Blockchain tokens – measuring the risks

How much will equity backing protect the markets?

Blockchain tokens – measuring the risks
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This project will only receive pledges if at least £1,000 is pledged by Sat 12 Aug 2017

Blockchain has been heralded “the technology likely to have the greatest impact on the next few decades”,

More disruptive and revolutionary than robotics, social media or AI, blockchain is the technology which will transform how we use the internet, and change the global economy on a fundamental level.

The mission of this project is to collect the evidence which will allow us to provide recommendations for the currently unstable and volatile blockchain token market.

We need your help to purchase the software and datasets necessary to simulate this market. These tools will allow us to perform a scientific analysis of the risks, reporting back to all market players so we can protect supporters and private investors while accelerating the benefits of the blockchain token market.

So what is blockchain?

When transactions take place, transferring money or things of value, middlemen like banks provide the important functions of authentication and record keeping. In digital transactions, money or assets become files, and are therefore easy to reproduce, making middlemen indispensable.

In 2008 a white paper was released which proposed Bitcoin, an innovative peer-to-peer electronic cash system. It was not the digital currency itself which was revolutionary, but the technology behind it. It was an example of blockchain, where a distributed network of databases, synchronised via the internet, all hold the same record of transactions. Every member of the network can see and prove who owns what at any given time, and so middlemen become obsolete.

Bitcoin is an example of a cryptocurrency, like Ripple, NXT and Ethereum. The cryptocurrency market has reached an overall value of $100B dollars with companies raising millions of dollars in a few minutes. The token market carries a lot of potential in terms of reducing costs associated with security and eliminating middle men. However it has already been observed that token holders are invested in the tokens rather than holding tokens to gain access to the product (misalignment). The market is creating a bubble and therefore, a more sustainable model is needed

What is the academic context of this research?

The cryptocurrency and blockchain space is very new especially in the area of research and academia. There are hardly any quantitative and scientific experiments on the behaviour of this market. The space provides white papers focused on the technology but hardly any papers that focus on the market. To further back this claim, the project aims to provide quantitative proof to provide better recommendations for the market and work with regulators by keeping in mind the right balance.

What is the significance of this project?

Aragon raised $25m, Qtum $15.5m, Bancor at $150m, Golem at $8.6m, Status at $250m with new ICO projects coming out 4x a week.  Although it increases liquidity for a secondary markets, investors do not understand the risks involved. We want to fill in the gaps by providing quantitative analysis. Backing the tokens with fundamentals such as equity, which can create a linear compensation model for the team, and protection for investors create a less volatile environment for token holders.

What are the goals of the project?

Our mission is to provide recommendations for the current unsustainable token market backed by numbers. The goal is to be able to push for a better method of issuing blockchain tokens by backing it with equity. The project should prove that backing an issuance with fundamentals provides less volatility but provides the upside of issuing tokens on the blockchain.

Where will the money go?

  • We need to use various tools and software. We also require datasets to backtest and simulate the current cryptocurrency market. £3,000
  • Report writing will cost £500. We will provide recommendations for all market players. We wish to work with regulators (Bank of England and Financial Conduct Authority) and various institutions to make them aware of the risks and current behaviour associated with the blockchain token market. The potential is huge but the risks need to be taken into account. Our mission is to accelerate the benefits of the blockchain token market by responsibly quantifying and understanding the risks associated through a scientific analytical approach.

The more funds we raise the better since we can use it towards delivering a more extensive analysis and report due to software costs, tools, and data costs. We are determined to put together an analysis but we need help to pay for the tools and overhead costs (food, coffee, etc).

Project time

The extrapolation, simulation, interpretation of data and report writing of findings will take a total of 4 months.

Meet the Team

Dr Stephen Chan (EPSRC Doctoral prize Fellow)

Affiliates: University of Manchester

School of Mathematics, University of Manchester, UK. Main research area includes extreme value analysis and distribution theory in analysing financial commodities data, cryptocurrency data and the blockchain technologies. Co-developed and co-written an R package, entitled “VaRES”, for computing Value at Risk and Expected Shortfall.

Google Scholar Link: https://scholar.google.co.uk/citations?user=UThLtccAAAAJ&hl=en

Dr Saralees Nadarajah (Senior Lecturer of Statistics)

Affiliates: University of Manchester

Saralees Nadarajah is a Senior Lecturer in the School of Mathematics, University of Manchester, UK. His research interests include financial market modeling, extreme value theory and distribution theory. He is an author/co-author of four books, and has over 700 refereed journal papers published or accepted, including a recent paper on models for cryptocurrencies. He has held positions in Florida, California, and Nebraska.

Google Scholar Link: https://scholar.google.co.uk/citations?user=9XAVw3MAAAAJ&hl=en

Jeffrey Chu (PhD Student)

Affiliates: University of Manchester

School of Mathematics, University of Manchester. Research interests include statistics, economics, cryptocurrencies, and big data. Co-authored a publication on the statistical analysis of UK financial networks.

Google Scholar Link: https://scholar.google.co.uk/citations?user=0jB6u6kAAAAJ&hl=en

Beryl Chavez Li (Founder | Blockchain Entrepreneur)

Affiliates: Cambridge University Alumni | CapchainX | University of Manchester Alumni

Prior to founding CapchainX, Beryl was an Entrepreneur In Residence at Coins.ph, a leading venture backed blockchain related payments startup in Asia. Her experience includes FX Quants at Blackrock, London backtesting trading algorithms with a team for a consulting project. She was involved in early stage VC tech investments with SeedAsia in Shanghai. Beryl was also Senior Consultant and Author of the Philippine Roadmap for Digital Startups, a framework to building the local startup ecosystem.

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