Hello Dev team! This is a unique and promising project. But there are a few questions that come to mind with the business model.
1) What level of transparency do investors have around the logic that is used in the bots? The black paper is very terse beyond mean reversion, etc.
2) The White paper mentions that investors may pick the bots and the leverage level.
>>DAFs enable their subscribers to intervene in the building of the best mix (Blend) of strategies, by regularly letting their subscribers vote on which strategies they want the DAF to >>follow. As a restriction to maintain a Blend with a reasonable number of strategies, a Strategy Threshold is set so that any strategy collecting (in percentage) less than such >>threshold may not be selected. The Strategy Threshold will be 20%.The selected strategies shall contribute to the Blend with a weight proportional to the voting rights collected >>during the last voting session.
Truth be told picking traders or fund managers is a very difficult business, many people pick bad managers (e.g. chase momentum, etc) hence you observe very poor track records in the fund of hedge funds community. What mechanism exists so that NapoleonX avoids this problem of investors consistently picking poorly returning bots that do worse than random selection or adjust the leverage higher on bots that are about to experience mean reversion from high profits to large negative losses? Maybe the investors pick good bots, but adjust leverage poorly which negates the good bot selection.
3) In the Black paper the S&P500, FTSE100 and Eurostoxx 50 strategies have drawdowns in excess of 40% which seems too high for a backtest. In real life these could well be higher. Don't the trading bots have risk controls to minimize the degree of the maximum drawdown? Is there a risk control overlay on top of the bot as an aggregated group?
1.The bot will encapsulate intellectual property whether from Npaoleon Cyrpto or other contributors. So you will not have access to the ultimate code. However, as we want to give some elements to investors so that they make a decision, we feel some level of information should be shared. For each individual strategy, there will be a dedicated "trading sheet" that could go a little bit beyond what has been shared in the Blackpaper
2. The initial strategies that have been developed have been developed without leverage. A good trading system could have the following independent components: gross trading signal, filtering system and money management system.
- Leverage to us is a component that is associated with risk appetite. And that is why we want investor to pick their adequate risk level themselves and get some feedback on potential risk they will be baring. Leverage is an entire component of a strategy and that is why we have put some description of the Kelly optimal leverage in our Blackpaper.
- Gross trading signal is globally where you have the heart of the money generation machine, the 2 other components being there to reduce trading frequency (filters) and smooth drawdowns (money management). It is impossible for any system to guarantee that what has worked in the past will continue to do so. However, if you have the choice between a system that has proven its robustness in almost all possible market configuration, would you be ready to trust it more than another one that have not passed this test ?
3. As explained above, the risk level will be for investors to decide and to do that all existing information will be provided to them. I agree that 40-50% drawdown are quite high but so is the return. Moreover, over the last 20+ years over which we have back tested our strategies, you cannot say that we have not seen a large number of adverse market situations. To reduce this risk, we will count on diversification as what has been exposed in our Blackpaper is based on a unique strategy (even though there are 2 sub strategies encapsulated in them). In reality, we would use Blend of strategies that we already have for some markets like the S&P500, Eurostoxx 50, FTSE ...
) to be able to trade daily. Napoleon will solve this problem and allow you to take profits without any hassle