Staking on Other Users’ Models: A System for Success

When reading this i thought of what Darwinex is offering as a service for investing in talents (see https://www.darwinex.com/algorithmic-trading/darwin-api for short intro).

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@succulent, I think a bit of a trust would be in order, as in most kinds of staking relationships I’m familiar with.

Regarding the “rich model imbalance” problem, if I’m understanding you correctly, I think @wigglemuse was pointing out how to raise the floor, so to speak, rather than limit the distribution. So strong modelers without much money (they exist!) can make their time investment worth it, and at the same time contribute more meaningfully to the metamodel. Richard talked some about wanting to help elevate strong modelers without much money, in a recent fireside chat.

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Yeah, it seems like the only way to go for a public system is more of a free-for-all where backers are essentially playing fantasy football and can bet on what they want week-to-week. If you want a complicated contract agreement with percentages and lockups and clawbacks and high-water marks and guarantees, then that seems like it should just be a private deal. Put a note on your model like that one person (“Buy this model for 1 BTC!”) that it is for sale or rent, contact to discuss terms. But those kind of deals probably aren’t going to help the metamodel in any big way. If it isn’t all about pumping up good models (many of them) with little to nothing staked on them I don’t see the point for Numerai itself to even think about this.

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We’ve also been discussing this as if there is a separate “backer class” where this extra staking will come from (and there is), but if there is a more frictionless system, then all of us existing modellers and stakers can spread around our own stakes on other people’s models easily as well. So if you want to hedge or diversify or you don’t have enough good models of your own yet, then you can bet on models that are obviously different from what you are doing, etc etc. Can’t see how it would not help allocate stakes better. The modellers would have to opt-in I suppose, and then there would have to be a discussion about limits, effect on MMC, etc.

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I have been using Interactive Brokers Friend and Family Account for over a decade to manage a few accounts. Scroll to the Account Structure section to take a look. The account ownership stays with the person, and the trades I make in the master account are allocated across all the accounts in the structure.

IB provides a way to automatically calculate and transfer management and performance fees quarterly from each person’s account to mine, but I have never used it. I believe the moment you start charging advisory fees you would have to register with a state or federal agency as an investment adviser.

I think what @arbitrage is proposing could work by providing a numerai account holder a way to designate some of their 15 accounts as ‘managed-by’ another numerai account. The wallet management stays with the person, weekly submission permissions are granted to the manager account, and performance fees are calculated and transferred regularly.

I suspect the moment you charge advisory fees you would need to register as an investment advisor. And numerai would need to check credentials to allow it on their platform. But I am not really qualitied to comment on those topics.

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This seems like a nice thought, but since everything here is theoretically based on a cryptocurrency and anonymity I feel like we should pursue the philosophy/methodology within and leave nothing up to trust, as evidenced by the huge amount of trust violations in this space.

@wigglemuse I agree on the free-for-all being a necessity, but I would bet (hah) that this will introduce a lot of instability to the numerai fund. We would then have models to decide which models to bet on, and perhaps even people “gambling it all” on one model. I think it would create some very big stakes on a few models (and they may have been poor before). Then again the stock market seems to “work” so…

I also thought about buying the predictions directly, as a type of private subscription deal, but I’m not sure if people are willing to part with these so easily, there may be a lot of information in them?

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Gambling and prediction markets tell us crowd betting works. But there has to be a mechanism of cost/odds to it – the best models need to be the most expensive to bet on, and/or pay less return (but with a higher likelihood of doing so). I don’t really expect any of this stuff to happen, btw, but if it did those are the kinds of things you’d have to build into such a system.

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What problem is “allow users to stake on models that aren’t theirs” solving, and who benefits from having that problem solved? It’s not as if there isn’t enough nmr being staked currently, as users had already come to the previous staking limit last year and will probably be hitting the new staking limit well before the end of this year. What I haven’t seen mentioned here is the fact that structurally speaking there is effectively a competition over a limited amount of staking space and that the current users are already able to meet that demand. Even if the numerai hedge fund begins doing so well that they have an effectively unlimited budget, there will still need to be a max stake in the tournament that is only a fraction of the total circulating nmr in order for there to be nmr availabe for numerai to purchase on the open market, and that max amount will shrink as nmr is burned through tournament activity. I don’t see how opening up to non-participants will benefit anyone other than aspiring free-riders, who of course seem to be the main demographic pushing for this feature.

Ultimately I would highly recommend numerai put their limited time and effort towards other ends.

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I would tend to agree that it really isn’t needed, although I could see how if it was set up properly it would make for a better weighted metamodel as well as help out those users who don’t have a ton to stake but are nevertheless making valuable models. But mainly it gets talked about because it is so often the first question from newbies who don’t plan on modeling, and just want to bet on things.

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I think this would have to be essential to control volatility. There has to be an incentive to maintain diversity of opinion.

TL;DR - I think this idea increases volatility and that is a bad thing. I remain open to counter-arguments.

First reading this idea I was concerned. It’s taken me a good part of today to figure out why. I think I can articulate it now. The metamodel works because of diversity of opinion, or to put it another colloquial way, the metamodel works because of the wisdom of the crowd.

One of the classic stories told to describe the notion of the wisdom of the crowd is guessing the number of jelly beans in a jar. Collect guesses, average them, and that average is usually quite accurate. It seems to me the reason this works is not because the average is correct, it is almost never exactly correct, but because this method controls variance or volatility of that average guess. It will be wrong, but it wont be wrong by much because the variance of the guess is controlled so long as guesses can be made based on some knowledge of the truth. Guessers can see the size of the jar and won’t guess a kajillion jelly beans for a jar they can hold in their hand, nor will they guess 0 or a negative number - making guessing more Poisson distributed I guess, rather than Bernoulli (Discrete but approximately Gaussian) - but nonetheless, guesses are based on some knowledge.

