Bible Pay

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  • Rob Andrews
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LOCKED - concept related to dahf
« on: August 19, 2018, 08:23:41 pm »
This thread is dedicated to the initial discussion for DAHF; Decentralized Autonomous Hedge Fund.

For a primer on the concept please read this first:
https://wiki.biblepay.org/Concept_DAHF

Some of the concepts we want to cover in this thread (resulting in a proof-of-concept program suite for testnet, and a regulatory review process) are:

A suite of programs:


Block Sync:  This program is designed to standardize financial blocks from the year 2000 on a daily basis up to the current day, with one financial block per day.  Financial blocks are synced by the sanctuaries up to the current day.  A hash algorithm is used (SHA256) to ensure each block's integrity.

Hedge Fund Options Analyzer/Sanctuary (AL):  The Hedge fund options analyzer standardizes raw market data into financial blocks and hashes the blocks.  This program does the majority of the work pertaining to the analysis of various strategies up front: such as Calendar Spread, Bear/bull Verticals, Iron-condors, Boxes, etc.

Portfolio Manager Virtual Machine (VM):  This program allows a portfolio manager to register strategies, thereby creating a virtual portfolio with certain rulesets using our very own hedge fund programming language (similar to a smart contract builder).  Some of the rules include:  The ability to go long or short a security based on richness (IE the Cost divided by the Maximum Gain), theoretical Bjerk Phi future stress test analys(es), Weighting of the contract quantity, trading on signals based on the Vix, option volatility, volume, etc.  This program gives the PM (the Portfolio Manager) a report, containing ROI per cost center, bank balance over time, and detailed trade activity.  This program runs in sanctuaries, and has the capability to emit trade signals based on short-term activity (despite the fact that most portfolios are long term - IE 2 year portfolios).

Black Boxes:  One of the goals for DAHF is to write Black Boxes, these are algorithmic option trading programs that seek to profit using specific strategies and quant (financial specialist) business logic based on a running simulation over time using actual financial data.  We are seeking one major black box per strategy.  Some of these strategies are core concepts, or quant secrets that large trading institutions (like Renaissance Technologies) use.  We are not seeking to reveal Renaissance' internal secrets, instead we are trying to recreate a similar black box that maintains similar performance.  For example, Renaissance has created a reference portfolio of long positions, in which they sub out to a bank who creates barrier options that replicates the portfolio.  In this way they can buy the barrier option and sell the reference portfolio.  They profit from the premium on each security that is short.  This is an example of a synthetic-reference arb.  We seek to create a black box for stat arb designed
 for each concept (per homogenized trading era per strategy) for Biblepay.


Initial Path for General User Investments:

We are discussing several paths of success with DAHF.  Some of these paths explore various methods of investing/liquidating investments into the fund. 

The first method, this method is preferred pending legal analysis: a normal user will buy shares of BBPHF by sending an amount to a BiblePay burn address (dedicated to the hedge fund).  This transaction will contain the users Hedge Fund ID (obtained with an RPC command prior to sending). 

BiblePay core will be modified to provide hedge fund redemptions at the current DAHF NAV rate.  The redemption is done with an RPC command. 
BiblePay core will guarantee the redemption by adding a block-exercise feature.  This feature pays the user and sends a bill to the Hedge Fund.  If the hedge fund is insolvent, the user still is paid the withdrawal, but the hedge fund relationship is terminated and is forced to close down. 

Note regarding the risk to biblepay:  Most of the risk will be removed from BiblePay itself due to multiple factors:  A) We will not be allowed to operate unless we raise a signifigant amount of capital with the prime broker, therefore the fund will most likely have enough money to pay biblepay core during a collapse.  B) During a collapse, even in the worst case scenario, the redemption value per user would be lower (due to a collapsing asset mark to market value), meaning the final payout from biblepaycore would not result in a catastrophic loss for biblepaycore.  We will provide examples of these collapse scenarios.


Mining:


One novel use of the Hedge Fund Quant Algorithm we are developing will be the ability to provide another avenue for Mining!  This is exciting in the sense that we may be able to offer another use case for your CPU, as an alternative to heat mining (and in addition to PODC mining).  However, this will most likely be a mining option for windows machines with large hard drives.  This is primarily because the hedge fund suite will run in .NET, and require large hard disks. 

