlying held cryptocurrency.
The ether raised during the ICO are used 1) fund various Bancor operations, and 2) fund an ether reserve to support liquidity.
But note, that reserve is just a fractional reserve. If there's a run on BNT, some people will lose if the reserve dries up! In their whitepaper example, of 200k ether raised, they mention a 30% fractional reserve.
You might ask yourself, why not just buy/sell ether directly? Well, the novelty, here, is that Bancor tokens could represent other cryptocurrencies or even baskets of currencies (though how the subsequent transactions on those other blockchains are handled, I have no idea, and their whitepaper doesn't go into it).
So yeah, I'd say your general description is accurate. If things go bad for Bancor, there's gonna be a lot of people losing out.
The only "sufferers" are the investors too dumb to do their homework. Thousands of failed real-world startups haven't killed SV's lustful search for the next big unicorn either; in both cases you have what's essentially a lottery and new suckers along every minute thinking they're going to make it big.
ICOs are investments and speculation, sometimes on margin.