Enigma Catalyst: A machine-based investing platform and infrastructure for crypto-assets Guy Zyskind, Can Kisagun, Conner Fromknecht1 Abstract— Inspired by the rapid growth and proliferation A. Related Work of crypto-assets, we propose Catalyst – the first investment Investing in crypto-assets, namely applications and ex- platform that enables developers to build, test, and execute micro crypto-funds. Through Catalyst, developers can access changes that facilitate trading, is a fast growing area in Enigma’s decentralized data marketplace protocol [15] and con- the blockchain space. ICONOMI is a centralized crypto- sume valuable crypto-data that can be used in their strategies. investment platform, where a user invests through the service Catalyst is therefore the first application to be deployed on top in a crypto-index-fund that tracks multiple assets. Prism, of the Enigma protocol. backed by Shapeshift, operates using a semi-centralized I. INTRODUCTION model of a similar concept. The user deposits funds into Algorithmic trading and machine learning are proving to a smart contract, that replicates a Contract for Difference, be disruptive trends in investment management. From 2009 and specifies the assets it wishes to simulate holding. As the to 2015 alone, the amount of assets under management market-maker, Shapeshift holds the real assets on behalf of (AUM) by quantitative hedge funds grew at a rate of 14% the user, and allows the user to withdraw the assumed returns year-over-year, nearly double the 8% year-over-year growth on their virtual portfolio. In both cases, custody of the true of assets managed by traditional hedge funds. The tradition- underlying assets remains in the control of a single entity ally opaque and secretive asset management industry is also users must trust. being challenged by more egalitarian access to financial data, Recently announced decentralized on-chain investment which has successfully enabled the development of crowd- solutions such as 0x, Melonport and Bancor, face a perfor- sourced investment strategies. Moreover, the barriers to enter mance issue that limits their utility in trading applications. algorithmic trading are swiftly being dismantled, offering Since all transactions require on-chain settlement, the speed new investment opportunities to a burgeoning open source of these systems lag behind that of centralized ones. In community of developers, quants, traders, and investors. addition, since funds will be locked up for a longer period Following the rising demand for crypto-currencies, we of time, on-chain settlement may lead to liquidity problems. believe an interesting opportunity arises: algorithmic trading Bancor attempts to overcome this concern with an automated on crypto-assets. To be fair, many exchanges offer the ability market-maker function that is not based on supply and to place orders through RESTful APIs, permitting users to demand, but reportedly these are targeted for niche currencies run their trading algorithms locally. However, traders are cur- that are not frequently traded [3]. Another limitation of the rently forced to develop the infrastructure for development, aforementioned on-chain protocols is that they currently only testing, and deployment of their trading strategies. These support ERC20 [4] compatible tokens, which leaves out more systems involve an inordinate amount of complexity, data than half of the crypto-assets in circulation. curation, and otherwise impose a significant barrier to safely Finally, while not developed for the crypto-market, Quan- begin experimentation with algorithmic trading of crypto- topian is the leading platform that lowered the barriers to currencies. become a quantitative trader by providing a tool that enables Like many who are passionate about the opportunities in developers to build, test and execute trading strategies. Based the crypto-space, our mission is to increase the adoption of on how successful this product has been in traditional mar- crypto-assets. We are building a tool that makes it easier to kets, we are expanding on the existing work of Quantopian make educated investment decisions in crypto-assets, based to enable developers to create successful crypto-asset trading on a data-driven approach. Catalyst is a set of applications strategies. and the infrastructure to drive better investment strategies, B. Our Contributions hence increasing the adoption of crypto-assets. Addressing the aforementioned challenges, we propose More importantly, we see Catalyst as the first application Catalyst, an investment platform that allows anyone to build to be deployed on the data marketplace protocol we laid out their own crypto hedge-fund. in our previous work ([15], [16]), which we recently revisited Our main contribution is creating the first application to in [17]. Our overarching goal is to create a decentralized, be built on top of decentralized data marketplace protocol, open and secure data marketplace protocol for the web, where data is exchanged and monetized in a peer-to-peer that is set to change how data is aggregated, shared and