But what is exciting is we may theoretically be able to dedicate 1 block per hour to DAHF.  I'm monitoring the amount of trading activity DAHF produces, and theoretically with an active biblepay portfolio, we would trade approx. one asset per hour in prod.  The trading would occur in batches, so that the VM may catch up in times of backlogs.  For example, if nothing happened for 3 hours, and then all of a sudden a user solved a financial block in the third hour, this block may contain 5 transactions.  Theoretically the transactions would include opening/closing information in the biblepay blockchain, of actual OPRA codes, quantities and values affecting our hedge fund.


Benefit to Orphans


This concept was kicked around by Luke, Togo, Rob, Chad and Jaap, and we are leaning towards giving a gross 10% (of profits only) - from the hedge fund to the orphans, as a separate transaction - distinct from the core wallet - from the hedge fund only - annually at the point of time when the annual statement is being created (to avoid any short term mistakes).  The idea is that this hedge fund would always bless orphans first, then non-greedy investors would profit after.  I feel the high potential ROI could overcome the burden and that God will bless our project if we keep the children in mind first.


« Last Edit: September 10, 2018, 10:18:04 am by Rob A. »


  • Rob Andrews
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Re: Creation of the DAHF Proof-of-Concept for BiblePay
« Reply #1 on: August 20, 2018, 01:43:15 pm »
Mining - are the hard drives being used as a decentralized store for the financial data? Like FileCoin but a specific use case?

I was not sure how you were going to tie in a retirement plan use case, but this sounds like an innovative alternative to 401(k), 403(b). I'm truly excited there's an inclusion plan for BiblePay.

Is there a charity aspect to this as well such as 10% profit going to charities?

On the mining, yes, the hard drives need to share approx. 3 terabytes of financial blocks among each other in order to run the "VM".  The VM emits the signals per portfolio per block. 

Yes, I would like to think of BBPH as an alternative to a 401k, but we have to be very careful not to call BBP itself a security (as it is a utility token itself), and ensure all the risk is on  the BBPH side.  We need to get a cryptoattorney to draw out the legality for a standard user buying BBPH and selling it. 

On the 10% to charity, see above - I just added a paragraph to the OP post for orphan benefits.



  • tiras
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Re: Creation of the DAHF Proof-of-Concept for BiblePay
« Reply #2 on: August 20, 2018, 04:37:21 pm »
are you talking about  some kind of an automated market trading system that will be using  a newly created programming language and a grid  of Sanctuaries for distributed calculations  ?


  • Rob Andrews
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Re: Creation of the DAHF Proof-of-Concept for BiblePay
« Reply #3 on: August 20, 2018, 05:14:45 pm »
are you talking about  some kind of an automated market trading system that will be using  a newly created programming language and a grid  of Sanctuaries for distributed calculations  ?

Yes.  One goal is to extract the market algorithms from big trading firms who statistically trade options and let the Sancs analyze those algorithms.  I was thinking we could call that part the Orphan Intelligence System (OIS).



  • tiras
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Re: Creation of the DAHF Proof-of-Concept for BiblePay
« Reply #4 on: August 21, 2018, 10:41:38 am »
Yes.  One goal is to extract the market algorithms from big trading firms who statistically trade options and let the Sancs analyze those algorithms.  I was thinking we could call that part the Orphan Intelligence System (OIS).

seems like  a huge venture  ... 



  • Rob Andrews
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Re: Creation of the DAHF Proof-of-Concept for BiblePay
« Reply #5 on: August 21, 2018, 11:20:43 am »
seems like  a huge venture  ...

One thing I was thinking is if it could become a self fulfilling prophecy, in the sense that if we create a hedge fund with ROI > 50% a year, and bless the orphans with 10%, investors would come out of the woodwork to buy BBP to be part of this, and that could propel us to the top 100 in marketcap.

Regarding the top 9 black boxes, we've got a huge head start on those.  I think I have half of the calculations already working for the first 50% of the boxes.



  • 616westwarmoth
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Re: Creation of the DAHF Proof-of-Concept for BiblePay
« Reply #6 on: August 21, 2018, 01:15:21 pm »
A few initial questions

Core Investor Group - How are we to raise approximately $1M with a project that is only valued at about $900K right now? 

Sanctuaries - With less than 300 Sanctuaries, will there be enough power to do the calculations in a timely fashion? Without prejudice to what DASH has accomplished, it seems like a 30% ROI is about the lowest of any major masternode coins. which would mean we'd likely top out at about 900 Sanctuaries barring some other financial incentive. How many would be sufficient to process the data in a timely and meaningful way? Will this change the current requirements of Sanctuary holders to have more robust hosting?  That leads to the question of if we can do this with our current network, then we're really not talking about that much horsepower.  So how can we beat the professionals with what would amount to a small rack of servers?


