Bull Case / Bear Case

Let’s say that we figure out how to capitalize on this new super saturated-target data set within the next year and the logical steps you have outlined follow shortly, i.e., Numerai is successful. That still does not explain how value will be injected into the NMR token ecosystem or in the long run how Numerai’s NMR treasury will be replenished.

Thanks for this thread @nmr0. I imagine many of these points come up around crypto VC board rooms when they contemplate NMR. When in doubt, remember we are always trying to do the master plan and we are trying to mostly do it in order. Only a year ago did we start on part 2/4.

Numerai’s Master Plan

  1. Monopolize intelligence (I think we’re at the second largest data science community and highest paying in the world)
  2. Monopolize data (growing Numerai Signals from $0 to $3m in stakes in a year, and just recently 10xing Numerai’s data)
  3. Monopolize money (???)
  4. Decentralize the monopoly (???)

For sure monopolizing money is both performance and track record length dependent. It is also investor education dependent. The biggest investors/allocators in the world knew very little about machine learning and crypto in 2016, and now they know a little more but still not a lot. And very little know about both simultaneously (which they need to get their heads around Numerai). And with booms in every risk - being neutral to risk is a weird pitch but can also be a weird flex someday when those risks come off. As I mentioned on Twitter we’re going to start sharing some performance stuff soon which can help you think about the bull / bear case for Numerai’s hedge fund but not NMR which is a staking token not an investment product.

Some of your ideas around trading crypto seem to be good especially around part 4 of the master plan. One scenario where stocks are allowed (legally) to be traded on the blockchain (and we’re allowed to trade them) really makes part 4 (decentralize the monopoly) very very interesting.

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If Numerai’s hedge fund gets billions invested in it, then Numerai will be collecting comissions (at some normal rate) on those billions. That money can buy the NMR they’ll need, to keep paying us after the treasury runs out.

Or, as I suggested in another post on this thread, the could just mint “Neweraire” (NWR) out of the same thin air from which they minted NMR, and pay us those. Who knows, if the market would support NWR.

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@richai, will Numerai buy NMR using profits from the Hedge Fund?

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This isn’t the only way. Numerai could use the predictions and signals, stacking them and selling signals to other players in the stock market, These sales would be in NMR so other players will need to buy NMR in the market and Numerai will get more NMR to pay us. Two objectives in one shot.

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Some news on relevant news on fundraising for the fund:

https://medium.com/numerai/numerai-outperforms-market-neutral-hedge-funds-by-29-raises-up-to-150m-9df9a0ce642

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Wow! Well done Richard and all at Numerai!

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I don’t think so. While the article that Richard just posted does describe the possibility of a long strategy, I don’t think that is something that Numerai wants to sell. Any strategy will stop working if too many Hedge Funds are using it, in the meantime, the corresponding symmetrical short strategy could be inferred by revealing the long strategy, since we already know which universe of stocks the predictions are in. Remember, we submit an ordering of stocks – a stock strategy – it makes no sense to talk about individual stock price predictions in that context.

In regards to my other question in response to @rigrog:

I think Richard’s answers are very clear:

  1. NMR is a volatile cryptocurrency which moves up an down with other cryptocurrencies like Dogecoin based on supply and demand.

The first answer is at the end of the same article just referenced. I think this is a very clear statement that Numerai intends to let the crytocurrency market dictate the price of Numeraire only. The second answer is just the lack of response to my exceedingly clear question. It is a resounding NO.

Just because they state that it is not the case now, it does not mean it cannot be done in the future.
I cannot comprehend where you take your certainty. For example, they were not publishing any fund performance statistics until now. Everything has its time.

I think doubt has its place; however, from your text I feel that you have no doubt, you are certain. IMO being certain means being wrong.

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Absolutely, and if they did so I would support it 100%.

Um, what should be the source of my uncertainty? If we were talking about probing inanimate objects then, clearly, I would have a good source of uncertainty, say derived from the statistics of some number of variable measurements. But we are not! The question is directed to actual people who without doubt are capable enough to answer the question.

Wait, are you saying that I should infer that they are actually themselves uncertain about their future course of action? Perhaps they are taking some wait-and-see-what-happens approach? Well, in that case you might be right. But if they don’t want to project that uncertainty, why should I project it for them? Unfortunately, my abilities to telepathically grok that uncertainty are less than negligible. But may I infer from your statements, that despite their present negation, you expect that they will change their mind in the future and that they don’t want to reveal that possibiity now in case it turns out that they can’t do it and the whole enterprise fails when the NMR in the treasury dries up?

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I think Richard’s answers are very clear:
NMR is a volatile cryptocurrency which moves up an down with other cryptocurrencies like Dogecoin based on supply and demand.

That really doesn’t seem like a clear answer, and I’m not sure how you read his comment to mean they won’t purchase NMR to maintain payouts once the treasury is exhausted.

Without payouts, the tournament falls apart and presumably the hedge fund would fail as well. Minting some new coin would screw over all the existing tournament participants and would likely severely damage their reputation and performance moving forward. The only other option I can think of is to purchase NMR on the market to keep the treasury full enough to maintain payouts.

When this happens, they could either reduce or increase payouts, depending entirely on how much cash they allocate to NMR purchases and the NMR price. Based on the current payout rate and NMR price, it would require roughly $40M a year. With the hedge fund’s 2/20 fee structure and current performance, they make about 4% of AUM in fees per year. This means they need roughly $1B AUM to maintain current payouts if they allocate 100% of income to this. Currently they have ~$50M AUM, meaning they need a 20-fold increase in AUM in the next 5 years. I know some are pessimistic about this, but given the size of the hedge fund industry and the need for a track record, which has been/is being established, I don’t think it’s unreasonable to think they could pull it off.

Edit: Of course, they need money to keep the lights on and pay investors who provided seed money for the hedge fund. So you can probably double the numbers I gave and you won’t be off by more than a magnitude of 2 (assuming they use at least 25% of revenue to pay for the tournament).

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I don’t think if the tournament falls apart the fund is materially impaired.

The meta-model correlations are absurdly high for most participants and the meta-model would ultimately just consist of whatever the team is able to think up and incorporate (which would look a lot like the meta-model today) if the tournament ended tomorrow.

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That’s an interesting idea. I’m not sure if it’s really accurate though. It all depends on how much value is derived by the diversity of model predictions being staked upon, and only those inside Numerai can determine that.

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It is said that numerai is trading with 5.5 leverage. So I assume numerai only need 200M instead of 1B to payout NMR.

It was also said by Richard monthes ago that numerai need 500M to support current NMR, when the payout rate was around 0.7 and NMR was about 50. This also confirm the point.

They are paid for AUM, which doesn’t change based on how much leverage they use.

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Yes. You are right. I just confirm with Richard. The current 20% 2-year return contains leverage already. So it still needs 1B to payout NMR.