Companies

As the SEC clamps downs on ICOs, one hedge fund is trying to decentralize its token

Quick Take

  • Numerai is an AI-run hedge fund that crowdsources investment data to make trades
  • The company recently launched an information marketplace called Erasure allowing users to buy and sell investment data using Numerai’s native token, Numeraire
  • Numerai’s CEO, Richard Craib, announced the company will remove its ability to create new tokens, in an effort to decentralize its network

AI-run hedge fund Numerai is driving forward plans to decentralize its cryptocurrency. 

Since 2015, Numerai has crowdsourced investment data on which an artificial intelligence makes trades. The company sources trading investment tips, models, stock predictions, and trading algorithms from contributors and data scientists using its platform. Numerai then builds financial models that incorporate these sources — executing trades based on these models. While Numerai initially rewarded contributors with bitcoin, it introduced its own token, Numeraire, in 2017. 

Unlike its peers, Numerai has been distributing its tokens to users through a series of airdrops over the past year rather than doing an ICO. However, Numerai now says it will no longer mint Numeraire and will reduce its total supply by about 45% to 11 million. We are throwing away the key so that we can’t create new tokens,” said founder Richard Craib,  suggesting the company is edging towards decentralization. 

Numerai’s decentralization efforts also coincide with a federal regulatory crackdown on cryptocurrencies deemed to be securities. SEC chair Jay Clayton said this week at a conference that he used to believe ethereum was a security but no longer does since it decentralized. Ripple has undergone similar efforts with its XRP currency.

Last month, Numerai announced that it was making its investment data open source via an information marketplace called Erasure. The marketplaces enable users to upload predictions backed by data, selling these predictions on the open market. Crucially, however, those on Erasure have to purchase Numeraire to both stake and buy these predictions. The Erasure launch will also address the company’s “market collapse” problem, with contributors having previously been incentivized to make hundreds of predictions on the chance that one will be rewarded. Now, however, contributors must stake tokens on their predictions.  “If they do badly we burn your stake,” Craib told The Block, explaining how bad predictions would be “punished.” Erasure will also alleviate the clunky and expensive data cleaning and storage process, with the content uploaded onto the marketplace already in a concentrated and digestible form.

“It may be the best use case [of crypto] so far,” said Craib, 31, who was a quant trader before founding Numerai. “More participants will produce better data and push up payouts.” The introduction of Erasure means that participants now stake Numeraire tokens on their investment predictions and anyone will be able to trade Numeraire to purchase the information. By staking their predictions with Numeraire, users are incentivized to be as accurate as possible, or they risk losing their staked tokens. Craib was also hopeful that the Erasure launch would mark the start of wider institutional uptake. “Major equity hedge funds will jump on this. It’ll be seen as a toy. A lot of the big hedge funds guys barely have gone beyond bitcoin when they think about blockchain.”

Frank Chaparro contributed to this report.