  • Rob Andrews
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Re: Creation of the DAHF Proof-of-Concept for BiblePay
« Reply #7 on: August 21, 2018, 01:44:59 pm »
A few initial questions

Core Investor Group - How are we to raise approximately $1M with a project that is only valued at about $900K right now? 

Sanctuaries - With less than 300 Sanctuaries, will there be enough power to do the calculations in a timely fashion? Without prejudice to what DASH has accomplished, it seems like a 30% ROI is about the lowest of any major masternode coins. which would mean we'd likely top out at about 900 Sanctuaries barring some other financial incentive. How many would be sufficient to process the data in a timely and meaningful way? Will this change the current requirements of Sanctuary holders to have more robust hosting?  That leads to the question of if we can do this with our current network, then we're really not talking about that much horsepower.  So how can we beat the professionals with what would amount to a small rack of servers?

On the Core Investor Group, very easily:  The Core is not related to our market cap.  Its a group of accredited investors willing to fund the seed capital only, (described in the DAHF wiki page), and this capital is used to fund the prime broker.  To give a more detailed example, we would finish the programming of the models and simulations and deploy this to testnet.  In testnet we would run this with real market data but fake hedge fund balances.  We would monitor it for 90 days.  Then we would have a roadshow.  This is basically sending a pamphlet first to our Sanc owners (via email) to attempt to raise $2 million.  If this fails we would expand the roadshow to include non sanc accredited investors.   If that fails or concurrently, I might decide to fund it myself.    Note that the core investors are different than the user investors.

As far as Sanc calculation power, not a problem.  We only need 10 nodes to make this fully function (I already have all the data synced on my SAN and Im able to do all the calculations on my machines in a couple days), so Im sure this can run properly on 10 nodes.  However in the future we may be able to utilize more nodes for some of the more advanced arbs, like the ones involving stat-arb the astrophysicists found that Renaissance is using - Ill post the link soon.


Studying the Renaissance model from what is exposed in court:
 https://www.hsgac.senate.gov/imo/media/doc/STMT%20-%20Renaissance%20(July%2022%202014)2.pdf


and the statement by James Baker who worked for them:
 "The core strategy is portfolio-level statistical arbitrage carried to the limit and executed extremely well.  Basically, portfolios of long and short positions are created that hedge out market risk, sector risk and any other kind of risk that Renaissance can statistically predict.  The extreme degree of hedging reduces that net rate of return but the volatility of the portfolio is reduced by an even greater factor.  The standard deviation of the value of the portfolio at a future date is much lower than its expected value.  Therefore, with a large number of trades the law of large numbers assures that the probability of a loss is very small.  In such a situation, leverage multiplies both the expected return and the volatility by the same multiple, so even with a high leverage the probability of a loss remains very small."

 
 And with the Barrier options they buy, it can be deduced that most likely the primary money making strategy is a 'reference portfolio', this is a dynamic portfolio of lets say 50 long positions, hedged by the short derivatives.  What they seem to be doing is buying the barrier option, which then allows them to skip going long the portfolio (as the barrier is a synthetic call) and then Rentech shorts the underlying derivatives (generating premium, since those contain volatility and time decay and interest).
« Last Edit: August 21, 2018, 01:52:01 pm by Rob A. »


  • Rob Andrews
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Re: Creation of the DAHF Proof-of-Concept for BiblePay
« Reply #8 on: August 21, 2018, 04:00:14 pm »
A couple months ago someone read the DAHF wiki and asked: What is the difference between regulation-t, TIMS, and portfolio margin margining systems?

TIMS is the theoretical intermarket margining system, originally created for market makers that allows an MM (Market Maker) to be leveraged only on stress tested up and down movements of 15% down and 15% up, but the key difference is with TIMS, you get relief for 90% of the beta weight between intermarket securities, for example if you hold 100 naked short DOW straddles, and 100 long SPY straddles, even though these are in different markets since these two markets are 95% beta related, these positions cancel each others margin by 90%.  However in PM, Portfolio Margin, they hit us for Each distinct symbol, but they do give us relief for the symbol stress itself.  So I told Togo, I rate them the following way:  Regulation-T: a 1, PM- a 7, and TIMS: a 10, where each of the numbers scale from 1-10 as to how much leverage you gain from each system.  Regulation T requires 100% cash for each position.  Reg-T is used when the prime broker has less than $100K from you as margin and no PM agreement.

