What is Numeraire? (NMR)
The Beginner’s Guide
Numeraire is a software acting as a hedge fund that aims to enable users to trade equities on the Ethereum blockchain.
The idea is that users can make trades based on artificial intelligence and on predictions made by a global network of data scientists using blockchain technology to stake cryptocurrency on certain predictions.
Numeraire has two applications aimed at different types of traders:
- Signals – An avenue to upload stock market strategies that support a specific stock or trading style.
- Tournament – A weekly competition where users submit trading algorithms about the stock markets allowing anyone to bet on the most likely outcome.
In order to make everything work, NMR, Numeraire’s native cryptocurrency coin, is required as a means to stake on outcomes, conduct payments and reward tournament participants.
Additionally, the ecosystem relies upon the Erasure protocol, a set of smart contracts on the Ethereum blockchain that enables Numerai to either reward users who have staked their NMR coins to a correct outcome, or destroy it if they were wrong.
To learn more about the Numeraire platform, you can bookmark Numerai’s Blog to receive project updates from their team.
Who Created Numeraire?
Numerai, the company that created Numeraire, was founded in San Francisco, California in 2015 by Richard Craib and was financed through four separate funding rounds spanning from April 2016 through June 2020, raising a total of $21.5 million. Some notable investors include Union Square Ventures, Paradigm, Placeholder, and Howard Morgan, founder of Renaissance Technologies.
In 2017, the Numeraire token (sometimes referred to as a coin) launched on Ethereum mainnet without an Initial Coin Offering (ICO), rather Numerai issued one million NMR tokens to 12,000 data scientists based on past contributions in Numerai Tournaments.
How Does Numeraire Work?
Numerai operates an artificial intelligence aggregation model, called a “meta model”, that incorporates all the predictions it receives from participants in its application network.
The hedge fund then algorithmically trades equities in the stock market based on this model, and also allows any user accessing its network to use its models by accessing its suite of products.
Numerai Tournament is a weekly contest hosted by Numerai that collects market predictions from data scientists and pays out NMR tokens.
In order to participate, users submit their predictions pertaining to a dataset through a staking mechanism, and the predictions are subsequently analyzed and scored based on their accuracy.
Participants who staked NMR tokens to the correct prediction will earn newly minted NMR tokens, and, if not, the staked NMR will be burned, or permanently destroyed.
Of note, while there are contests held each week, the scoring and payout period occurs every four weeks.
Numerai Signals is an ongoing application hosted by Numerai where participants upload stock market predictions for a chance to earn NMR tokens.
In practice, users submit a signal reflecting a trading strategy on one of the 5000 stocks available in “Numerai’s stock universe.” While the underlying data used to generate a signal may be different, such as P/E ratios, RSI, or social media sentiment, the signals themselves are submitted in the same format: stock tickers and numerical target values.
Once submitted, participants are scored and rewarded similarly to Numerai Tournament, where target predictions determine whether a user will either be rewarded in NMR or their stake will be burned.
Why Does NMR Coin Have Value?
The NMR cryptocurrency is used to power all Numerai applications, with users staking it to various prediction models and are rewarded or punished based on its performance.
While NMRs are continuously minted and burned, its supply is limited, meaning that according to the software’s rules there will only ever be 21 million NMR.
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Why Use NMR Coin?
Numeraire may be of interest to data scientists who seek to be rewarded for their market analysis and can also be appealing to financial analysts who want to earn extra money for data-driven strategies.
Investors may also want to add NMR crypto to their portfolio should they believe the market will one day favor crowd-sourced hedge fund applications.