NaPoleon Crypto aspires to be the first algorithmic asset manager for crypto investors seeking to target both crypto and traditional market opportunities. The Paris-based team expects large, traditional financial firms to soon begin diversifying their investment portfolios with crypto assets as more institutions are drawn to maturing, high-return, and increasingly sophisticated crypto markets. In preparation for this, NaPoleonX is working to develop products similar to those found within traditional asset management firms, specifically in terms of creating a range of algorithmic trading funds, and in doing so to create a platform and funds ecosystem within which large traditional investors will feel comfortable managing crypto assets.
NapoleanX will host multiple Decentralized Autonomous Funds (DAFs), algorithmic trading funds supported by smart contracts and directed by token holders, that will be managed in accordance with proprietary quantitative trading strategies developed by NaPoleonX. DAFs will execute trades off-chain, according to software operated by NaPoleonX. DAFs will trade a range of markets from crypto to traditional equities and commodities, largely through futures markets. As futures markets are already highly leveraged, NaPoleonX will be able to achieve targeted exposure ratios in their funds even while allowing them to retain a significant portion of DAf assets in crypto, where they will be maintained by regulated custodians, as in traditional asset management scenarios, or by some sort of crypto equivalent.
The team is composed of an experienced group of banking professionals with extensive trading and investment background. Many have ties to BNP Paribas, one of France’s premier financial institutions. They are actively working with regulators and will be applying for an EU asset management license upon the ICO’s conclusion. This desire to seek out regulatory approval as asset managers reflects an awareness of how the large institutions representing NaPoleonX’s largest target audience firms will likely approach the emerging crypto asset market, and is calculated to increase NaPoleonX’s appeal to those already-regulated firms as they enter the crypto markets.
While NaPoleon’s end game is to attract large-scale institutional investors, they also have an interim strategy that will allow them to move towards that long-term goal. Specifically, NaPoleonX sees itself as initially providing value to two types of clients. The first already has investments in the crypto space, and NaPoleonX plans to appeal to them with the promise of employing its algo strategies to capture an absolute outperformance over simple crypto holdings through automated Bitcoin-to-US-dollar trades. Second are an intermediate group of investors, such as asset managers or family offices, seeking exposure to the crypto space yet who are interested in placing their assets in funds employing quantitative investment strategies. By initially targeting these two groups, NaPoleonX intends to develop its performance record and expand its fund offerings, thereby preparing for the arrival of their projected core audience, institutional clients.
What is the Project?
Critical of some of the excesses that have marked the asset management industry, citing particularly high fees and frequently poor returns for investors, NaPoleonX proposes to deliver better performance and to offer more progressive fees by employing proprietary trading bots using the latest quantitative investment strategies. With the NaPoleonX ICO, NaPoleon Crypto SAS will be creating the infrastructure and completing the regulatory groundwork necessary for launching an initial 10 DAFs on its platform. These initial DAFs will employ unique proprietary algorithms developed by Napoleon Crypto’s leadership team to execute a variety of low frequency and highly scalable trading strategies on a range of markets. More than 20 bots are currently available, and individual DAFs will able to compose unique strategies by combining algorithmic strategies and leverage ratios to develop unique return targets and risk exposures. By creating DAFs as entities governed by rules embedded in smart contracts, even as actual trading takes place off chain, Napoleon will be able to employ the blockchain to ensure fund adherence to its mandate, as well as to publish pointers to trade and portfolio information that token holders will be able to access.
NaPoleon Crypto is offering to share the intellectual property represented by its proprietary algorithms with those who buy NPX during the December 2017 token sale. Token holders can expect to benefit in three ways from the growth of NapoleonX’s platform. First, token holders will receive a portion of each DAF’s performance fee as returned to NapoleonX, considered as a rental fee on the output of the platform’s algorithms. The revenue to token holders will comprise 85% of fees from the initial 10 DAFs to be established on the platform, with the balance retained by NapoleonX. Second, token holders will gain access to the market signals generated by the DAF bots, allowing them to potentially trade alongside of the DAFs or their component strategies. Finally, NPX token holders will have a vote in major negotiations, such as those concerning rental fees for the intellectual property for DAF’s beyond the initial ten.
How is Blockchain Technology Being Used?
NapoleanX will be using smart contracts for three purposes:
- (1) to collect cryptofunds used to initiate the DAFs and give people subsequent opportunities to subscribe to it.
- (2) to allow DAF token holders to vote on changes to DAF strategies and liquidate the fund, though the mechanics of voting haven’t been finalized.
- (3) publishing the objectives and general parameters of the bots governing individual DAFs (such as desired leverage and risk profiles), though the smart contract doesn’t actually execute trades or contain the underlying algorithms. This presumably allows off-chain auditors to verify that algorithm trades match published parameters. They also have said in an interview to have a proprietary method of proving trading performance on the blockchain in a way that shields the details of the trades, though they haven’t published details of this. In the future, if a smart contract platform with high transaction and computation capability emerges, they theoretically could.
