As active members of the crypto-community, most will have purchased, traded, and sold a crypto-asset on an exchange. However, a reasonable proportion of you will not have utilized an automated algorithm to do so.
To a large extent, AlphaNu aims to change this by creating an ecosystem that connects top algorithm developers with market participants, allowing both parties to optimize their overall outcome. This means traders can gain access to algorithms used by top finance firms, whilst algorithm developers can maximize the use and penetration of their product and personally capture its full monetary value.
What is algorithm trading and who needs it?
Algorithm trading (‘AT’) involves the use of sophisticated algorithms to execute preset trading strategies and decisions based on criteria on behalf of humans, thereby following pre-defined rules to maximize efficiency and (hopefully) return. This benefits market participants by mitigating the impacts of emotion and psychological factors, improving consistency, improving entry speed, and potentially even portfolio diversification. Moreover, AT can benefit the market as a whole by adding liquidity and reducing small bid-ask spreads.
It’s estimated that ~85% of trade volume in the US is through AT, whereas in China it’s only ~5%. AlphaNu’s research (in-house) indicates that the majority of trades in China are manually placed by retail investors, meaning the Asian industry as a whole, and more specifically retail investors could significantly benefit from AT.
However, there are two main barriers to making this happen; exchanges and infrastructure.
Existing Issues in the Asian markets
Unlike the norm in Western exchanges, their Asian counterparts are not typically AT friendly as they are Government-owned and do not operate with the intent to sell data. This data is essential for AT, as it is needed for backtesting — or in other words, testing the algorithm’s performance on past data to see if it works.
In the U.S. $2.8 billion was spent on fibre-optic cables to reduce the communication time to 13 milliseconds between the Chicago and New York exchanges. To further improve speed, the majority of firms utilizing AT have spent a significant amount of money building their operational infrastructure as close as possible to their utilized exchanges. This is important because speed matters with AT.
The Current Situation
Top financial institutions understandably have built and use their own proprietary trading algorithms. This has a significant impact on the everyday retail investor’s ability to maximize profit.
For example, high-frequency trading (a form of AT) allows users to analyze many markets and place thousands of orders in matter of seconds. Programs allow for the analysis of and fast discovery of any trends in the market, and enables users to capitalize on these movements. High-frequency trading can put user institutions at a significant advantage relative to other market participants.
AlphaNu will first target the Chinese market, whilst aiming to scale their ecosystem later for worldwide use. The team believe the Asian market will eventually catch up in their use of AT.
For this reason, AlphaNu aim to supply Asian retail market participants with AT before it reaches a point of monopolization by large institutions.
The AlphaNu Product — Overcoming the Barriers
To overcome infrastructure problems and with it the significant financial overheads, AlphaNu aims to use a cloud-based system alongside brokerage firms. Here, the backtesting, training, analysis and modification of algorithms can be done on the cloud, whilst AT can be done on-site by brokerage firms (i.e. running the optimal algorithm to do the buying and selling).
This is ideal because it maintains close proximity to the exchange but requires less on-site infrastructure. Essentially, with minimal compromise on performance, AlphaNu can provide market participants in Asia with a similar algorithm ecosystem to that of the U.S.
At the other end of AlphaNu’s product is their in-house system to overcome the issues with gathering and using data from Asian exchanges. AlphaNu has gained access to the necessary Asian exchange data for algorithm testing (though they are still looking for more).
Adding to this, AlphaNu has created proprietary methods to clean, process and label the data so that it is user-friendly for developers to create algorithms. This helps to overcome a significant hurdle for on-boarding developers.
AlphaNu — The Ecosystem
This section of the report will breakdown the various participants within AlphaNu’s proposed ecosystem.
These are the individuals looking to buy and use trading algorithms. Traders pay a monthly fiat subscription to a chosen algorithm (they will be able to look at things like strategy, performance, risk profile and methodology for consideration) through the AlphaNu system.
However, the trading is done via the traders chosen brokerage firm that carries out the actual AT. Traders need to select their brokerage trading account and inject it with capital, meaning AlphaNu does not have access to their capital or returns.
Traders will also be able to review the algorithms they use. In a customer-based review style system, after using a specific algorithm for a period of time a trader will be able to leave a public review. In turn, the developer can address the feedback directly, opening up a channel of communication to discuss the algorithm. In saying this, AlphaNu is exploring current reputation and blockchain mechanisms to ensure a fair review system, which we believe is an important consideration to foster a successful ecosystem.
