Numerai: The AI-Driven Stock Market Modeling Platform

Numerai is an AI-driven stock market modeling platform that's revolutionizing the way we think about investing. It's a decentralized platform where a community of data scientists and traders come together to create and trade predictive models.

The platform was founded in 2016 by a group of data scientists and traders who were dissatisfied with the traditional stock market approach. They wanted to create a more transparent and accurate way to predict stock prices.

Numerai's platform uses a unique approach called "numerical modeling" to predict stock prices. This approach combines machine learning algorithms with human intuition to create more accurate predictions.

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Numerai is an AI-run, crowd-sourced hedge fund based in San Francisco, founded by Richard Craib in October 2015. It's a unique solution that gathers all available data that potentially moves the market in one place.

The platform disseminates encrypted financial data sets to a global network of data scientists who utilize machine learning to develop predictive models for signaling stock market trades. This collective intelligence fuels the platform's investing approach.

Numerai's investors include notable figures such as Paul Tudor Jones, Naval Ravikant, and Howard Morgan of Renaissance Technologies. They're backing a hedge fund that's making waves in the industry.

The company's economic model is underpinned by Numeraire (NMR), its native Ethereum-based cryptocurrency. This cryptocurrency is used by data scientists to stake their claims on their predictive models in weekly Numerai tournaments.

Numerai's network of data scientists includes more than 5,500 participants, who compete to build models that perform well on the data sets provided by the company. It's a true test of their skills and knowledge.

The system mimics the incentivization of traders, where data scientists gain tokens by building models that perform well or lose tokens if their stock predictions underperform. It's a great way to encourage innovation and improvement.

Numerai has achieved positive returns since its inception, including a 20% return to investors in 2022 despite a market downturn that saw the value of several cryptocurrencies erode by more than 90%.

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Numerai was founded in 2015 by Richard Craib, a San Francisco-based entrepreneur with a background in quantitative finance and ML, who had a passion for finance from a young age and studied mathematics at Cornell University.

In 2017, Numerai introduced its native cryptocurrency, NMR, as the first hedge fund to have its own token, which was a key milestone in the company's history.

The company made headlines when it introduced Bitcoin (BTC) as a means of payment, in response to feedback from contributors about lacking access to the company's original paying solution, PayPal.

Numerai's founder, Richard Craib, has a unique background, having graduated from Cornell University with a BA in Mathematics in 2012, and also taken classes at UC Berkeley, Stanford, and the University of Cape Town.

In 2018, Numerai announced the introduction of Erasure, a decentralized finance (DeFi) marketplace for any finance-related data, which enabled decentralized application building for users to buy and sell predictions and data using the Ethereum blockchain.

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The Erasure protocol further solidified Numerai's position as a pioneer in the integration of AI and blockchain technologies, and marked a significant expansion of the company's capabilities.

Numerai's reputation board was introduced in 2018, serving the purpose of rewarding users with high-performing models and providing a measure of reputation within the community.

In 2020, Numerai introduced Numerai Signals, a new product that aimed to democratize access to financial data, offering the opportunity for the company to collect entirely new complementary signals based on any new data sources provided by data scientists.

In 2022, Numerai opened a new pillar of the hedge fund, Numerai Supreme, which is based on the same investment framework as the flagship fund (now called Numerai One) but with a different portfolio, promising higher returns with higher volatility.

The launch of Erasure Protocol and its associated dApps initiated NMR's transition away from a centralized token exclusively incentivizing Numerai data scientists and toward a decentralized blockchain protocol that anyone can build upon and use.

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Numerai's concept was inspired by Kaggle's data science competitions, where data scientists design ML models to solve different AI problems.

Numerai offers open access to its data sets to a global network of data scientists, who build ML models to provide predictions about the stock market.

The platform even provides examples of basic and more advanced code for building ML predictions, but contributors are incentivized by the staking program to build their unique and original solutions.

The payouts are calculated based on the information coefficient, which means they are calculated based on the correlation between the prediction and return after optimization.

Numerai creates a stake-weighted meta model by combining the latest predictions from the Numerai tournaments and predicts a signal for each stock.

The submission of the predictions is followed by the computation of the meta model, which transforms the meta model signal into a portfolio by imposing constraints on risk factors.

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Numerai is unique because it uses a combination of innovative technologies to enable users to trade equities and submit their prediction models.

