Hey guys :) I’m back with another comprehensive Q&A piece, this time for the machine learning data science project – Numerai (NMR).
Numerai is a machine learning stock market prediction platform seeking to build the world’s largest hedge fund. The project continuously runs “the hardest data science tournament on the planet” with the goal of crowdsourcing an excellent financial model for predicting the stock market, among other things.
Now, before we dive in, the following piece is similar to my latest articles on Hegic (HEGIC), Ocean Protocol (OCEAN), and Quantstamp (QSP), so if you haven’t already seen those, be sure to check them out as well.
Hope you enjoy!
The list of Q&A is kind of long so first comes the list of questions that I have prepared the answers to:
- What is Numerai?
- Who and When Created Numerai?
- What is $NMR Token used for?
- What is the main Product of Numerai?
- What is Eraser?
- What is Numerai Signals?
- Where to Store $NMR?
- Where to Buy & Sell $NMR?
1. What is Numerai?
Numerai website homepage
Numerai is a unique project that’s tackling a complicated data science problem by crowdsourcing data scientists who are provided with clean and regularized stock market data that has been encrypted and obfuscated so it can be given out for free.
Users (data scientists) who sign up with Numerai can download their cleaned data to create models that predict stock market movements. The models are created using a mix of machine learning algorithms and artificial intelligence.
These crowdsourced prediction models are then put to the test by investing in real stock markets around the world.
Prior to their testing, the creators of these models stake an amount of NMR to their model, as to have skin in the game and to prevent tampering. If their stock prediction model succeeds in making the Numerai hedge fund a profit, then they are rewarded with a percentage of their stake. If there’s no profit, then their stake is burned, hence skin in the game.
If the data scientist is confident that their stock prediction model will turn a profit, they stake a greater amount of NMR for the potential to earn more.
In this sense, Numerai is: “The hardest data science tournament on the planet.”
2. Who and When Created Numerai?
Numerai founder, Richard Craib
Numerai was created by Richard Craib all the way back in 2015 and its NMR cryptocurrency was issued in 2017. That said, Numerai is an OG cryptocurrency project that has stood the test of time and has evolved over the years.
Prior to founding Numerai, Craib was working as a data scientist at a $15 billion asset management company where he developed a machine learning algorithm for investing. $50 million was invested with this algorithm for more than a year and outperformed the market.
But markets change and these types of algorithms must be updated to build better models so that they can continue to be profitable.
However, as stated by Carib in a Medium post:
“Once you have a model in finance that works, you hide it. You hide the techniques you used to build it. You hide the methods you used to improve your data. And most importantly, you hide the data. The financial incentive for secrecy is strong.”
The financial incentive for secrecy is what prevents better models from being built and Carib set out to change that.
He came across a technique for encrypting and scrambling data but doing so in a way that it could still be manipulated and used to build better models. Using this technique, Carib created Numerai with the belief:
“I believed that if I could share the data, other people might someday build better models than mine.”
When Numerai first launched, data scientists were rewarded for improving the algorithm with Bitcoin. His company paid out more than $200,000 in BTC to data scientists, but over time, Carib realized there was a flaw in his business model.
The flaw, Craib explained:
“It pitted the data scientists against one another, where telling other data scientists about the contest could cut into their own winnings.”
Then in April 2017, Carib and Numerai launched their own native cryptocurrency $NMR, an ERC-20 token on the expansive Ethereum blockchain. The $NMR token became an integral part of Numerai’s long-term success through staking to keep the data scientists incentivized.
3. What is $NMR Token used for?
Numerai (NMR) token logo
The native cryptocurrency of the Numerai data science platform is $NMR and it’s used primarily by data scientists in the following ways:
Numerai Hedge Fund:
- Staking
- Payments
Erasure:
- Staking
Numerai Hedge Fund
Staking
Data scientists stake $NMR on their stock prediction models to prove their confidence in the effectiveness of their data models. Data scientists choose how much $NMR they want to stake on their model.
If they are confident that their models will succeed in making the Numerai hedge fund profit, they will stake a greater amount of $NMR because they are rewarded with a percentage of their stake.
If the data scientist’s model fails to make a profit, their staked $NMR is burned (removed from circulation forever).
That said, staking involves risk (skin in the game), but is compensated with $NMR for good performance (incentives).
Payments
Data scientists with successful stock prediction models that make the Numerai hedge fund a profit are rewarded with $NMR payments that are based on a percentage of their $NMR staked.
Additionally, Numerai users can earn $NMR by reporting vulnerabilities, creating or contributing to open-source packages, translating technical material to a variety of languages, and other opportunities offered by the team.
Erasure
Staking
Users of Numerai’s latest protocol, Eraser, stake $NMR tokens to create a trusted and decentralized venue for exchanging data.
More information on Eraser and how NMR is staked can be found in question 4 below.
