ARC: Add support for NMR

Sentence Rational

We (Numerai) would like to submit a proposal to add NMR as an asset to borrow and lend on Aave.

References

Paragraph Summary

NMR is a token used in the Numerai Tournament and Numerai Signals for staking and payouts. Data scientists (users) stake NMR on their models and earn/burn based on performance in the live stock market. Numerai uses the stake weighted Meta Model of user models to allocate capital in the Numerai Hedge Fund.

Being able to borrow NMR on Aave would enable users of Numerai to more accurately express their true confidence in the models by allowing them to better manage their currency exposure when staking. Being able to lend NMR on Aave would enable everyone else to fully unlock the time value of their NMR.

Motivation

Numerai’s mission is to build the world’s last hedge fund. We aim to replace the legacy capital allocation industry, where redundant hedge funds work in isolation and secrecy, with an open and decentralized network of data scientists and data providers that work together in a non-zero-sum way. This is accomplished via staking with NMR which provides a “skin in the game” mechanism allowing Numerai to trust anonymous models in a sybil resistant way. The performance of the overall system improves over time as models that perform well gain more control while models that perform poorly lose control.

The problem with staking NMR is that users are exposed to undesired currency risk of the underlying NMR position. Users with a higher currency risk tolerance have a higher stake than they would if they were only exposed to the performance risk of their models. Users with lower tolerance to currency risk have a lower stake than they would otherwise. See this and this example of users discussing this issue on our forum.

Borrowing NMR to stake (or short) will allow users of Numerai to manage their currency risk when staking. A new user could borrow NMR with a stablecoin as collateral to stake, avoiding risk altogether, or borrow and short NMR as a hedge. By managing undesired currency risk, users of Numerai will be able to better express their true confidence in their models, which will ultimately improve the performance of the overall system.

Lending NMR will allow non-users to unlock the full time value of their NMR. For example, non-data-scientist supporters or those performing poorly in the tournament can earn a yield on their NMR without having to participate. By giving everyone a way to earn yield and add value to the network, we make Numerai a more open and inclusive system.

Specifications

1. What is the link between the author of the AIP and the Asset?
I am an employee of Numerai tasked with bringing liquidity and lending to NMR. Numerai is the creator of NMR and currently the primary use of it. Numerai holds a Treasury of non-circulating NMR that it uses to raise funds and reward data scientists submitting to the Numerai Data Science Tournament and Numerai Signals service.

2. Provide a brief high-level overview of the project and the token
Numerai is a quant hedge fund powered by a decentralized network of machine learning models. NMR is used for staking and payouts in the Numerai Tournament and Numerai Signals. In the Numerai Tournament, users build machine learning models to predict the stock market with free obfuscated financial data that Numerai provides. In Numerai Signals, users create models with their own data instead. In both tournaments, users stake NMR on their models to earn performance-based rewards. The staked models of Numerai are combined to form the Meta Model which controls the capital of the Numerai hedge fund across the global stock market.

3. Explain positioning of token in the AAVE ecosystem. Why would it be a good borrow or collateral asset?
We see NMR as a good borrow asset on Aave because of strong existing demand from potential borrowers and lenders. Users who borrow NMR can use returns from staking in the Numerai Tournament to pay the loan interest. Users who are unable to generate return will self select out of the tournament and be disincentivized from further borrowing in the future. A broad base of supporters and ex-users who are already long term holders of NMR make up a robust and stable lending pool.

4. Provide a brief history of the project and the different components Numerai was founded in October 2015 and began running and actively developing the Numerai Tournament from 2015 to 2017 using BTC to reward top performers, but poorly performing models could not be properly punished which led to widespread overfitting and spam. We created and airdropped NMR to our community in 2017 and switched the Tournament over to staking rules as described in the whitepaper, which better aligned user incentives with Numerai’s performance.

In 2019, tournament staking logic was extracted from NMR contracts into the Erasure protocol with Erasure Bay and the Numerai tournament as the first two applications running on it. We also upgraded the NMR contracts to version 2.0 which made it permissionless (removed all special admin access, disabled upgradability), disabled minting, and cut the total supply from 21 million to 11 million by burning from our own Treasury. Migrating the tournament to the Erasure Protocol allowed us to rapidly iterate on staking and payout rules in order to tune incentive alignment.

In 2020, we created Numerai Signals as a second tournament to bring external data into the system. In 2021, we worked with our community to create the Numerai Council of Elders DAO with the mission of allocating part of the Numerai treasury for the public good of the Numerai community.

The master plan of Numerai is to monopolize intelligence, monopolize data, monopolize money, and to decentralize it all.

5. How is the asset currently used?
NMR is currently used for staking and payouts in the Numerai Tournament and Numerai Signals, and as a burn token for Erasure Bay. It is also used for bug and development bounties to the community and fundraising for Numerai as detailed in the next section.