The platform's obfuscated data, which preserves the structure of the data while keeping the original values hidden, is a key innovation that allows data scientists to build ML models without requiring prior knowledge of finance.

Participants can submit their predictions and earn NMR through a staking program that incentivizes original solutions.

The payouts are calculated based on the correlation between the prediction and return after optimization, using the information coefficient.

The platform's decentralized approach, where contributors don't compete against each other, is another aspect that sets Numerai apart from traditional hedge funds.

The meta model, created by combining the latest predictions from the Numerai tournaments, is a crucial part of the platform's functionality.

The use of stake-weighted averages to calculate the meta model signal is a sophisticated approach that takes into account each participant's staked amount.

Numerai's innovative approach has led to the creation of a new product, Numerai Signals, which allows participants to submit their market signals based on their own data.

This approach enables users to earn NMR for their participation, making it a unique opportunity for financial advisors and data scientists to generate extra income.

Numerai's concept was inspired by Kaggle's data science competitions, where data scientists design ML models to solve different AI problems.

The platform offers open access to its data sets to a global network of data scientists, who build ML models to provide predictions about the stock market.

These models solve generic ML problems rather than focusing on specific financial scenarios.

The platform even provides examples of basic and more advanced code for building ML predictions.

Contributors are incentivized by the staking program to build their unique and original solutions.

The payouts are calculated based on the information coefficient, which means they are calculated based on the correlation between the prediction and return after optimization.

The submission of the predictions is followed by the computation of the meta model.

Numerai creates a stake-weighted meta model by combining the latest predictions from the Numerai tournaments and predicts a signal for each stock.

The Erasure protocol is used to ensure that users are incentivized for staking their NMR.

If a user stakes NMR on the correct outcome based on the chosen prediction model, the protocol rewards the user with NMR tokens.

If the user stakes their NMR on the wrong outcome, Erasure protocol destroys their staked NMR.

The Numerai software operates as an AI aggregator called the “meta model”, and employs algorithmic trading.

Trades are executed in the stock market, while all prediction models are accessible by any user through Numerai’s Signals and Tournament apps.

Users can stake NMR and use it to bet on the prediction models they believe to be most accurate.

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Data scientists can download their encrypted data to create prediction models for Numerai's hedge fund software.

The models are then used for equity trading in real-life markets, which is how they're tested.

Data scientists must stake NMR to prevent malicious activities and data tampering.

The top 100 prediction models are selected based on their performance in the market.

Data scientists who make it to the top 100 get their NMR stakes back, in addition to being rewarded with Bitcoin (BTC).

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The NMR token is a native utility token of the Numerai platform, following the ERC-20 standard and controlled by the Erasure protocol.

NMR tokens are used to incentivize participants, creating a self-sustaining ecosystem where data scientists are rewarded for contributing high-quality models and engaging in governance.

Data scientists must stake a certain amount of NMR to participate in the Numerai tournament, and new participants can acquire NMR tokens by purchasing them or receiving them as bug bounties.

Staked NMR acts as a commitment to the quality of their models and ensures that participants have a vested interest in their performance.

A proportion of stakes is burned when participants make badly performing predictions, regulating the supply of NMR and keeping the balance in the incentivization.

NMR token holders have governance rights within the Numerai platform, allowing them to vote on important decisions such as protocol upgrades and platform improvements.

NMR has external value beyond the Numerai ecosystem, and it can be traded on various cryptocurrency exchanges, amplifying earnings for data scientists with high-quality models.

There are currently 8 million NMR in circulation out of a total of 21 million, with a finite supply that acts as a mechanism against inflation.

The Numeraire network is secured as an ERC-20 type protocol on the Ethereum network.

Numeraire uses smart contracts to ensure public trust and maintain the total supply of NMR at 11 million, as predetermined by the Numerai company.

The Erasure protocol, a set of smart contracts also hosted on the Ethereum network, ensures that rewards are secured and accurate.

Dependence on machine learning models exposes crowdsourced hedge funds to biases and mistakes in the algorithms, which may result in poor investment choices.

AI models are susceptible to changes in market conditions, which can lead to huge losses. These risks can be amplified by regulatory obstacles and a lack of human supervision.

Concerns surrounding data security and integrity can arise from putting users' trust in a decentralized network of contributors. This is because the coordination of various strategies by different participants can lead to conflicting activities that impact the performance of the fund as a whole.

