What if starting a hedge fund was as easy as downloading an API?
A startup incubated at MIT Media Lab is today revealing a product designed with this ease-of-use in mind. Called Catalyst, the first product offering by blockchain startup Enigma aims to trigger nothing short of an explosion of new hedge funds focused on cryptocurrency as an asset class.
By drawing directly from lessons learned by traditional asset managers like Citadel and Sigma Two, Enigma seeks to standardize how cryptocurrency hedge funds are created, thereby reducing the time it takes to code their set-up and lowering the barrier to entry for investors.
According to Enigma co-founder, Guy Zyskind, however, the launch is part of a bigger plan that makes it easier for investors to recoup returns on the principal.
Zyskind, who helped start the project while he was still a student at MIT, explained that the venture-backed platform is best seen a gateway to an even larger market of information.
Zyskind told CoinDesk:
"We want to introduce the idea of data marketplaces to the community by having a project around crypto-financial markets. We think that would be a good way to introduce our data encryption technology later on."
In this way, the alpha version of Catalyst, previously revealed last month, aims to get early developers to download the API, receive an API key and start building with early data sets provided by exchanges.
Developers will then be able compete in weekly contests and win rewards in Enigma's native token, to be launched later this year.
"They can start accessing, and play around with strategies," said Zyskind. "They can also share their strategies with other people in the system and they will be able to share data sets."
Stepping back, the launch represents a pivot of sorts for the startup.
Initially conceived in 2015, Enigma was meant to be a way to create markets where anyone could sell information, and where the source of the data could be trusted without users having to reveal unnecessary identifiable information.
But without a clear business use case, interest in the technology wavered. Then, earlier this year, Enigma kicked off a market research study with employees at quant funds and asset management firms.
According to Enigma chief product officer, Can Kisagun, approximately 60 percent of hedge fund managers polled reported being interested in "getting into crypto," and as many as 20 percent of them had already "retrofitted" their existing technology in an attempt to account for 24-hour trade times and assets that can be divided into tiny fractional amounts.
Kisagun explained how that data helped inform the use case they selected to help prove the value of information markets, stating:
"In the world where Catalyst exists, all that two months' worth of effort is available to use through an API download, and we can jumpstart that two month setup to start experimenting with trading strategies from day one."
As is increasingly the case among industry startups, Enigma is employing a two-pronged strategy for its funding, using both traditional venture capital and a planned initial coin offering (ICO).
Revealed to CoinDesk for the first time, the Boston startup has raised $1.35 million from Floodgate, MIT and other participants. Armed with this backing, the firm plans to eventually expand its hedge fund service into the broader information market.
Yet, in preparation for the company's push into the increasingly competitive space, the founders are preparing to raise approximately an additional $20 million worth of ether by selling tokens in August.
By building trading data and strategy insight into the token-exchange process, Zyskind believes he can incentivize the community of users to refine the hedge fund process, and eventually, the process of exchanging data broadly.
"It plays very well with our initial idea that data should be incentivized. Having our tokens be the means of transportation of data is what we feel is really strong in creating that community."
Disclosure: CoinDesk is a subsidiary of Digital Currency Group, which has an ownership stake in Enigma.
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