AI-Based Hedge Fund Numerai Raises $11 Million via Token Sales

American prediction market startup and hedge fund Numerai (NMR) has raised $11 million in an initial coin offering (ICO) round led by investors Paradigm and Placeholder, with the end goal of launching Erasure project. The funds raised in the round come from exclusively selling NMR tokens.

It’s an incredible feat such as very few companies have succeeded this year in attracting venture capitalists to private token sales without renouncing equity.

Founded in October 2015, Numerai is an AI-run, crowd-sourced hedge fund based in San Francisco. Numerai’s trades are determined by an AI, which is fueled by a network of thousands of anonymous data scientists. The technological innovation Numerai provides is in its use of structure-preserving encryption that they apply on their data feeds. Its aim is to prevent biases and overfitting, it also makes possible for Numerai to share their data feed for free with its users.

Based on the Ethereum (ETH) blockchain, Numeraire tokens are used in trading market predictions on the startup’s platform.

Numerai founder Richard Craib stated that the funds from the recent ICO would go primarily towards hiring engineers for Erasure – the decentralized unit of Numerai’s marketplace. Respectively, anyone can load data related to a wide range of markets beyond stocks and traditional assets. Currently, the platform has 44,000 registered users.

The ICO round was led by VC and private equity firm Placeholder, and crypto investment company Paradigm, founded by Coinbase co-founder Fred Ehrsam.

Placeholder partner Joel Monegro has commented on the company’s decision to invest through tokens rather than equity, citing:

“The way we think of our investing in decentralized crypto networks is underwriting, capitalizing the network. … As more people come to buy and sell data from each other, the role of big financial investors like ourselves diminishes over time. Then we can gradually begin to exit our position as the network becomes self-sustaining.”

He further added that Erasure will be the project used to “break open the investment market” by allowing any party to buy or sell predictions on a public blockchain network.

Paradigm co-founder Fred Ehrsam was drawn to the proposal as Erasure is a concrete project in comparison to most proposals. It has a first use case and customer – Numerai – and it’s simple in the way that the mechanism is just writing encrypted predictions to the chain with the ability to sell them.

Erasure was announced in October of 2018 and is expected to launch within the later half of 2019. According to Craib, Erasure will allow users to sell their predictions to any investment fund on the public network via the peer-to-peer InterPlanetary File System (IPFS), and directly connect their crypto wallets to the Ethereum-based marketplace. Whilst Numerai-based prediction models are at the moment mostly centered on traditional assets, with the launch of Erasure users will be able to sell or buy predictions on any asset.