Brokers act as a middleman between traders, exchanges, developers and AlphaNu. This makes them vital to the overall functioning ecosystem. Brokers provide an AlphaNu API for traders to integrate with. In turn, by supporting AlphaNu, brokers stand to increase their trading volume and turnover. To help onboard brokerage firms, AlphaNu aim to let early adopters connect with the ecosystem without restraints (i.e. staking ANU tokens).
As a high-level summary, AlphaNu is the system facilitating staking, token and fiat gateways, data and algorithm transactions and processing, algorithm creation, and training and storage. As outlined above, AlphaNu will process and clean data from exchanges to make it user-friendly for developers. In turn, developers can access the data on the AlphaNu system to create their algorithm. Once the developer is happy with their algorithm they can allow traders and algorithm investors (this will be covered in a subsequent section) to see and purchase their product. It’s worth noting that developers will only be able to use the exchange data and create algorithms within the AlphaNu system, whereby AlphaNu will use a double-layer encryption system to ensure data it is not taken outside.
As outlined above, developers can access AlphaNu’s closed-environment developer portal to create trading algorithms using exchange data. In this portal developers can backtest, publish, market, and monetize their algorithms. Moreover, developers will be able to calculate their algorithm total return and volatility. It is important to note that should someone choose to use an algorithm they will not be able to view the source code.
Developers can also opt to utilize something called ‘Revenue Contracts’. This provides developers access to a one-time lump sum payment of up to 50% of their future revenue from algorithm subscriptions. This essentially means selling your future revenue now for a payment today.
Revenue Contracts & Algorithm Investors
‘Algorithm Investors’ are individuals who believe an algorithm is advantageous, but would rather participate in its revenue instead of using it. Through Revenue Contracts, Algorithm Investors can purchase up to 50% of an algorithms future earnings.
Notably, the revenue paid by traders for algorithm subscriptions does incur a 20% operational fee, so in essence developers and Algorithm Investors receive 40% of the income. This 40% will be split between algorithm investors in a first-come-first-serve or bidding system.
This has secondary benefits for developers beyond initial capital. The goal in creating Revenue Contracts is to facilitate a somewhat ambassador style marketplace, whereby Algorithm Investors can help to push adoption of said algorithms.
AlphaNu has chosen a marketplace model because they believe it is the quickest way to create mainstream AT adoption. Additionally, there are four underlying reasons for choosing a marketplace model, as described below:
- A marketplace provides AlphaNu with the ability to incorporate participation incentives. These incentives can be used to create a secure, free-flowing, fair and supportive ecosystem.
- Through a marketplace, developers are able to provide their product to as many customers as possible rather than it being captured and monopolized by one.
- In a marketplace, developers are naturally incentivised to upgrade and monitor their algorithms to compete with other developers.
- A marketplace can have higher traction and therefore user numbers. With this, network effects are expected and a stronger collective push for AT use could be seen.
Partners & Investors
- Code: ANU
- Type: ERC20
- Total supply: 10,000,000,000
- Team: 15%
- Reserve: 37%
- Advisors: 10%
- Partnerships: 8.5%
- Seed: 7%
- Private sale: 20.5%
- Public sale: 2% (no-lockup)
- Sale type: IEO
- Sale location: BitForex
- IEO Price: $0.0025 USD
- IEO Bonus: 5% bonus for subscribers of equal to or grater than 2 Ether (distributed within 7 business days of token sale)
- Contract address: 0xaffdbbBdD400Bb780DeA5307b39187D1E9Edc1cC
The release for private and seed sale rounds is 15% per month.
For more information regarding the AlphaNu IEO, you can view more detail on the AlphaNu — BitForex page here.
Token Staking for Historical Data Access
The primary purpose of ANU is to represent the value of processed historical trading data. To access this data, algorithm developers will need to purchase ANU each month (the amount will vary over time) and in turn stake those purchased tokens for 6 months. As the ecosystem scales, AlphaNu expect to implement a tier like system where increasing the staked amount allows greater access.
Token Deposits from Developers
To encourage quality algorithms over quantity, AlphaNu will implement a token deposit system for each algorithm a developer provides to the AlphaNu system. This amount is not yet determined, but the deposited tokens will not be released back to the developer until they remove their algorithm from the AlphaNu system. AlphaNu aims to explore variations of this mechanism. For example, high use algorithms may be rewarded with gradually unlocked tokens.
Transaction Mechanism to Automate Revenue Contracts
The Revenue Contract deals in ANU tokens (possibly other cryptocurrencies) and fiat. The ANU token is used to purchase a share of an algorithm’s future returns, whilst also being the means of lump sum payment for the developer. However, the actual revenue itself is paid in fiat currency.
Token Staking for Brokerage Firms
As outlined earlier, to onboard brokerage firms AlphaNu will allow early adopters to connect to the ecosystem without and constraints. However, as the ecosystem grows brokerage firms will need to stake ANU to access the system. This is done to help ensure a fair evaluation of the resources being shared, whilst encouraging long-term involvement.
Paul Hsu [Co-founder & CEO]
• Co-founder and Managing Partner at THM Capital (Quantitative trading hedge fund) with 20+ years of finance experience.
• Former Research Head at Andante Capital, and Research Associate at Compass International Advisory.
• BA in Economics (University of California), MBA (National Taiwan University).
Dr. Sean Hsu [Co-founder & CIO]
• Head of Research at THM Capital.
• PhD in Finance Engineering (National Taiwan University).
• Specialization in time series, market dynamics, and game theory.
• Associate Professor at Ming Chuan University.
Chih Ming Yang [Co-founder & CTO]
• Founder of Kelvin Wallet and Chelpis.
• 10 years experience in systems architecture and new technology development.
• BSc Computer Science (National Sun Yat-sen University), MSc Computer Science (National Taiwan University).
Dr. Luke Yang [Data Scientist]
• Former R&D Engineer at National Chung-Shan Institute of Science and Technology.
• Former Chief Engineer at Procrystal Technology Co. and Simtrans Tech Inc.
• PhD in Physics (National Taiwan University).
Zack Chou [Algorithm Developer Engineer]
• Developer at THM Capital.
• Former Engineer at Castles Technology.
• Specialization in backend connectivity issues w.r.t computer trading in China.
• BSc in Physics (National Taiwan University).
Danny Chen [Blockchain & Cryptography Engineer]
• Tech Lead at Chelpis in development & design of large blockchain applications.
• 10 years experience in software development and cloud application solutions.
• BSc in Engineering (National Chung Hsing University), MSc Engineering (National Chiao Tung University).
Lk Yu [Firmware Developer]
• 20 years experience in micro-controller firmware development.
• Patented a method of communicating with an embedded controller (ACPI EC).
• MSc Computer Science (Yuan-Ze University).
Sandy Chiang [Marketing & Pr Head]
• Former Marketing Manager at Unity Collective.
• Specializes in social media management, marketing and SEO.
• Bachelors Degree in English (Soochow University).
Currently listed online are nine project advisors. We recommend looking at AlphaNu’s website to learn more.
- 2013: Founded THM Capital.
- 2016: Created an automated hedging program for Cathay Life Insurance that manages $200 billion in assets.
- 2016 — 2017: Worked with Maike Futures Co., subsidiary of Maike Group (largest copper and aluminium trader in China) to develop a customized fully automated trading algorithm.
- 2018 — Q1: Conceptualize AlphaNu. Begin development of developer portal and environment.
- 2019 — Q2: Launch AlphaNu token sale. Alpha launch of developer portal and coding environment MVP. Developer acquisition and onboarding.
- 2020 — Q2: Public launch of developer portal and brokerage partnerships. Private beta of customer portal.
- 2020 — Q3: Launch of marketplace and customer portal. AlphaNu token activation.
- 2020 — Q4: Mobile app/interface launch. Regional expansion to other APAC markets.
AlphaNu aims to address a genuine gap in the Asian financial markets. By providing solutions to the outlined barriers above, they have a chance to create an open market for algorithm trading rather than allowing it to be monopolized. With this in mind, there is a lot more that needs to be done before such a functional ecosystem exists.
To read more, check out AlphaNu’s resources and social media
This report was written using publicly available information and some information was corroborated by the team. Thank you to the AlphaNu team for supporting our work and sponsoring this report.