The variance (square of the standard deviation if you will) or volatility (economic parlance) is only controlled or mathematically well defined when the multiple decisions (guesses) are independent (independent and identically distributed or i.i.d). If others can stake based on other peoples staking models, i.i.d would not apply to the crowd, the central limit theorem would be violated and the system’s volatility could blow up.

To bring this back to our jar of jelly beans: if the crowd is watching others make guesses and have decided that person X is a good guesser because she got other counts correct and then start betting on her, but they do not know why she is getting it right, they certainly won’t be able to foretell when she will inevitably get it wrong. (Side note: if the crowd does understand why she is right because her model is open and the crowd likes it, then why bet with her? Run your own copied model at no cost). Presumably nor will she be able to tell when she will get it wrong. Backing bets will increase until she fails -she will fail eventually- and things blow up… badly… this is volatility.

The counter argument is that if people are staking real money they have “skin in the game”. I think I felt Taleb’s ears burn. Perhaps; but they don’t have their mind. They don’t have their wisdom in the game at hand (predicting stock outcomes/jelly bean counts). The only ‘wisdom’ is deciding so-and-so is a good guesser. This reinforces opinion. It does not diversify it. Again, things will be great until it blows up. I could list a series of infamous stock market dates, but at this point I should not have to.

OK - but what do I know? I’ve read “The Black Swan” and “The Physics of Wall Street” - that is it. I don’t claim to know a lot. If there is solid research and experimental data that argues against what I just said I’d be happy to read it and reevaluate my position.

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Sports gambling markets are highly accurate. Not on an single-event basis, but on average. It would be the same thing. Yes, the money would tend to just follow whoever was doing well recently, but that’s the same thing that happens in any betting market (and it works at lot of the time too). So as long as the more people piled onto certain models, that proposition became less and less desirable as it does in any betting market – the payout odds go down to the point where you are risking a lot to win a little and then people will go looking for better paying propositions higher-risk higher-reward, i.e. long shots. Such markets are generally self-regulating. But again, the idea that we could actually set up such a market is the longest shot of all…

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This makes sense. I recall reading somewhere how sports betting, especially horse race betting has diversity of bets encouraged by manipulation of the odds - just like you are saying. Too much money on a single horse is too volatile for bookies. This is why the long shot is 200/1, to get people to put some money on it that they will almost surely lose to the bookie. As you said it’s self-regulating. So Numerai would have to adjust odds/payout to encourage betting on ‘dark horse’ models and then have to actually stake that money in the real market using dark horse models! I suddenly like this idea but I also doubt that they will implement it.

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Disclaimer: I am not an expert on crypto, smart contract, protocols and etc … Just a poor data scientist trying to leverage his earnings.

I understand the arguments set out above about the issues of creating an external staking mechanism. It seems to me that arbitrage suggests implementing a “stake” button, where an external agent could transfer their NMR directly to the model’s wallet, and it can only be implemented by numerai itself.

However, I believe that the demand for private deals is actually repressed due to the lack of a trusted agent and formal instruments (smart contracts ??) which could ease the deal. Currently, I have some difficulty in attracting any amount even from friends and family due to the difficulty of explaining the whole operation and the lack of an instrument that formalizes the negotiation, I believe that I am not the only one.

So what prevents a third party company capable of acting as a facilitator of this operation to emerge? “Arbitrage registry”, perhaps? The community itself would be able to investigate potential fraud and service failures. Then the service provider would quickly gain a reputation.

Finally, would it be interesting for numerai to see other companies emerging within its own ecosystem? Wouldn’t creating this mechanism itself be a better way to maintain control? Something tells me that the erasure protocol could be used for this purpose, but I’m just speculating …

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Newbie with 4 coins and a willingness to learn, but can tell this is far above my pay grade. I would love to be able to see some data / predictions from X models and then stake based on the one I think will do best.

I don’t know how that could be done, but I’d jump on the opportunity.

Thank you all. Learning tiny bits at a time.

People on this thread might be interested in my current experiment to sell predictions for Round 256 as NFTs on Opeansea.io. I don’t think it’ll make sense for 4 NMR because the max earn for a single round’s prediction is 25% = 1 NMR, the average earn is 2.5% = 0.1 NMR, while the gas cost alone will be ~$20. So really this experiment is aimed for some whales given the cost of ETH transactions.

See the forum post I made here:

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Also going to put this here for anybody that wants to check it out and give their feedback, you can reach me in rocket chat my name is “bensch” there. Steak on Kovan Test Network
Still working on it so currently it only supports being used on a development test network but I am hoping to get it all working for people to use on the main ETH network (if gas prices permit)

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While a great idea, I suspect this is already happening right. However, could this not open a new can of worms with regulation for the numerai token? Rather than it becoming utility. Will the regulators course issue for it.

Hello. I have been working on a beta version for something almost exactly what you are describing. Everything you are suggesting is similar or semi-similar to what I am building, the only difference I would say is, like any investment fund or asset managed by a third party (unless you partake in a Buffet Partnership like agreement), the model “manager” (or model builder) does not currently burn in any way. The idea behind such a model is like any investment fund, a fund (or staking on someone else’s model) is just another asset (a derivative of your numeral staking model) and thus you as the backer are taking a risk. The idea is you should do your due diligence and invest in someone’s model that has a track record of success or your backer is a family member, friend, etc (which is why I started building this in the first place). If you are interested in becoming a beta user I am popping up the beta sign-up page this week. Would love for you to try!

Best,
Joe

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please do share the link when it goes live! :slight_smile:

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@liz Awesome. Will do!

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