Numerai (NMR) Token Stats
The $NMR token is designed to be scarce as it’s maximum supply was reduced from its initial 21 million to 11 million to reduce dilution.
The total supply is now 11 million and will gradually decrease as tokens are burned on Erasure (the marketplace for predictions) and in the Numerai Tournament (the stock model prediction market).
As for circulating supply, 4,441,757 NMR are currently in circulation.
4. What is the main Product of Numerai?
The main product of Numerai is the Numerai Tournament – “the hardest data science tournament on the planet”.
The Numerai Tournament is essentially a data scientist leaderboard of the top stock market prediction models used to control the capital of the Numerai hedge fund.
The best data models are at the top of the leaderboard and the data scientists’ behind these models stake any amount of $NMR to receive $NMR payments for their profitable prediction models. The more $NMR they stake, the more they stand to earn if their model is profitable.
The goal of a data scientist is to train a machine learning model to predict the future performance of a stock with a set of features. When the data scientist is confident enough in their prediction model, they can stake $NMR to it and submit it to Numerai to enter the tournament.
Numerai Tournament leaderboard (source)
5. What is Eraser?
Eraser website homepage
Eraser is a new staking protocol powered by Numerai’s native cryptocurrency $NMR. The protocol can be used to crowdsource intelligence by creating instant trust with perfect strangers and it’s now open to be used for any platform.
How does it work?
Using the Eraser protocol to interact with people online, you can attach a small amount of money to your online interactions, and the person you are interacting with, for a period of time, is allowed to destroy your staked money. Using this staking mechanism, a stranger might now be more willing to pay attention and trust you, because you have skin in the game.
The Eraser protocol is live on the Ethereum blockchain and its staking mechanism can be implemented across the web. The first implementation of Eraser is Eraser Bay – a marketplace for sourcing any kind of information.
Eraser Bay website homepage
On Eraser Bay, users can make requests for information like predictions, secrets, whistleblowers, recommendations and require that fulfillers of this info place a stake in $DAI.
Upon making a request, you must also stake an amount of $DAI to be paid out to the fulfiller if you are satisfied with the request. This staked $DAI is transferred to an escrow account when you make the request.
To learn more about Eraser Bay and the inner workings of how it uses the Eraser protocol be sure to check out their website and FAQ.
Furthermore, Eraser’s protocol can be used to create a number of other things such as a browser extension that hides all tweets, Reddit posts, and emails that aren’t staked with a nominal amount of currency. Another use case would be to use stakes to enforce promises. This could be used in dating apps, couch surfing apps, and so more.
All in all, the possibilities for Eraser’s staking protocol are endless and while it doesn’t require $NMR for payments and staking, it does burn up NMR in the background.
6. What is Numerai Signals?
Numerai Signals website homepage
Numerai Signals is a platform for uploading stock market signals to find out how original they are compared to all other signals on Numerai. These signals can also be staked with $NMR for a chance to earn $NMR cryptocurrency rewards.
However, if you stake $NMR to your signal and it performs badly, your staked $NMR will be burned, removed from circulation forever. As for successful stock market signals with staked $NMR, the rewards you earn are proportional to the stake.
Numerai Signals is a part of the Numerai master plan to build the world's largest hedge fund.
7. Where to Store $NMR?
MetaMask wallet website homepage
Numerai (NMR) is an ERC-20 token residing on top of the public Ethereum blockchain. That said, you can store NMR in any ERC-20 token supported wallet.
However, the best wallets for storing NMR are non-custodial Web3 wallets that provide seamless access to the best DeFi applications, like the Numerai, Eraser Bay, and Numerai Signals.
That said, DeFi wallets are the best for storing NMR because the token is widely used and supported in the Ethereum-DeFi ecosystem.
Popular Numerai (NMR) Wallets:
- Trust Wallet (mobile)
- Argent (mobile)
- Coinbase Wallet (mobile)
- MyEtherWallet (MEW) (web)
- Metamask (web)
In addition to the above-listed wallets, Numerai (NMR) can be stored on a wide variety of other reputable wallets supporting ERC-20 tokens.
8. Where to Buy & Sell $NMR?
Numerai (NMR) can be bought and sold on a peer-to-peer (P2P) basis but the most popular way to buy, sell, or trade $NMR is through centralized and decentralized cryptocurrency exchanges.
You can buy and sell NMR with cryptocurrency or fiat currency at the following top DEXes and exchanges. In most cases, you will be able to buy NMR with BTC, ETH, or stablecoins.
- Coinbase Pro - USD, EUR, GBP, BTC
- Binance - BTC, BNB, USDT
- Uniswap - WETH, ETH, STORJ
- Balancer - WETH, UMA, MLN
- 0x Protocol - WETH
In addition to the exchanges listed above, Numerai (NMR) is also traded on a variety of other exchanges and platforms that enable people to buy, sell, or trade cryptocurrencies.
Hope you enjoyed that read :) Let me know if I have missed something in the comments.
