Just over a week ago, Numerai was paying out $14,700 per month to our data scientists. A few days ago, this number reached $9.8 million per month because of secondary market trading activity in our new crypto token Numeraire.
Since Numeraire is on Ethereum, data scientists could send it to any Ethereum address and any cryptocurrency exchange could trade in it, and some decided to. Numeraire was never sold by Numerai, and there was no “crowdsale” or “ICO”. Numeraire could only be earned by data scientists for competing in Numerai’s data science tournaments. Since all the Numeraire was held by smart people who had earned it, they demanded high prices to part with it.
On Bittrex, a cryptocurrency exchange, it reached a price of $168 per Numeraire and since we pay 58,812 Numeraire per month, our payouts per month reached almost $10 million. That is 10 Netflix Prizes per month, and it made Numerai by far the most high paying data science competition in the world ever.
Clearly, the blockchain community believes in Numerai, and wants to see it work on a huge scale. They want Numerai to be the dominant hedge fund of the 21st century. They believe that Numeraire is the most important token in financial technology. And so do we.
And the support is merited as every part of our proposal for Numeraire is already working. Data scientists are staking their models with Numeraire, and models that are staked have better predictive power. Numeraire has led to huge growth in our community. Since the launch ten days ago, our users are up from 19,000 to 24,000 and our Slack grew from 3000 to 4400. Cryptocurrency traders are teaching data scientists about blockchain and Ethereum, and data scientists are teaching cryptocurrency traders about machine learning and Numerai. Everyone is aligned, and we are beginning to see strong network effects.
But an overnight 666-fold increase in payouts because of the release of Numeraire is not without downside.
The payout increase also incentivizes unaligned activity such as trying to decrypt our data to gain an edge, breaking our rules on multiple accounts, or even hacking our website. Success in these unaligned activities is now also rewarded significantly more, and we aren’t ready for this new threat model. Given the new stakes, we had to quickly add two-factor authentication (available in Settings).
Having a volatile price for Numeraire affects staking too. By staking Numeraire, data scientists are expressing confidence in their models because they risk losing it. Since the degree to which they care about losing it is correlated with the price, the efficacy of the staking mechanism actually improves with low, predictable volatility in the price of Numeraire.
Many data scientists use the payouts we give out as a way to determine how much time and computing power to spend building machine learning models on Numerai. We realize that setting and honoring expectations on this is extremely important. But in order to achieve stability and sustainability, we need to make adjustments.
We need to reduce the Numeraire payouts significantly. For the data scientists, it is a significant short term hit but it preserves the long term value of their Numeraire holdings and the Numeraire they will earn in the future.
- Reduce NMR payouts ~90% to NMR 1510 per week
- Increase staking payouts 3x to USD 3000 per week
These changes will apply immediately to the current Numerai tournament, and all unresolved tournaments as well including all stakes.
The goal for Numeraire has always been that it gets used to stake models. These changes encourage data scientists to hold Numeraire, and stake it even more than before. Even with this 90% reduction in Numeraire payouts, the prize pool is still more than 10x higher in USD terms than it was two weeks ago.
We will continue to iterate on payouts and incentives as we gain insight into Numeraire’s interaction effects, learn more about the staking outcomes, and listen to your feedback.