The most important thing the CoE can do with regards to token appreciation is to determine the end state status of the security once the treasury runs dry. If NMR is not considered a security, then 0 is removed from all present value calculations. This dwarfs a million BS content proposals in overall effect on NMR.
The argument being used by the team against Numerai purchasing NMR is that NMR will be considered a security if Numerai uses fund profits to purchase NMR. Numerai was able to purchase BTC in the early days, and large companies now are purchasing BTC funded via debt offerings, and BTC is still not a security. So there is a very prescient legal question to be worked out there for NMR and crypto in general, and CoE should find this out on our behalf immediately.
The other specific assumption that needs to be validated is, once the treasury is depleted, it is assumed Numerai will purchase NMR on the open market to pay us. Again, I do not see how treasury level determines Numerai’s ability to purchase NMR on the open market.
The fund profits >> coin mechanism (at any point in time), is critical to NMR price appreciation, and a simple legal review would provide investors with a better means of determining a present value.
With regards to data scientists leaving the tournament due to NMR price, I don’t think it really matters to the fund at this point. 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.
I think it’s much more useful to look at the long term prospects of NMR, and Numerai in general, than to worry about the short term fluctuations.
The basic model for NMR, at least as I understand it, means that when the MM is successful, then payouts in NMR increase the circulating stock of NMR, hence decreasing its value relative to other commodities.
When the MM is not successful, the circulating stock of NMR is reduced through burning, hence increasing its value relative to other commodities.
Personally I think that aspect of the model is brilliant.
There is the question of how long Numerai can keep making payouts from its treasury. My own ballparks estimate, based on the size of the treasury and the amounts paid out on good rounds, is on the order of 10 to 20 years. I’m comfortable with that
So what happens when the treasury run dry? Well, at the current payout rate, I’ll be long gone, so I don’t really care. But if Numerai is still going, they’d have to buy it on the market, which would tend to raise the price of NMR. If that cost exceeds the profitability of the MM, then Numerai goes under, otherwise they can continue if they like.
As the payouts decrease, will that discourage data scientists from participating? It might discourage the bad ones, but if you have a solid model, and you automate your process, then after the initial ramp up you should be able to make a steady return with very little effort. It’s sort of a Darwinian project in that respect.
But this is exactly what is denied by the Numerai team. This is the crux of the matter. And unfortunately, I have to believe them more than I believe your argument. But see the discussion by @of_s.
Not necessarily. The payout factor roughly reduces the effect of burns as much as the gains. The effect is not exactly symmetrical because during burns some folks pull their NMR out. Either way the reduction is enough that staked NMR will persist much longer and model efficacy has more time to be worked out with less frequent effort. I think that in general this means that folks will not bail so quickly and weaker models will persist longer. So we can expect the meta model to decrease in quality as the payout factor continues to decrease.
My suggestion from day one was to expand the use case for NMR, it is both early days and some use cases are getting crowded but Numerai once said they wanted to control all the money in the world or something like that, ok what about a DEX ? that seems to be in line with the mission, a stable coin and other defi products like lending/CDPs could also expand the use case. I think we are heading into a world where traditional securities and other finance products will be mirrored if not entirely traded/offered on chain, so Numerai can benefit from having early products. Another use case could be financial data since they already spend a lot of money getting it, why not source and provide data in exchange of NMR.
Unfortunately I think it needs to come from them since these are not trivial products and would need their team to expand/legal considerations etc, etc, but what we as users can contribute might be limited.
This may have the effect to give NMR more liquidity. But order for a token to appreciate it should become more scarce while liquidity actually makes a token less scarce. So the effect of liquidity on NMR would probably make it even more like other cryptocurrencies and cause it to lag even farther from mean token-BTC price ratio. Some other action is needed IMHO.
Use case expansion should really come from the VCs who have a huge vested interest and the connections & economies of scale to facilitate this well beyond what us participants could.
I agree that the solution probably needs to come mostly from Numer.ai itself. There may be a use for the CoE in all of this but see the discussion by @of_s.
Has the MM decreased in performance as the payouts have decreased? I have no idea, and it would be interesting to keep an eye on.
But in any case, if the MM performance were to decrease because of large staking by bad DSs, then that makes an even greater opportunity for good ones.
And we should take compounding into account. Suppose a good DS (GDS) and an equally bad DS (BDS) start at the same level. GDS gains (say) 25%, and BDS loses 25%, and they let it ride. GDS will then have 66% more influence on the MM than BDS. It’s a wonderfully self correcting system.
I’d say that MKR for instance burns tokens when you pay CDP fees, so NMR could be burnt that way, a DEX basically has fees that it divides between pool holders and itself, those fees could be paid in NMR, so yeah scarcity should be a concern.
First of all I have two problems with your graphs:
You should compare them in log scale, because multiplication is what matters.
