Numerai (NMR): Incentivizing Stock Market Predictions

Predicting the stock market has long been a guessing game for those who trade equities. Paying attention to signals, analyzing data and taking other steps before making an investment move is always smart, but it still comes with significant uncertainties. These uncertainties expose stock market investors to the risk of financial loss. However, making predictions and executing stock market moves are now enhanced thanks to Numerai.

What Is Numerai?

Numerai is a quant hedge fund that utilizes artificial intelligence (AI) and thousands of machine learning models to make predictions.

Numerai is designed to take stock market investing to a higher level through its advanced features and functionality. It is powered by Ethereum, and it uses crowd-sourced machine learning models as well as AI to support smarter investments. Financial data that is gathered within the platform becomes the focus of a large group of data scientists. These individuals participate in incentivized competitions to solve the identified machine learning problems. The top submissions are then incorporated into the platform’s model for the benefit of traders. The data scientists will be able to earn Numeraire (NMR), the Numerai native token, for their efforts. More recently, these individuals can also derive conclusions from their own data to participate on the platform.

What Is a Hedge Fund?

A hedge fund is a type of alternative investment that uses pooled funds to potentially increase returns for investors who trade equities. They are specifically available to accredited investors, institutional investors and individuals with high net worths. A hedge fund’s manager is able to employ short selling, derivatives, leverage, risk management strategies, complex trading and more with the pooled funds to produce returns that are often higher than what investors could typically realize on their own. The manager is compensated for their time and effort through a management fee and for their results through a performance fee.

History of Numerai

The roots of Numerai date back to October 2015. Richard Craib, the founder and CEO of Numerai, raised a total of $27.5 million through six rounds of funding. The Numeraire native token, NMR, was launched in 2017. Rather than using an initial coin offering (ICO) for this launch, the million tokens that were released at the time were sent to roughly 12,000 data scientists who had already been active on Numerai.

What Does Numerai Aim to Achieve?

Historically, only major and institutional investors have been able to benefit from hedge funds. Numerai is committed to bringing those benefits to all investors through its functionality on the Ethereum blockchain. It works as a hedge fund of sorts by working with numerous data scientists to analyze market data and make predictions. The predictions are analyzed each week in a Meta Model, and more than 5,100 staked models have been created to date through these predictions. Over the last three months (as of Jan 18, 2023), it has generated a 17.25% return on stake. 

Source: Numerai

How Does Numerai Work?

Numerai performs its advanced functions using an AI aggregation model. This is known as the Meta Model, and it collects all of the market productions from participating data scientists. Based on data from Numerai's Meta Model, the system trades stock market equities algorithmically. More than that, all of the system’s users have access to the model. The data used in the Meta Model is obtained via the work of data scientists. 

The participating experts each analyze data points to make market products, and they receive NMR tokens for their efforts. To date, more than $40 million in NMR has been paid to the data scientists. The market predictions are submitted by staking NMR. Accurate predictions yield NMR tokens for the platform's participants, and bad predictions result in the staked tokens being burned.

Features of Numerai

Numerai is unlike any other platform currently in use today in terms of its objective and its functionality. The platform utilizes AI and machine learning to improve trading results for its users. It specifically functions based on three unique applications and features.

Numerai Tournament

Each week, Numerai data scientists are encouraged to participate in Numerai tournaments. In the process, they can help investors trade equities and earn NMR rewards. These data scientists use the platform’s provided data as well as their own to build a machine-learning model and predict movement in the stock market. Through the assimilation of all of the models collected in a tournament, the results are used to form a Meta Model. The Meta Model’s algorithm manages how the assets in the Numerai hedge fund are invested.

Numerai Signals

While those who participate in Numerai tournaments have access to the same data provided by the platform, they can also use other data that they obtain independently. The goal of Numerai is to create the most accurate stock market predictions possible. Because of this, the platform encourages data scientists to share their sources. These can be sources related to 5,000 global stocks. Numerai will then analyze the submitted signal to determine its originality. Data scientists can use NMR to stake their signal’s performance. By doing so, they can earn up to 25% each week.

Numerai Staking

After a user creates a machine learning model while participating in a weekly Numerai tournament, they can stake the model. NMR tokens are required to stake a model. In addition, models that accurately predict the market qualify the data scientist for a reward of more NMR tokens. 