network. monetized. A second, related contribution is that of standardizing 1 [email protected], [email protected], [email protected] data for the Blockchain ecosystem. Currently, given that the ecosystem surrounding crypto-markets is still in its Beyond making development of crypto-trading strategies early days, relevant data sources are scarce and fragmented. easy, our goal is to create a marketplace for trading strategies We attempt to improve upon the existing status quo by that non-developers can invest in. In this way, developers identifying several key data-sets that we intend to curate are not required to personally obtain capital to fund their and make available to anyone using our platform. More algorithms. Instead, they can focus on becoming the best importantly, given the open nature of the data marketplace algo-traders they can be, while earning management and protocol, we believe that the long-tail of data aggregated performance fees from investors that choose to invest in their by the community will quickly surpass in size any central strategies. repository that exists today. With this, we hope to enable a new form of smart-investing A third contribution relates to a proposed architecture for – one that is based on the collective wisdom of the quants a decentralized crypto exchange that does not require a cus- operating in our system. Similar models have been shown todian. While not our primary focus, as we were developing to be successful, but have never been made available to Catalyst we noticed how unscalable, not to mention insecure, the public, nor have they focused on the emerging crypto- existing exchanges are. We therefore decided to propose a currency markets, which we are focusing on [9]. better infrastructure for the community, with the hope that B. One Stop Shop for Quants this idea will lead to further research on the subject. Our proposed solution can operate as an extension to existing 1) Trading SDK: Any developer will be able to use our off-chain payment networks built on bidirectional payment free, open-source Python SDK-either locally or over a web- channels and hashed timelock contracts (HTLCs), such as the based IDE, to quickly design trading strategies and back-test Lightning or proposed Raiden network. This design allows them. Once a developer is satisfied with the results, she can users to make fast, cross-chain transfers while maintaining move forward into a paper/live-trading environment, or open full custody of their assets. her trading strategy to outside investors that can fund it. Order books are maintained by a permissionless network The back-testing engine is loosely based on Zipline [10], of liquidity providers, each of which spans multiple, individ- an open source back-testing engine written in Python. Zipline ual payment networks. To begin trading, users open payment is already a powerful tool, but one that was made with channels with a chosen liquidity provider, in the currencies traditional markets in mind and not crypto-markets. After they wish to trade. Orders are then submitted to the liquidity deep consideration of the pros and cons of building our provider that a trader chooses, and matched with an online own engine from scratch, we have come to the conclusion counterparty. Finally, the assets are exchanged atomically by that building on top of Zipline is the better approach, as executing a single, cross-chain payment, routed through the it allows existing Zipline users (reported to include more liquidity provider. than 100,000 developers [11]) to re-use their regular stock- Finally, Catalyst attempts to make algorithmic trading market strategies in our platform, with only minor changes. accessible for developers, by providing a complete toolchain This approach also helps in establishing a single standardized that makes developing and testing trading strategies easy. Our ecosystem for quants. toolchain will be open sourced and accessible both locally, We summarize the main features of our trading engine or through a web IDE pre-loaded with all the dependencies. below. Those that are already present in Zipline are marked Aligned with our mission to increase adoption of crypto- with a (*): assets, we will, over time, enable investors to pick winning • (*) Pipeline API. The pipeline API encompasses all strategies and invest in them. This marketplace of trading the developer needs in order to make trading decisions strategies will not only provide non-developers an interesting – before actually issuing trades to the market. It is investment vehicle, but also allow the best quants to run their designed to be a scalable way to dynamically select own micro hedge fund. securities to trade, based on (potentially large) data-sets and computation criteria. II. TRADING PLATFORM AND APPLICATIONS • (*) Orders API. Orders are the canonical way to A. Overview execute trades in the system. While some order-types The main goal of Catalyst is to serve as a one-stop shop are already present in Zipline (market, limit, stop, stop- for developers (or quantitative traders) who are interested in limit), others like Kill-or-Fill are not.