Creating and Managing DAFs on NapoleonX’s Platform
NapoleonX intends to create the initial funds on its platform, similar to the way BlackMoon Crypto announced intentions to establish the initial funds on its own blockchain-based fund management platform as a sort of demonstration effect of the advantages and efficacy of its system. As described, funds will be developed using NapoleonX’s proprietary algorithms as building blocks to be customized in unique configurations and leverage ratios in order to create specific performance profiles.
NapoleonX has indicated that ICO funds above the threshold of the 40,000 ETH required for general fund administration and setup will be deployed to seed the initial DAF strategies. This would imply the individual DAFs would only manage modest amounts, but the actual strategy will be for individual DAFs to host both their own ICOs as well as subsequent ‘Secondary Coin Offerings’ that will both allow additional capital to enter DAFs, but also to provide liquidity to investors who may wish to exit or reduce DAF position. Those DAF specific ICOs will be for securities tokens and will be accompanied by the suite of KYC and AML steps normally expected of regulated entities. Although there is at present no venue for the regulated trading of securities tokens, a number of such platforms are in advanced development and should be operational by the time these tokens come into existence, thus this should not represent a problem for NaPoleonX.
What happens after the first 10 DAFs NapoleonX intends to create itself? NaPoleonX anticipates the creation of new DAFs using different trading strategies will come from both inhouse ideas and external proposals, with the initial DAFs to set performance benchmarks that future algorithms would aim to exceed. NPX holders will vote to authorize any new DAFs created using the intellectual property or being created on the platform using external strategies. As NPX holders will not necessarily be financial experts skilled at assessing new investment strategies, NaPoleon Crypto proposes to vet proposals for new DAFs. Any ‘strategy provider’—the legal entity proposing a DAF— will be expected to present the trading strategy, governance model for bot selection, financial leverage, and rental rate, among other details, to NaPoleon Crypto for consideration. After analyzing the proposal Napoleon Crypto would put forward a recommendation to token holders, who would collectively decide whether to launch the new DAF or negotiate with the strategy provider. While the whitepaper suggested that revenue streams accruing to token holders will be individually negotiated beyond the initial 10 DAFs, management has indicated they expect fee structures and revenue models to remain roughly similar.
In terms of fees DAFs operating on the platform will return to NapoleonX, twenty-five percent of each DAFs’ gross performance will be collected as a rental fee, termed a ‘boton’ in reference to a fee related to use of the bots deploying Napoleon’s algo strategies. Botons will be paid out in a given DAF’s associated currency, and will be collected monthly. As noted, 85% of this revenue stream accrues NPX token holders. As the DAF will only take a performance fee as compensation (there is no general management fee), NaPoleonX considers its approach is aligned with the progressive forces within the asset management industry that seek to align the interests of fund management and those of investors, part of the larger trend of the traditional “2 and 20” management models being revisited and frequently altered.
What is the Token Being Sold?
NaPoleonX’s ICO will offer the NPX token. Eleven and a half million tokens will be sold, with 1 ETH netting investors 100 NPX. Distribution of the tokens is 70% to ICO participants, 2% to social bounties, 13% to advisors/misc, with the remaining 15% constituting the founders’ share. While NPX tokens will become transferable immediately upon the conclusion of the sale, there will be a six-month vesting period for founders and employees.
NaPoleonX aims to raise at least 25,000 ETH, which they plan to use to set up the compliant legal and regulatory structure to run the DAFs. While certification isn’t exactly necessary now, NaPoleon Crypto expects that regulation is coming and wants to be the first to have crypto asset management certification. Should the ICO surpass 40,000 ETH, the additional funds would be used to launch and promote the first DAFs, helping token holders generate returns more quickly.
NPX holders will have rights to the first 10 DAFs’ intellectual property. These rights include:
- Profit Rights: Token holders get 85% of the performance fees for the first 10 DAFs Napoleon Crypto creates. These fees equal 25% of the funds’ gross performance each month, providing performance exceeds high water marks.
- Access Rights: Token holders may use the trading signals provided by the first trading bots for use on their own personal accounts. Those holding more tokens will have quicker access to these signals.
- Governance: Token holders can vote in negotiations concerning renting the intellectual property to proposed new DAFs.
Who is the Team Behind the Project?
NaPoleonX’s team includes former bankers with considerable experience in asset management, investment, and finance. Its CEO, Stéphane Ifrah, worked at BNP Paribas for over 15 years, where he first started developing algorithmic trading strategies. Jean-Charles Dudek managed three billion euros as head of the active protected fund management at BNPP AM, where he worked for 12 years. Additionally, many team members have experience at credible financial institutions, such as Société Générale CIB and Crédit Agricole CIB. So the team appears well-qualified for crypto asset management.
