AlphaNexT: the first self-auditing autonomous trading system
The full article was originally published by Alessandro Buser on Medium. Read the full article here.
This is the first episode in a series of Blog Posts about a suite of Technologies developed as a foundation layer for the new era of Decentralized Financial services. Today I will introduce the first ever self-auditing Autonomous Trading System: AlphaNexT.
AlphaNext is a quantitative Autonomous Trading System (“ATS”). It uses statistical methods to analyze the Bitcoin markets and make measured trades with controlled risk. Its performance is publicly auditable in real-time here.
A new protocol named Proof-of-Return-on-Investment (“PoROI”) was developed to create immutable and independently verifiable proofs of its performance. The PoROI system is Blockchain agnostic and currently using the Ethereum Blockchain to store the proves. To allow for proofs on high-frequency trading systems PoROI will also be implemented on the IOTA Tangle as soon a scalable permanode solution is released (more on IOTA in the next post).
The issue with Selling Signals
There are currently no low-cost solutions to prove the performance of trading systems or funds. Currently, audit companies independently verify balance sheets and track record for hedge funds and large asset manager. However, the cost for these audits is high and is only performed periodically. Not only are they outside of the means of most smaller funds, trading systems or traders, but such audit reports rely on the integrity of the underlying data provided to the audit firm and are therefore prone to manipulation and errors.
In the age of thousands of Telegram, Discord an other pay-to-join channels from people claiming to have a strategies to beat the market, a lack of an easy and cheap way to prove the performance of such strategies leads to a lot of scams and fraud. You will surely remember the infamous BitConnect pyramid scheme of 2017, which claimed that the profits generated by a “trading bot” would allow the company to pay up to 1% daily interest to anyone locking up their Bitcoin on the platform. Nearly everyone lost their money.
It doesn’t need to be like this
The Ethereum blockchain or IOTA Tangle, amongst other DLT implementations, can be used to store data in an immutable and publicly verifiable way. We can leverage this to store an audit trail for the performance of traders or trading systems.
The public availability of this audit trail also poses a challenge: trading data is very valuable. When generating the audit trail the Intellectual Property of the strategy and the value of the Signals must be preserved and protected, meaning that we can not just publish every Entry or Exit Signals cannot simply be published on the chain as is.
The main design goals of PoROI are to create proofs that: