How NaPoleonX is poised to enhance investment performance
Currently, investment strategies within the cryptocurrencies world are still limited to private equity solutions and the likes of ICOs. NaPoleonX (NPX) will be the first algorithmic crypto asset manager offering singular investment alternatives to crypto-holders through optimized quantitative solutions in a collaborative scheme.
Napoleon Capital specializes in quantitative trading, which has become fairly mainstream in the investment management industry. Simply put, a quant strategy is a rules-based strategy which will systematically make investment decisions on behalf of the investment manager. Qualified and experienced investment managers and quant teams design the strategy to deliver innovative, smart, and competitive investment solutions to assetholders. This is made possible by selecting best-in-class quantitative strategies from expert traders through an open source driven asset management platform.
Amplifying your investment strategy with NaPoleonX
It is important to be mindful of the token nature and business model of a digital company before investing in the ICO. The team at Napoleon Capital has already conceived a set of overperforming trading bots that cover a wide range of asset classes to propel this future platform. The value proposition of the unique NaPoleonX investment approach is based on proven performing trading bots running on highly liquid assets with a low frequency trading approach. This means that NaPoleonX will benefit from a large range of existing trading systems developed by a team with in-depth experience and know-how of the financial markets.
NaPoleonX in action
- Each trading bot will be encapsulated into a dedicated investment vehicle, namely a Decentralized Autonomous Fund (DAF);
- These DAFs will be sponsored by NaPoleonX initially and will be open to external investors; and
- Overtime, NaPoleonX will monitor its investment portfolio in DAFs in order to continuously launch new vehicles and collect additional Performance Fees on top of its Net Performance on invested assets.
What makes NaPoleonX different?
The proposed DAFs to NPX token holders will be segmented in two categories, depending on the trading bots’ underlyings:
- Either they will make use of algorithmic investments based on fiat assets to generate performance in the traditional markets and bring back value to the world of crypto; or
- They will directly optimize crypto assets returns through a market timing approach.
This therefore implies that there has to be a split the DAF’s structuring process into two parts, all depending on the underlying nature. Taking a pecuniary perspective, there is a general assumption that performance derived from highly liquid underlying instruments could bring about linear performance over time, provided the investor takes advantage of market timing systems. This means that initial specificity of the trading bots should be the underlying instrument’s nature, to anticipate precisely the nature of the risky exposure. This makes possible the introduction of optimal potential leverage which boosts the potential for increased returns. For this reason NaPoleonX builds trading bots to the exclusion of illiquidity but instead only incorporating derivatives listed on the financial markets such as futures contracts. This provides customized leverage to customers, making investing with NaPoleonX potentially more robust. Simply put, by using NaPoleonX:
- NPX token holders will be involved in regular decisions regarding the creation, investment and divestment in DAFs;
- All the decisions will be proposed by Napoleon Crypto, the NaPoleonX Advisor. Napoleon Crypto will also implement NPX token holders’ decisions; and
- All the decisions will be subsequently incorporated into a Smart Contract.
Understanding Futures contracts
According to the U.S. Securities and Exchange Commission, futures contracts are “an agreement to buy or sell a specific quantity of a commodity or financial instrument at a specified price on a particular date in the future.” In essence, this allows both buyer and seller leveraged exposure to the performance of an underlying asset, securing the solvability of this performance swap through margin calls centralized into a clearing house.
For the DAFs, NaPoleonX uses derivative contracts to get exposure to their respective underlying assets. The main advantages of employing this strategy include:
- Intrinsic security of such a contract through the clearing house managing the margin calls; and
- Standardization of the contract.
From an operational point of view, trading Futures within a DAF will facilitate the conversion of the Initial Margin into the currency of the underlying and then hedge this currency against ETH to avoid any induced forex exposure. The margin calls are then split into two parts:
- Initial Margin libelled in the currency of the underlying asset
- Maintenance Margin calls to cover the daily performance of the underlying asset
Insight into currency risk hedging within a DAF
Since DAFs ICOs and SCOs will be done in ETH, the natural Currency for these funds will be ETH. In a later stage, DAFs may be launched in another cryptocurrency. For the sake of predictability, a DAF will need to hedge its induced foreign currency exposure to be indexed on its trading bot performance and deliver on its potential. Given that the underlying exposure is obtained through a futures contract, the DAF will have to convert ETH to the Futures underlying currency referred to as BaseCurr to engage the initial margin. For example, the S&P500 Futures currency is USD and Yen for the Nikkei 225 Futures. Trading bot performance will also be generated in BaseCurr. In the case that the selected currency is the BaseCurr, investors could be exposed to the change between ETH and BaseCurr. In particular, if ETH/BaseCurr earns 20% during a given period, a 10% performance for the trading bot on this period would produce a loss of 12% when viewed as an ETH investment.
The solution
NaPoleonX intends to implement a hedging strategy proposed by Napoleon Crypto’s use financial instruments (Futures) designed to allow for substantial leverage particularly for equities. In order to get the target exposure on the Underlying Asset, it may not be necessary to use 100% of the fund cash. Thus, an Initial Margin will be calculated by an Exchange that will depend on its nature and underlying volatility. As an example, if only 20% of the funds are required as Initial Margin to achieve a target exposure, 80% of this DAF’s fund would remain “unused” and stored in ETH. Therefore, part of the DAFs will have a natural currency hedge. To calculate the accurate level of fund required, NaPoleonX will make use of Initial Margin levels from Exchanges together with some headroom management buffers to minimize unnecessary trading between ETH and BaseCurr.
Performance related hedging comes into play since even with the best strategies, performance may not be forecasted with precision. Because the future remains uncertain, hedging performance against currency risk will be a little bit trickier as performance can be impermanent. Consequently, NaPoleonX will hedge each 5% of performance through the same instruments applied to the initial margin.
For NaPoleonX ICO, Napoleon Crypto will provide a minimum of 10 trading bots with 10 different underlying assets for the voting sessions. The trading bots have been developed on both fiat and crypto-assets with the intent to generate valuable utility to NPX token holders.
In order to generate trustworthy, liquid and scalable performances, low frequency trading signals as recommended implements since they allow huge volume trades on liquid futures.
Furthermore, to avoid inflated execution costs which are extremely destructive to performance, proprietary trading bots have been designed with one trade maximum per day. For every underlying asset, NaPoleonX builds bots on trend following engines to collect risk premium on the upside as a strategic exposure and mean reversion engines as a tactical tool to complement the volatility approach.
The future of NaPoleonX
NaPoleonX has ambitions to be the first bot-based platform to make cryptocurrency trading available to everyone. It intends to merge algorithmic, quantitative asset management with Blockchain technology to make investing in cryptocurrencies more accessible, secure and profitable. Its unique solution of using Decentralized Autonomous Funds (DAFs) will bring together algorithmic trading and smart contracts. The smart contracts will be deployed through the Napoleon Crypto SAS Company, which will hold intellectual rights for the first ten DAFs created on the platform. This intellectual property will be shared with NPX token holders. NPX token holders can get access to buy-sell signals and they are entitled to revenues from sub-licensing according to rules and regulations set by NaPoleonX. In addition, buy and sell signals will be provided to NPX token holders in three speeds depending on the proportion of NPX tokens that they hold. This is set to revolutionize the asset management ecosystem for the better.