6. Emission schedule
All NMR that will exist has already been minted. Numerai keeps a treasury of non-circulating NMR that it uses for fundraising, rewarding data scientists, bug bounties, and other discretionary usages. For the majority of people, NMR can only be bought, sold, and burned from the currently circulating supply. In 2018, we allocated 3M NMR to fundraising, of which 130K NMR remains. Thereafter, the fundraising allocation will be considered exhausted and Numerai will no longer use NMR for fundraising.

7. Token (& Protocol) permissions (minting) and upgradability. Is there a multisig? What can it do? Who are the signers?
All NMR has already been minted. NMR used a delegate contract that originally allowed Numerai to upgrade the token at its discretion, but minting and upgrading was disabled in July 2019 as part of the NMR 2.0 migration.

The Numerai Treasury is controlled by a multisig wallet. Current signers include Numerai team members.

The Council of Elders treasury is also controlled by a multisig wallet. Current signers include key community members.

8. Market data (Market Cap, 24h Volume, Volatility, Exchanges, Maturity)
As reported by CoinGecko on 1:55 PM, May 13, 2021:

  • Market Cap - $316,010,279
  • 24h Volume - $29,799,393
  • Volatility: 1y Lo / Hi: $18.53 / $93.10
  • Exchanges - Coinbase, Binance, Uniswap, OKEx, etc.

9. Social channels data (Size of communities, activity on Github)

10. Contracts date of deployments, number of transactions, number of holders for tokens

Technical Specifications

[Guidance needed]

Security Considerations

The original NMR and staking contracts were audited by New Alchemy. An issue with the contract ownership was found and fixed in 2018 also audited by New Alchemy. NMR 2.0 migration and updated contracts were audited by Trail of Bits.

Risk

Poll

  • Add NMR
  • Don’t Add NMR

0 voters

15 Likes

For NMR holders that don’t know how to participate in the Numerai tournaments, this would be the first opportunity to get yield from their holdings. Meanwhile, confident participants always want to increase their stake on their predictions. This would create a great match! Let’s please make it happen

17 Likes

Great work ARK and Numerai Team! This will for sure be a great way for participants in the Classic and Signals tournaments to add new layers to working with their investment strategies at all risk levels. From borrowing more NMR to stake to shorting NMR to add hedging control of their models, this will be a great addition for everyone involved including non participants who could lend NMR to the pool. Also, for those data scientists who unstake holdings on a regular basis but would like to keep their NMR holdings without converting to stablecoin or fiat, this could add an extra layer to their overall investment strategy. I look forward to seeing this proposal approved!

8 Likes

NMR is one of the few tokens who has a real need for a lending market. As a data scientist, I need to manage my NMR exposure which is locked for 4 weeks. This prevents me from focusing on the job of data scientist, and adds unnecessary risk to staking on my models. A lending market would allow me to either increase my leverage in case I am very confident in the model I am staking on, or hedge my NMR position that is locked for 4 weeks. I foresee big demand for this lending market, and therefore a lot of fees for aave.

14 Likes

I would absolutely use this if it were added. The data science portion of the competition is very separate from the NMR exposure. Right now NMR holders who are not data scientists have no good way to monetize their holdings while data scientists who do not want NMR exposure are forced to take on needless risk if they want to monetize their models.

I can’t think of any cryptocurrency with as significant a direct need for a platform like AAVE. Bridging the gap between those two parties would provide immense value.

7 Likes

I am a NMR holder and would 100% participate in lending my all of my NMR through AAVE. This proposal should be fast tracked.

Can someone tell me how many votes this needs to move to a proposal?

10 Likes

I am a tournament participant, but more importantly a member of the Numerai community. I would only want what is best for NMR, because that’s what’s best for my future. This idea is such a natural fit. I just found out about this proposal and it seems like a no brained to me.

5 Likes

Please, do it!! As a tournament participant, I really want to hedge the risk of NMR. This is very important for all data scientists here.

2 Likes

I don’t know where the no-brain is. As a tournament participant too, I really want this to happen. It helps our data scientists get rid of risk and bring interest to NMR hold. Which makes NMR the single coin in the world that can generate value.

3 Likes

Since NMR is deflationary (none are added, only slashed for erroneous predictions), NMR would be good for collateral use. NMR is a good addition to AAVE for borrowing and lending.

3 Likes

In my opinion, there is not enough decentralized exchange liquidity to support NMR as a collateral asset. Looking at a 100k USDC trade on 1inch exchange, the market impact is already almost 6%:

image

It would be possible to add NMR as a borrowable asset, but given the low liquidity I think AAVE governance should exclude this asset from protocol insurance coverage (eg if the price of NMR shoots up quickly and some NMR shorts/borrowers have insufficient collateral, AAVE will not compensate NMR depositors for the loss).

1 Like

Yes, we do not want to pursue NMR as a collateral asset, only a borrow asset.

1 Like