I will be creating a web site dedicated to DAHF strategies, documents, simulations, charting the NAV, etc soon at :
dahf.biblepay.org

My first mission is to explain each of the theoretical black boxes, where we are on them, and run them as-is to create a simulation page, and then I will be storing those in the dahf center.

I sent this to an inquisitor:
https://www.bloomberg.com/news/articles/2016-11-21/how-renaissance-s-medallion-fund-became-finance-s-blackest-box

« Last Edit: August 21, 2018, 04:12:11 pm by Rob A. »


  • Rob Andrews
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Re: Creation of the DAHF Proof-of-Concept for BiblePay
« Reply #9 on: August 21, 2018, 04:27:19 pm »
Togo suggested we answer these questions for newbies:

- What are dividends?
          https://www.investopedia.com/terms/d/dividend.asp
         "a sum of money paid regularly (typically quarterly) by a company to its shareholders out of its profits (or reserves)"

- What is arbitrage?
https://www.investopedia.com/terms/a/arbitrage.asp
         "the simultaneous purchase and sale of an asset to profit from a difference in the price. It is a trade that profits by exploiting the price differences of identical or similar financial instruments on different markets or in different forms. Arbitrage exists as a result of market inefficiencies and would therefore not exist if all markets were perfectly efficient"

- What is delta risk?
https://www.investopedia.com/university/option-greeks/greeks2.asp
"measures the rate of change of an option price given a $1.00 increase in the price of the underlying asset. The value of a Delta is influenced by the time remaining until expiration and the strike price of the option relative to the underlying price of the asset."

- What is the DOW30?
https://www.investopedia.com/terms/d/dow-30.asp

What is the DJIA:
https://en.wikipedia.org/wiki/Dow_Jones_Industrial_Average
"stock market index that shows how 30 large publicly owned companies based in the United States have traded during a standard trading session in the stock market"
"Dow30 is comprised of 30 blue chip stocks, with quarterly dividends, each paying an average of 2.2% once per 90 days"

- Are the DOW and DJIA two different things or the same thing?
"The DJIA is an index, with no dividend priced in, that is 10 times bigger than the DIA"

- What is the Diamonds ETF?
https://www.thebalance.com/what-is-the-dia-diamonds-etf-1214779
"The DIA is the ETF that tracks the DJIA (the index). "
« Last Edit: August 25, 2018, 11:13:31 am by Rob A. »


  • Rob Andrews
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Re: Creation of the DAHF Proof-of-Concept for BiblePay
« Reply #10 on: August 21, 2018, 04:32:54 pm »
Keeping BiblePay a Utility and Not a Security or Asset:

After speaking to our cryptoattorney :

The first thing to read and understand is Howey-Test laws:
https://consumer.findlaw.com/securities-law/what-is-the-howey-test.html

The application and examples of the spectrum of :  utlity vs security, and centralized (issuer) value vs. decentralized (sanctuary/user) value:
https://medium.com/@argongroup/8-important-things-to-know-about-security-tokens-token-regulation-3d548a1a6367

Some wives-tales myths to dispel:
-   Being asset backed is not a consideration for being a security (I previously thought asset backed token were securities)
-   Howey Tests do not care if the investment is related to wall street, orange groves,  or property leases, it has to do with : promising investor an increase, and removing their ability to make their own decisions while the money is being invested by a third party

Some important takeaways:
-   If the core token is being promoted as an investment that can earn a return, this is a huge red flag (IE ICO’s, Ponzi schemes, pump n dump promotions etc)
-   If money is pooled into a single concentrated point and handed off to a third party in “hopes” that party will create value, this is another huge red flag marking it as a security token

At the time of the call, we wanted to ensure Biblepay remains a utility as its use case is to pay for things like Bibles, and will not be marketed with any return on investment in mind.  The hedge fund idea is completely separate and not associated with the core wallet or orphan community.

Proving the coin is decentralized, with individual sanctuaries is also half of the howey test:  Decentralized decisions mean utility; Centralized decisions mean Security.


Something Rob added later:

The two Key Factors in testing a token to see if it is a utility or a security:
1) Is it being marketed like an investment?  Do our PR efforts promote  Biblepay as a Service token (IE you can transfer value from user to user, tithe to P2P channels, buy amazon goods), or instead do we make a slick that says we offer high ROI, we invest your bbp into something that increases, etc.  We need to stay on the left end of the spectrum in what we do. (We need to be a utility token).

