Numerai, the company behind the numeraire (NMR) token, bills itself as “world’s last hedge fund by predicting the stock market.”
Numeraire is software acting as a hedge fund that aims to enable users to trade stocks on the Ethereum blockchain.
The project uses artificial intelligence and crowdsourced stock market predictions, relying on a monthly machine-learning and data science “tournament” where users submit trading algorithms about the stock market, according to Messari.
“Each month users are given an encrypted dataset that has standard market data labels removed,” Messari writes. “By removing the context of data the project believes users will submit more accurate predictions.” For example, stock price could be labeled as “feature 1,” so users create stock prediction models objectively based on historical data as opposed to using personal biases about how stock price might affect a specific company. Numerai encrypts the dataset that tournament participants are given to prevent participants from copying the underlying trading strategy.
Numerai announced the NMR token in 2017. According to Messari, Numerai distributed 1 million of the NMR tokens to active users on the platform, with the total supply initially capped at 21 million and a limit of 100,000 new tokens released per week. In a June 2019 upgrade, Numerai reduced the supply cap from 21 million to 11 million.
In May 2021, the NMR price hit its all-time high of $96.27 but slumped over the next several months along with broader cryptocurrency markets.
How does numeraire work?
According to a March 2021 post
on the project’s website, “the Numerai Tournament is where you build machine learning models on abstract financial data to predict the stock market. Your models can be staked with the NMR cryptocurrency to earn rewards based on performance. The staked models of Numerai are combined to form the Meta Model, which controls the capital of the Numerai hedge fund across the global stock market.”
As Kraken describes it: “Numerai operates an artificial intelligence aggregation model, called a ‘meta model,’ that incorporates all the predictions it receives from participants in its application network. The hedge fund then algorithmically trades equities in the stock market based on this model, and also allows any user accessing its network to use its models by accessing its suite of products.”
According to Messari, “The team believes there are inefficiencies in the stock-market-related capital allocation and that creating a free and open dataset for machine learning will help solve this problem.”
The NMR token figures into the project design as follows: Users stake their NMR coins “as a means to stake on outcomes, conduct payments and reward tournament participants,” Kraken writes.
“Users are required to stake NMR to receive NMR for their accurate predictions. If the overall hedge fund performs well, they will distribute those returns in the form of NMR to users,” according to Messari.
When users are wrong in their predictions, their staked coins are destroyed.
The project has two applications aimed at different types of traders, according to Kraken:
• “Signals, allowing users to upload stock-market strategies that support a specific stock or trading style”
• “Tournament, a weekly competition where users submit trading algorithms about the stock markets allowing anyone to bet on the most likely outcome”
Key events and management
Richard Craib founded Numerai in December 2015, just three years after graduating from Cornell University with a math degree, according to his LinkedIn profile
In February 2017, the company announced the numeraire token, which was built using the ERC-20 token standard on the Ethereum blockchain.
The current version of Numerai’s hedge fund was started in September 2019.
In October 2020, the company introduced Numerai Signals, letting “Numerai source and reward stock market signals built with any model, trained on any dataset,” according to a blog post
at the time.
In October 2021, Craib wrote in a blog post that the project recently raised money from a pension fund, its first big institutional investor.
“They have a deal with Numerai where they gave us $20 [million] but can invest up to $130m more later. Subsequent investments after the first $20m are at lower fees so they are incentivized to use their $130m in capacity rights to re-invest as new investors come on board,” according to the post