Machine learning (ML) and artificial intelligence (AI) has been revolutionizing the quantitative trading space – more and more investment funds are adopting this new technology.
As the quantity and quality of data availability continues to grow, many investors have begun leveraging ML and AI for large-scale data analysis, in effort to make more profitable trading decisions. Essentially, ML and AI have given traders a new edge by allowing them to analyze complex data sets in a quick manner and at a reduced cost.
One startup, Elpis, is looking to ride the ML and AI wave and launch a (hybrid) crypto-assets investment fund. While Elpis may never be the next Two Sigma Investments, the company offers investors the chance to participate (own equity) in a startup hedge fund.
The Elpis token (ELP) will be implemented using the Ethereum ERC20. ELP holders generate value from the token through the the distribution of equity (2.5% of the company) – in theory, equity value will rise over-time as profits from trading are used to buy back tokens.
According to the white paper, 80% of the funds raised will go towards assets under management (AUM), 10% will go towards core team costs, 4% towards human resources (HR), 3% towards marketing, 2% towards operations, with the remainder of the pot (1%) towards one-off costs.
For the pre-sale, the price of the ELP token is fixed at $0.08. For the public sale, the price of the ELP token starts at $0.08 and is capped at $3.65 – price will be subject to a supply/demand mechanism. The total number of tokens to be sold is capped at 250,000,000 which will raise a total of $160,469,959.
The company has not yet stated its intention to list the ELP tokens on any major crypto exchanges.
Elpis’ core team consists of both inexperienced and relatively experienced quantitative traders. For a startup quantitative hedge fund, this should be seen as a major red flag.
The company’s CEO and President, Anatoly Castella, lacks a quantitative background and just graduated college last year. The company’s COO and Vice President, Andrea De Francisci, also lacks a quantitative background and just graduated college last year. The company’s CIO, Luigi Piva, is on the only team member with a basic quantitative background.
The rest of Elpis’ team consists of a software engineer, a data scientist, a black marketer, an editor in chief, a quant developer (also inexperienced), and a financial advisor.
The company’s advisory board only consists of blockchain enthusiasts and blockchain specialists – no one with a hedge fund background or a quantitative background.
Elpis presents a highly speculative buying opportunity for investors interested in long-term capital appreciation.
Regardless of the statement above, there are a variety of red flags with this ICO – for starters, the team is highly inexperienced and investors aren’t treated with the normal benefits of a traditional hedge fund investment. Typically, hedge fund’s charge a 2% management fee and 20% performance fee – which means, investors have the right to receive 80% of the profits. However, Elpis doesn’t payout profits to investors as they are only distributing a miniscule amount of equity (2.5%) to investors. This means that investors can only hope and wish that Elpis’ management team will buy back a significant amount of shares – since it’s the only way for ELP tokens to gain value.
If any real “Wall Street” investors got a whiff of this ICO and investment structure, they’d be running for the hills.
- Quantitative hedge funds are usually built out with a large staff of highly experienced quantitative developers, PhD mathematicians, data scientists, and portfolio managers. Additionally, most hedge funds with +$50M under management have a CFO. With that being said, Elpis’ team is massively inexperienced and understaffed for quant operational roles. With both the CEO and COO fresh out of college, there’s massive execution and technology risks. -1
- Lack of details on historical performance (returns) and performance attribution data (sharpe ratio, etc) shows a lack of transparency. Without truly knowing the monthly performance of the model and how much risk was taken to achieve those returns, anything said by the company should be taken with a grain of salt. -0.5
- The premise behind the value of ELP tokens is faulty. Normally, investors are distributed profits (from the fund) and not a miniscule amount of equity. Investors are solely relying on the company’s management team to buy back tokens to ultimately raise ELP’s value. However, the company offers no clear guidelines on the rate that they’ll buy back tokens relative to how much profits are generated from trading. Therefore the value of ELP tokens isn’t based on utility or real value, its based solely on speculation related to the trustworthiness and moral compass of the management team. -0.5
- Provided the company’s quantitative trading strategies are profitable and the team is transparent and has the best interest of investors in mind, then there’s only one growth opportunity related to this ICO – the buy back of tokens. In theory, consecutive token repurchases by the company will positively influence the price of ELP tokens over the long-term. +4
While the marketing behind Elpis’ ICO is claiming no management fees, transparency and risk management, the only thing true here is that there aren’t any management fees. And that’s because investors aren’t being treated as shareholders in the fund, they’re being treated as shareholders in the company. So while there’s no management fees, investors aren’t entitled to profits from performance either – the worst trade-off in hedge fund history. Additionally, investors are only being distributed 2.5% of equity in the company with a pre-money valuation of $780M – which is an absurd early stage startup valuation (the company was founded in June 2017).
There are too many faults and red flags with this ICO to list, so tread carefully if you’re considering being an investor in Elpis.
Against this backdrop, we believe that a score of 2 out of 10 is warranted.
- Type: Crowdsale
- Symbol: ELP
- Pre-ICO Sale: In Progress
- Public Sale: March 2, 2018
- Payments Accepted: ETH