The lack of human supervision in crowdsourced hedge funds can jeopardize investor interests, highlighting the importance of addressing these concerns for the long-term viability of the sector.

The Numeraire network is secured as an ERC-20 type protocol hosted on the Ethereum network.

This means that the network benefits from the robust security features of Ethereum, ensuring a high level of protection for users and their data.

The total supply of NMR is capped at 11 million, as predetermined by the Numerai company, which helps to maintain the network's stability and prevents inflation.

Rewards are secured through the Erasure protocol, a set of smart contracts hosted on the Ethereum network, which ensures that users who stake their NMR on correct outcomes are rewarded accordingly.

The Erasure protocol also destroys NMR staked on incorrect prediction models, keeping the incentivization system accurate and trustworthy.

Numerai has raised a total of $12.8M in funding across 4 rounds. Its first funding round was on April 16, 2016.

Numerai's funding rounds have been a mix of seed and series A rounds. The company's seed round in 2016 was undisclosed, while its series A rounds have been more transparent with funding amounts ranging from $3.8M to $7.5M.

Numerai's most recent funding round was a series A round in February 2023, which brought in $3.8M. This round valued the company at $70.36 million.

Numerai has a diverse group of investors, including institutional investors like First Round Capital and Union Square Ventures. The company also has angel investors, including Howard Morgan.

Here's a list of Numerai's recent funding rounds:

Numerai has some notable competitors in the market. Atom Finance, ranked 1st, is an online platform for investment research that has received $40.5M in funding from investors like General Catalyst and Greycroft.

Atom Finance's Tracxn score is 61/100, indicating a relatively strong position in the market. Koyfin, ranked 2nd, offers investment tools and charts for RIAs and HNIs, having secured $6.67M in funding from Valor Equity Partners and Craft Ventures.

Koyfin's Tracxn score is 57/100, showing a slightly lower market presence compared to Atom Finance. The other competitors in the top 10 include Tickeron, ChartIQ, Black Box Stocks, Numerai, Powerlytics, Alinea, Harvest Exchange, and ETF.com.

Numerai's ranking is 6th, with a Tracxn score of 48/100, indicating a relatively lower market presence compared to the top 5 competitors.

Numeraire can't be mined like traditional blockchains, it's secured through the Ethereum network, which is transitioning to Proof of Stake with Ethereum 2.0.

Numeraire is staked on the protocol within apps by users and data scientists, who can earn NMR by making correct predictions or preventing tampering with uploaded market predictions.

Users can stake NMR on prediction models and earn NMR if their predictions are correct.

Data scientists stake NMR to prevent tampering with uploaded market predictions.

NMR is the utility token for the platform, used as the main payment method and for staking on outcomes based on market predictions.

NMR is used to reward participants in the Tournament app in a weekly selection.

NMR powers the network, helping execute all software operations, and is an ERC-20 token since the software is hosted on the Ethereum network.

Numerai's Calculator and Tools are designed to help users make informed decisions and participate in the platform's prediction challenges. The Numeraire Calculator is a key tool that allows users to make predictions and potentially earn rewards.

The Signals application uses the Numeraire Calculator to incentivize users with NMR-based rewards for uploading stock market predictions. Users can send a signal with a ticker and numeric data for one of 5,000 supported stocks.

The Tournament app also utilizes the Numeraire Calculator to facilitate a weekly collection of market predictions. Users can stake their NMR tokens on a prediction of their choice and earn rewards if they're correct.

Predictions are rated by accuracy, and payouts are conducted once every four weeks. This allows users to track their performance and adjust their strategies accordingly.

Numerai's approach to stock market forecasting is a game-changer. It disrupts the traditional hedge fund industry paradigm by opening up the process of market modeling to a broader range of anonymous participants.

Numerai's novel approach incorporates the best-performing algorithmic contributions from these participants into its own meta model. This meta model is composed of multiple independently generated models.

The benefits of this approach extend beyond potential increases in returns. It can support the optimal functioning of a fund of funds, which is based on multiple independently generated models.

The intrinsic diversification that this approach enables can lead to lower error rates in machine learning and promote reduced portfolio risk. This ultimately increases a fund's ability to take on more leverage.

Numerai's success relies on its ability to incentivize a global community of data scientists to solve machine learning problems over the long run.