A group of Massachusetts Institute of Technology (MIT) grads operating under the name the Enigma Project in San Francisco, Calif. has developed a platform to allow people to invest in cryptocurrencies in a manner that is faster and more secure than existing exchanges. Enigma Project describes itself as a decentralized computation network with guaranteed privacy.
The platform, called Catalyst, offers a machine based investing tool for cryptocurrencies, according to an Enigma blog. The platform caters to developers interested in using artificial intelligence for cryptocurrency trading.
Catalyst is a protocol to merge existing exchanges into a single, decentralized system that is fast and scalable. The developers claim the platform uses a cross-exchange protocol that can operate off-chain in a trustless manner.
The team also claims its goal is to disrupt the technology driving existing exchanges the same way the Lightning and Raiden networks will disrupt payments. Raiden and Lightning leverage off-chain networks for transferring assets.
Existing exchanges, the team claims, have a history of halting payments and sometimes losing assets. Some recent decentralized exchange protocols similarly lack the low latency features to support practical trading infrastructure.
When building Enigma, team members became interested in sophisticated cryptocurrency trading, but found tools were needed for back testing algorithms and moving them to paper for live trading, according to a Catalyst white paper. There was also difficulty trying to manually transform cryptocurrency market data to use in AI modes. Hence, the team decided to build tools to allow developers to create more advanced trading strategies.
Regular investors will be able to invest in sophisticated strategies built by developers.
Guy Zyskind, co-founder of Enigma, told Fast Company a lot of trading is done using artificial intelligence in today’s stock market. He said a similar demand is rising among cryptocurrency traders.
Enigma plans to launch a beta version of the platform to developers in around two months, allowing them to upload code for their preferred trading strategies to the platform. Investors will then create track records of earning or losing money. After a period of several months, as performance records become available, the company plans to open the site to outside investors, allowing them invest in the funds of their choosing.
Investors would likely pay management and performance-based fees to managers similar to traditional investment funds.
The platform will favor strategies that have been strong to certain market conditions in order to contain overrepresentation by short-term strategies, the white paper stated.
The company might have to limit access to qualified investors, Zyskind said. According to federal securities laws, such individuals usually have at least $200,000 in annual income or $1 million in assets. Such individuals have sufficient assets to invest in risky opportunities.
The Securities and Exchange Commission recently denied the Winklevoss twins permission to operate a bitcoin exchange-traded fund in which investors buy and sell shares. The SEC is concerned that bitcoin is unregulated and subject to possible market manipulation.
Can Kisagun, Enigma’s chief product officer, said the company wants to allow the average person to invest in cryptocurrencies.
Investors interested in testing more sophisticated trading strategies are limited to open source, off-the-shelf trading bots, Zyskind said.
Investing in open source projects that are not well documented can be risky for investors, including those who are familiar with coding. A trading malfunction can be costly.
The Enigma team previously tried to use blockchain and cryptographic technology to allow consumers to share private data with big companies for tasks such as bank loans or surveys. The project did not traction with large companies that would be needed to make such a platform work, Zyskind said.
Catalyst will make data available to be used in automated trading, from analyses of sentiment from news stories and social media posts about cryptocurrencies to historical price information.
The company will also invite users to develop their own data and provide it to others – possibly for a fee – who are setting up funds and seeking metrics on when and how to trade.
Because the cryptocurrency ecosystem is still young, critical data sources are fragmented and scarce, the white paper noted. Enigma seeks to “change the landscape” and make it similar to mature financial markets.
Such a project could make the cryptocurrency market more palatable to ordinary investors and fund managers as opposed to just cryptocurrency enthusiasts. Zyskind said no one knows how big the cryptocurrency trading market could be.
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Last modified: July 13, 2020 3:12 AM UTC