there have been some discussion on the risk associated with the NMR price. As far as I know, no real solution has been posted so far.
So here is my solution:
- Buy (let say 100) NMR on Coinbase
- Stake that 100 NMR on you model
- Short sell 100 NMR on Coinbase (pro.coinbase.com let’s you do it)
- Make some profit with you model
- The two 100 NMR positions will cancel each other. You have no risk of volatility on that 100 NMR
- The NMR you earn in the tournament is yours at the current NMR price level and it’s risk free
- You pay a small fee for holing a short position
- The two positions you hold are not going to push the NMR price any higher
- Staking more on the models, you are confient with could benefit Numerai on the long run
- Yes, you will need 200 NMR worth of USD to do this. Still this solution is still better than no solution at all.
Enjoy and stake more!
This is a great idea. Being equally long and short makes a lot of sense in this context. I guess you could do this with DeFi too (if it was available), just buy an equal amount to that you borrow. I’ve had a quick look though and looks like this was only possible through margin trading on Coinbase, which looks like they discontinued?
It’s possible, I’ve just checked it. I’m not sure, if it’s on margin.
Anyway, if not Coinbase then some other exchange will do it for you.
Coinbase is only my choice…
Interesting, I didn’t realize other exchanges sold NMR. You can buy NMR on Binance and it seems to have the functionality to do this as discussed here:
I’m curious about Coinbase if you have any links of how to do it though. I couldn’t find any and it doesn’t seem obvious where it is in the UI.
Could you be exposed to a short squeeze? Would you need to liquidate your staked NMR quickly to cover it?
As long as you don’t use hugh leverage, you are safe.
You keep this position open long term, which means large price swings (up or down).
So big leverage will kill your position quickly.
For anyone curious, I think this is a good explanation of how you can short on Binance
And here’s the pair for NMR and USDT
From my understanding (I might be wrong on some things here as I’ve never looked into this stuff before, this is just my understanding after some research and thought today). If you had 100 USDT to put into the tournament, you’d buy 75 USDT worth of NMR and stake it in the tournament, and then you’d put 25 USDT in your Binance margin wallet. Then you borrow NMR to sell using your 25 USDT, which means you’re now short NMR by 75 USDT (as 3x leverage). Hence you’re both short and long NMR by 75 USDT, so that’ll cancel out the currency risk. You’ll probably want more than 25 USDT in your margin wallet though as I think if the price rises by 50% (hence your loss is 25USDT) then your short position will be liquidated and you’ll lose your 25 USDT.
Of course, now we’ve introduced exchange risk, as if Binance gets hacked etc. then you could lose all your money in your Binance margin wallet. So it’s really a trade-off of NMR currency risk for all of your currency, vs exchange risk for a fraction of your currency and incurring interest on your short loan.
I guess how you weigh up those risks depends on your sentiment for the long-term prospects of NMR. Personally I think its probably better to just DCA/VCA your NMR purchases.
Useful info thanks. Looks like a sound approach.
Although how about transaction fees, is that something to factor into this or does that not matter match for the pair?
It may be better if you exchanged your USD to BNB and traded BNBNMR to eliminate the fees, provided there is BNBNMR listed on binance?
Are there options available to hedge against the price?
Transaction fees are probably going to be pretty small relative to the loan interest. Yeah, I think in the video they talk about using BNB to pay your fees. You wouldn’t want to borrow using BNB though, as then you’re exposed to the currency risk of BNB, e.g. if BNB falls against USDT then you lose out.
I think being short and long is hedging? As then if the price of NMR falls, the price falling doesn’t hurt you so much as you profit on your short position
I think I meant using actual Options as another form of hedging. Is there a market for Options for numeraire? That could be a market.
Hmm good point. Not sure. But options are used for risk management to lock in the price of an asset. So yeah options would probably be another good way to manage risk. Might also eliminate currency risk as I don’t think you need collateral for an options contract
Yes, but I’m not aware of any NMR options.
However you can short sell NMR at any exchange!
Is it still possible to short sell NMR at coinbase pro? I thought they stopped margin trading: https://blog.coinbase.com/coinbase-pro-disables-margin-trading-42f5862f8a66
USDC-NMR lending/borrowing smart contract is available on Kashi now: https://app.sushi.com/bento/kashi/borrow/0x7bee2161afa1aee4466e77bed826a41d5a28db46
This also allows for leveraged/short positions, without introducing any centralised entity risk.
I wrote a post about it here on the forum with a more in-depth explanation of its exact workings.
If the price of NMR continues to go down, then the NMR you earn back is is going to be less and less valuable.
If your stake doubles your NMR and you cannot get double the cash return, that’s not fair!
Yeah, I was wondering about that too. Even if you have a mind to borrow NMR to protect your staking investment, the new NMR you make is still only worth so much (and is not protected). You have to commit to going long one way or another, right?
I am considering tying that out, I have one problem with it though: There is still the lockup time of the NMRs being staked.
Lets say NMRs go up from where I initially placed my short position. At some point the stop will trigger my short position to be cancelled eating away my collateral. To cover my loss from the short position, I would have to immediately liquidate my staked NMRs, which I cant do for 4 weeks, which is a rather long time in the crypto world. While waiting for the now unprotected NMRs being released, NMRs could fall down again losing me even more money.
So sudden price hikes as seen in the last months are killing this strategy.
A solution for this would be some sort of naked short selling, because you essentially always have the NMRs you borrowed (if your model did not lose money), just not right now, but I don’t think you can do that anywhere.
Another option would be that Numerai reworks their staking system, so that it is possible to immediately withdraw the entire staked NMRs from a model. Obviously you would have to introduce some sort of punishment for that, like automatically apply the maximum burn for the given round. Then you would basically limit the loss to the early withdrawal punishment + your model earnings/burns since staking + all transaction fees for trading, which would be an acceptable risk for me.