Benefits of Numerai

Numerai is specifically designed to help investors see a greater return on their investment, and it has successfully done this throughout its history. However, the unique design and functionality of the platform offer several other benefits. What are the key benefits available to those who make use of the Numerai platform?

Rewards for Data Scientists

Numerai’s goal of generating great returns for users is based on the hard work of its participating data scientists. Because of this, it offers a few ways for these individuals to be rewarded for their efforts. In fact, rewards can be earned weekly, and they are paid out monthly. Each week, a data scientist can analyze market signals and make predictions. They are encouraged to submit their best predictions in exchange for NMR tokens.

Further, data scientists may earn more rewards for submitting their own signals to the platform. Numerai wants its participating users to make the strongest predictions possible, and this requires them to have access to a robust set of market signals. Data scientists who submit original signals for the group’s benefit can earn up to a 25% reward. On top of these benefits, some of the data scientists who are active on Numerai may also have their own assets invested in the platform’s hedge fund. These individuals can also benefit from the hedge fund’s performance.

Erasure Protocol

An aspect of Numerai’s functions requires users to place a level of trust in virtual strangers. Numerai uses the Erasure Protocol to create trust among its users. This is a live protocol that crowdsources intelligence on the Ethereum blockchain. This protocol is established by users staking their predictions. Essentially, they have skin in the game for their projections through the Erasure Protocol. Good predictions are rewarded; bad predictions result in their staked tokens being burned.

Numerai Roadmap

Driven by the opportunity to earn NMR tokens and to see great gains on their investments, a growing number of people have become active on Numerai. For the months between September 2019 and November 2021, the Numerai fund has produced a 21% return. While there is always a possibility for loss when funds are tied to the stock market, Numerai’s features continually promote improvement. Going forward, Numerai may see more data scientists becoming active in the community. At the same time, an increased buzz about Numerai and steady or improved performance may drive the price of NMR upward.

NMR Tokenomics

There was no ICO held for NMR’s launch. Rather than taking this typical approach to distributing its tokens, Numerai distributed a million tokens relatively evenly to approximately 12,000 data scientists. These are data scientists who have been active with Numerai prior to the token’s launch. 

The current supply of NMR stands at 5.89 million, and the maximum supply is 11 million. Tokens are burned regularly through the staking process, and new tokens are minted. Because of this, the value of the NMR token is partially rooted in how many people participate in the weekly tournaments. NMR is an ERC-20 token that has several benefits because it is built on Ethereum. These benefits include the Ethereum blockchain’s protection and versatility. 

NMR Price Prediction

The current price of NMR is $16.54. The all-time high was $168.49, and the low was $1.93. Generally, the NMR price has been declining in recent months. However, Cryptonewsz predicts that the price of NMR may reach $30 in 2023, and the yearly average trading price is projected to be $21.25. In 2024, the NMR price may be as high as $40.15 with an average yearly price of $35.82. In 2025, the price is expected to range between $45 and $55. By 2030, the price may be in the range of $140 to $150.

Is NMR a Good Investment?

Widely known for their volatility, the investment into any cryptocurrency comes with the risk of loss. The price of NMR, however, is anticipated to gradually shift upward through 2030. On a day-to-day basis, the fluctuations can be significant. 

With this in mind, NMR may be a good investment for those who are looking for long-term gains rather than quick profits. NMR may also be a good investment because of the ability to earn more coins by participating in the platform. Individuals who participate in the platform’s weekly tournaments and who more closely predict the market’s movement can also take this opportunity to earn NMR tokens as a reward. Because of this mechanism, Numerai users can gradually increase their holdings. As the price rises and holdings increase, NMR could prove to be a valuable investment.

Of course, we would still encourage all investors to do their own research before investing.

The Future of Numerai

The future of Numerai is relatively clear. This platform already has a strong base of users who compete in weekly competitions, and this user base is expected to grow. Numerai’s use of the Erasure Protocol and its incentivized rewards system encourages users to make their best predictions. By doing so, the platform may continue to beat the stock market average. If this is the case, more users may be attracted to the platform over time. There are no specific plans in place at the moment to dramatically change the platform with updates or new features.

The Bottom Line

Numerai is a crypto platform that is unlike others in terms of its functionality and design. Its goal is to produce superior stock market predictions and to make investments accordingly, and it has met its goal regularly throughout its history. For those who want to profit from making good stock market predictions or who simply want to hold tokens with upward price potential, Numerai is well worth looking into.