Numerai first encrypts its trading data before sharing it with data scientists—this way, the scientists cannot simply replicate the funds trading strategy. However, the company carefully designs the encrypted data to enable scientists to build models based on it and generate higher returns in trades. Numerai began issuing a total of one million Numeraire tokens to 12,000 scientists starting February 21st. The more points a scientist earns, the more tokens they receive.
Numerai cannot be used as currency to buy goods in the market; instead, it serves as an incentive for scientists to develop successful machine learning models that can profit from real-world trading. If a scientists trades are profitable, they earn Numeraire tokens and win Bitcoin "bonuses"; if their trades lose money, they dont get a "salary," and the company "burns" the Numeraire tokens that would have been theirs.
Project Highlights
We have paid out over $200,000 to our users. We use Bitcoin for these payments. The issue with Bitcoin is that it exists on a different blockchain than the Numeraire token. This severely limits the extent to which decentralized applications built on Numerai can automate and become unstoppable, as these apps cannot receive Bitcoin payments—they can only receive and use Ether.
The staking mechanism creates a powerful new incentive for Numerai’s best machine learning models. For thousands of people, Numeraire will be their first interaction with Ethereum smart contracts. They can do everything through Numerai’s website without managing keys or using Ethereum clients. This isn’t speculative; you can now invest in Numeraire, and Ethereum transactions will influence the progress of the Numerai hedge fund.
Use Cases
Every user on Numerai has the opportunity to stake NMR tokens on their predictions to express confidence in their models. If their predictions are good, they make money, and their NMR tokens return. If their predictions are poor, their NMR tokens are destroyed.
The most important usage metric for users is whether the biggest NMR earners are also the biggest holders, i.e., the whales are the users. This is exactly what is happening with Numerai.
If you look at Numerai’s leaderboard and sort by career NMR earnings, you can see that seven out of the top 15 NMR earners currently hold NMR. Therefore, nearly half of the participants with the largest NMR holdings are accumulating every week. I’m not aware of any single cryptocurrency project where the tokens are so widely and frequently used by its largest holders.
Numeraire Effect
Numerai requires data scientists to stake NMR on their models because only good models benefit and accumulate. This is happening.
When Numerai users submit predictions, they also submit predictions on a test set. Users do not receive performance feedback on this test set, and they don’t even know what our data represents; this ensures that the results from this test set are rigorous.