Team members working on blockchain development and software engineering are equally strong. Arnaud Dartois, a former private equity investor, holds a PhD in Computer Science from École Polytechnique and ENS. Stefan Duprey, who works on smart contract programming, has a PhD from INRIA and has written on applied mathematics and computer science. With many team members having ties to financial institutions, or holding PhD or MS credentials from prestigious institutes—École Polytechnique, INRIA, Ecole des Mines de Douai, and Panthéon-Sorbonne—NaPoleon looks well prepared to execute its vision.
Peer Companies and ICO Valuations
2017 has seen a wide range of finance-focused ICOs. The diversity of projects has been impressive, with everything from exchanges to asset managers to wallets, banking, and payment systems being presented to the ICO markets. The range of ICO raise amounts has also been substantial, as indicated by the chart below.
Relative to the above chart, NapoleonX’s proposed raise amount–where its hard cap of 60,000 ETH would see it raise around $21 million dollars at current prices–seems to be well within the broader range of finance projects.
We can also consider NapoleonX alongside a more carefully curated set of peer and comparable companies as a way of evaluating both the raise amount and the valuation at the time of the raise in order to gain additional perspective.
This view further reinforces how NapoleonX’s $21 million hard cap raise limit appears to be easily in line with different peer comparables. This is particularly the case when compared to Blackmoon Crypto–arguably the most relevant comparable company, as each is creating a platform for funds focused on both crypto and traditional assets–and where Blackmoon’s larger raise amount targeted a 2x higher valuation. NapoleonX is also distinct from Melon and Iconomi, for while each is largely focused on the management of crypto investments, NapoleonX’s strategy of appealing specifically to institutional funds with a range of tailored crypto-based investment opportunities strikes us a clever, well-designed strategy that is likely to be find a receptive institutional audience.
Conclusions and Prospects
Overall, NapoleonX has a number of appealing features. While a number of asset managers have appeared in the crypto space in the last 18 months, NapoleonX’s strategy of appealing to an institutional audience they anticipate to enter the crypto space in the near future, and their ability to understand the mix of algorithmic approaches to both crypto and traditional markets that will appeal to this group, inspires confidence in the attainability of their objective. That their project is built upon a number of proprietary algorithms developed by the NapoleonX team and which have already proven successful across different markets is another reason to be take an optimistic view of the group’s prospects.
Equally, NapoloeonX’s ability to employ their approach to capitalize upon unique opportunities, as evidenced in the partnership announced with ETHLend that will see the development of DAFs based upon loan requests and deposited collateral upon ETHLend’s platform, suggests the team is poised to capitalize upon a wide range of opportunities in the sector. Also, the ability to create additional DAFs in response to investor demands for market, risk, or currency expose represents a fluid, responsive system that promises the capacity to respond to future evolutions in the sector.
Despite these positives, potential risks to NapoleonX’s growth plans include the possibility that the expected gravitation of institutional investors into the crypto sector never materializes, or that even if it does those institutions entering the crypto space may pursue specifically crypto-focused investments, as opposed to say a crypto-based algo trading treasuries markets. However, NapoleonX’s ability to host a range of DAFs on their platform should allow them to adapt to investor demands as those appear and evolve. That NapoleonX’s platform will specifically look to establish itself as a regulated entity can be considered as extensions of trends we initially discussed in September and revisited in our Q3 Summary article, and we expect this to be a winning strategy moving forward. Finally, as suggested in the charts above, NapoleonX’s targeted raise amount appears quite reasonable, even relatively modest in comparison to some comparable companies. Even assuming the ICO hits its hard cap of 60,000 ETH the valuation would be appealing relative to peer companies operating in the space.
|Incorporation status||NaPoleonX ( ) and NaPoleon Crypto SAS|
|Team openness||Fully transparent|
|Blockchain Developer||Stefan Duprey (CTO)|
|Technical White Paper||Available|
|Available Project Code||Not available|
|Role of token||Profit, Access, and Governance Rights|
|Distributed in ICO||8,050,000|
|Emission rate||No new coins created|
|Consensus method||Proof of Work|
|Sale period||Dec 4th, 2017 to Jan 4th, 2018|
|First price||(1 ETH = 130 NPX)|
|Accepted currencies||ETH, BTC, EUR|
|Investment Round||First public offering|
|Token distribution date||2 weeks after crowdsale|
|Min investment goal||40K ETH|
|Max investment cap||60K ETH|
|How are funds held||Multi-Sig Hardware Wallet|
|Minimal Viable Product||Q3 2017|
|Bonus schedule||A 30% discount is offered to contributions validly registered during Pre-ICO, limited to first 40000 ETH. A 20% discount is offered in first 24h or before 20000 ETH raised (whichever is first), and a 10% discount before 40 000 ETH is raised.|
Authors: Michael Vossen, Brant Downes, Matt Chwierut