It is not fair to compare NMR which is less then 200th coin by marketcap with coins in the top 50, especially after the big correction. Because lowercaps crash more, and recover later. Largecaps are always first movers.
My take on NMR price. I 10x my capital on Cardano last year, and now NMR is my largest position. To find gems like ADA you have to be lucky or work pretty hard. I invested like 8 hours every day to research coins to realize that Cardano is the best bet, and I still think it was partially luck. To gain big, you have to invest in coins before the information you know is known to general public. For me NMR is a safe bet. It grows faster then BTC, almost nobody knows it, and I can gain big stake rewards.
Why I think NMR has and will have value.
Markets are not rational. If they were, I bet they would be already solved.
What is value and how do you define it? IMO value is about trust. As long
as we can trust Numerai team, NMR has value. It’s like Bitcoin with utility.
Idk, I guess for investing there are better choices, like easy-to-use Defi products. I would not invest into NMR. I guess the price of NMR increases if the tournament is paying nice rewards and more people are staking on their models, so there is demand. However, I’m not sure how many people have those skills. Also, it has to compete with staking-rewards of ~90% APR from pancakeswap, raydium or cake defi and potential growths of those coins.
EDIT: It might sound that I don’t trust numerai, that is not what I think. I think the rewards are definitely there and the whole project is amazing. However, I’m not convicted that the risk/reward-ratio is good for people who don’t stake on models. If there is a way for everyone to stake on models, the price will for sure explode.
Point 1: On every plot the starting point is renormalized to one. If you did the same thing on a log plot you would not see much difference because \log(1 + x) \rightarrow x for small x. But what is more important here is the relative position at each timescale, not the exact numbers.
Point 2: This is exactly my point. If NMR had some intrinsic value beyond just another crytographic token it would not do what you are arguing that a small token does – just lags the big guys. The graphs clearly show that it lags; it does not have any intrinsic value beyond what the market values a not well known small cap token.
This was mentioned in Rocket Chat but I can’t find the exact message now. TLDR the increased supply is because they had to move a load of NMR out of a treasury address and into another, but the new one isn’t marked as a treasury address yet. Once they mark it the supply will drop again
Tesla lagged the market for years! Until it didn’t!
The market is not efficient. It takes time for big buyers to realize real value.
This is especially true if someone seems like working in an old industry, while transforming the old industry as a whole into a new one.
This applies to Tesla and I believe to Numerai as well.
After one year from IPO, in July 2011 TSLA price appreciation equaled that of the Nasdaq. After two years from IPO its price appreciation was double on average. After 3 years it was off to the moon. Would you like me to paste the charts here? TSLA was on par and easily pulled ahead of its market, right from the beginning.
If one is serious about trying to understand the economics of NMR one can’t resort to appealing to unicorns. Even here, NMR just does not cut it! Instead, why not try to understand the forces at work? The community of data scientists is vastly outnumbered by crypto speculators and I repeat that otherwise there is no connection between the Hedge Fund – which in principle could be providing enormous value to the world – and NMR, because Numerai has stated that there is no such connection.
But there is no arguing and no denying that the whole endeavor is a big risk. But it is a risk that is mostly being taken on by data scientists – with both their time and their cash.
interesting discussion here, I am too much a noob in trading to contribute to subjects of price appreciation, the how and why of it - but still want to say I find the points in this thread very interesting.
still, some thoughts:
In my naive understanding, price movement has a lot to do with who’s buying it, who’s holding and/or hodling it, and who is selling it, do we have some info related to this, perhaps in some form of on-chain analytics from Numerai or others cryto portal?
the discussion about price appreciation and value seem to always related to each other, perhaps it is not coincident that in the last fireside chat they talk about decorrelate NMR with major coins? it may well be quite reasonable that NMR has a lot of values to some people (like us here), but doesn’t has value to others i.e. most people who don’t participate in the competition (i.e. not model builders or prediction buyers) - in that case, I don’t necessarily associate price movement to my conviction to NMR as something that has value - which is in term quite a personal perception.
in one of the old university business lectures I attended, such a formula was presented that value = “utility”+“effort of using”-“risk” - in this case, at least as a participant of NMR - there is utility of NMR in ways that similar to other “AI coins” like FET that has clear utility; using it just like other cryto currency is much easier than fiat; on the risk side it is more complex - price appreciation/depreciation is shared by the crypto landscape, in that sense I quite like the idea of decorrelation. I think the big one is how Numerai as an entity functions - as a hedge fund in trading performance, as a potential attractive investment for more VC, etc.
If they go through with what Richard said last time, to change the filed status so that they can disclose the fund performance (even just some aspect of it), I think we can all discussed in a more informed manner - hope that would comes in the not too distant future.
Personally, I think the reasonable thing to do, especially you can’t afforded to lose all the NMR you invested, would be to somehow de-risk - take some off stake after certain level of profitability, invest in some diversified way: fiat conversion, other defi stuff, other coins, other assets.