2) Is our Value created in a decentralized way, or is it instead concentrated in a Centralized single point of failure (putting investor money at risk) – In our case we clearly have sanctuaries voting on decentralized community picked charities, we all have our own balances, and our value is clearly a decentralized service, but we need to stay on the left end of the spectrum here. 


Option for self-directed DAHF accounts:

One topic that came up on the call was a key indicator in Howey #2 above is if the user has control over *how* the investment is directed even after they move the funds out into the DAHF.  For example if we gave the user 20 options per day in a list, and asked them to allocate a percentage of their “hedge fund balance” into each of these Described Strategies (say Option 1 is Black Box 1 – it seeks to profit off of Dow 30 dividend capture), and the user is free to choose any of these black boxes, this goes a long way towards keeping BBP itself free of being a security.  It places the Onus on the user to make a cognizant decision to lose their money themselves on some option. 
We need to keep this design consideration in mind toward the end of the development cycle and have a new conf call.   (The downside to self directed accounts is it changes the ROI of the global system, but it helps us pass the Howey test).





« Last Edit: August 21, 2018, 04:42:25 pm by Rob A. »


  • Rob Andrews
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Re: Creation of the DAHF Proof-of-Concept for BiblePay
« Reply #11 on: August 23, 2018, 01:56:25 pm »
Rob,

This was some great reading for me, sounds like an interesting venture, and helps me remember that there are people way smarter than I am working on things that I couldn't even imagine.  :)

I do have a couple of clarifying questions/comments:

On the Concept DAHF Wiki where you put:
Was the "503c" supposed to be 501c3? If not, since I'm unfamiliar with this, could you respond with details on what a 503c is?

Where you stated:
There are 4 dividend dates to be aware of (the middle two really matter the most):
- Declaration Date - Date the the Company declares that a dividend is payable to shareholders of record
- Ex-Dividend Date - Date that is usually 1 business day prior to the record date; On this date the stock trades without the dividend; You would need to purchase the stock prior to this date in order to receive the dividend
- Record Date - The date that the company uses to determine who is the holder of record for the dividend (sets the Ex-Div Date)
- Pay Date - Date the dividend is paid

Perhaps update to say that "...So long as you own the company stock long as of the dividend record date...you will then be a shareholder of record, and receive the dividend."
and
"If you are *short* the shares as of the Date Of Record[b/] for the dividend (this is the ex-date), you OWE the dividend."

You also discussed using the Black-Scholes model, but have you considered using a binomial lattice model instead? I'm not sure if that will get you closer to actual pricing in the real world, but we've been using this in audit for a number of years as it seems to more accurately reflect the value of the derivatives in question since it doesn't assume a static volatility.

Nice work on this, and look forward to hearing about your progress!

Thanks for the recommendations.  Yes, I was aware of those 3 things but I was typing too fast and being dyslexic, and thank you for noticing these errors.

So, in options, we only have to worry about the ex-date (I mean yes technically, we should keep the record date in our database) but to not overcomplicate our strategy with the portfolio-manager simulation program, its nice to only have one date to worry about - the ex-date.  I did modify the wording above.  But in general we will either have a short or long position (of a quantity of options) on the ex-date and that is the day we have to worry to close short options (before market close) to avoid owing the dividend as of the next morning, or ensuring we are long that day (to ensure we are owed the dividend).  What actually happens with options though, is if we are short a put with a dividend baked in, we are paid immediately (because the premium dissapears the next morning) however if we were short a call and assigned, we would owe the dividend and it would be deducted from our account some time when the prime broker does cash sweeps for dividends (in the very near future).

I mistyped 503, corrected in all places to 501c3, thanks.

On the options model, I didnt mean to allude to us using scholes exclusively.  Ive had various models including the binomial tree and some require licenses, etc, and do understand the necessity of having an American options model for american options (primarily due to handling of banking, early exercise and dividends).  We have the source code for Bjerk-Phi in house and its working great (I can replicate almost any price).  At this point the engine is calling Bjerk-phi when it needs to stress test an american option, and Scholes when it needs to test a European option.  You will be able to download and run the portfolio manager and see the prices for yourself in c# within 40 days to get an idea how close it is (to market pricing).

Thank you for reading the thread and becoming part of this.