BlockChain Publisher
Napoleon Index publishes indices based on low to medium frequency quantitative investment strategies.

Index publishing is key for investment strategy providers as well as for potential investors.While investment strategy providers may demonstrate their ability to generate return (modulo a tracking error to be revealed at execution), investors may compare several investment strategies based on a trusted third party validating the computation of the underlying models.

Napoleon Index disrupts the index publishing activity by using a public blockchain as trusted third party, creatingthe world first blockchained index publisher
Method
Napoleon Index uses the Ethereum public blockchain and its capacity to handle smart-contracts to compute indices based on outputs given by quantitative strategies.

The Napoleon Blockchained Index Publisher (the “NBIP”) is composed of several elements:
  • A price feeder to manage the underlying assets’ prices
  • A strategy manager to link quantitative strategies and publishing smart-contracts
  • Several publishing smart-contracts, each one computing an index based on outputs given by a quantitative strategy

For any quantitative strategy (low to medium frequency), the NBIP enables to compute (i) a backtest published on the blockchain and (ii) a live index secured and published with a given delay or latency. For regulatory reasons, such latency may be chosen and modified during the index’ life.
Into the details
The NBIP needs an access, on the blockchain itself, of the underlying assets’ prices. The NBIP only handle the closing prices. For asset with no official closing hours, like crypto-assets, a closing hour has been defined. The closing hours for each of the current underlying assets handled by the NBIP may be found here.

The Price feeder will provide each publishing smart-contract with the assets’ prices required by such smart-contract to compute its index.

Given the fact that a latency > 1 day is defined for all the publishing smart-contracts, the price feeder may itself update the set of assets’ prices with a reasonable delay.

  • The publishing smart-contracts
For each investment strategy, the NBIP publishes the corresponding index, through a dedicated smart-contract. The Strategy Manager provides the references to understand which smart-contract handles which strategy so that both the assets’ prices and the strategy’s outputs are delivered to the publishing smart-contract handing this strategy with these underlying assets.

  • Strategy Manager
The publishing smart-contracts are the smart-contracts publishing the indices of the strategies.

Given a strategy and its set of underlying assets, such smart-contract is fed with the outputs of this strategy and with the prices of the underlying assets. The outputs consist in the daily position (long, neutral, short) under each underlying assets, including the leverage, if any. Outputs are numbers between -900.00 and 900.00 (at most two decimals), where 0.00 is a neutral position, 100.00 is a long position with no leverage, and so on.

Given the position of the day, and the price variations of the underlying assets for this day, the index variation is easily computed as the sum of the product of each position by its corresponding underlying asset’s price variation. For each strategy, the index is set at 100 at the inception date and is then incremented by the variation computed as explained above. Precision is set at 2 decimals for indices.

Indices are computed and published according to two modes:
  • Backtest : for periods of time before the submission’s date of the strategy to NBIP. The index is computed based on past data published on the blockchain after their occurrences.
  • Live : starting from the first date of publishing on the blockchain of the investment strategy. The index is computed each day from outputs published before the closing dates of the underlying assets traded by the investment strategy. Due to the latency parameter, even if the outputs are pushed on time on the blockchain (i.e. before their execution time), the index is computed with a delay corresponding to the latency.

    • Backtests
Backtests are computed by batch of 20 positions per transaction, one position per open business day for the corresponding underlying asset. Besides positions, transactions contain prices of the underlying assets. Thus, for a past period of time, a given publishing smart-contract is fed with adequate historical data to compute an index value for each open business day. Such index is precisely the index of the quantitative strategy whose outputs (positions) were fed into the publishing smart-contract.

    • Live (blockchained paper trading):
The NBIP demonstrates its full power by validating any quantitative investment strategy using the blockchain as trusted third party. The blockchain is used to guarantee :
      • that the quantitative strategy has computed the position of the next open business day, before the close of the current business day, so that the execution of such strategy would be possible, and>
      • that the corresponding index, starting from 100 at inception, is accurately computed according to (i) the positions sent by the quantitative strategies and (ii) the price evolution of each underlying assets the strategy is trading on.>
First point above is critical to “prove” that the quantitative strategy is able to provide its signals (positions) before the time the corresponding order should be executed on the market. Besides, the blockchain also enables to hide this data while still proving its production in due time, by introducing a latency in the index computation.

    • Front running and latency
For a given open business day, the latency is the delay between the first publishing of the position and the index value computation. During this delay, the index computation is pending, while the position is hidden to avoid any front running. Each publishing smart-contract may set up a customized value for the latency. Standard value is 6 days.

To hide the position during the latency period, the NBIP proceeds in two steps:
      • Transaction 1 (before the market closing hour): a secret value “S” is computed, added to the position which is then hashed and then published on the blockchain. The position is both obfuscated and hashed which made it undecipherable.
      • Transaction 2 (after a latency period): position and secret “S” are published, so that:
        • The publishing smart-contract has access to the position and may compute the index value
        • Everyone can check that adding “S” and position and then hashing them gives back the value published by Transaction 1, meaning that position was computed at that time.
Conclusion
The blockchain disrupts several activities, bringing trust while removing intermediaries and reducing costs. Index publishing makes no exception to that. At Napoleon, we have developed the world first blockchained index publisher, targeting low to medium quantitative strategies. In test since 2017, it is now in production.

The NBIP only published internally developed strategies for now, but shall soon be ready to publish strategies from external provider. If you are interested, please contact us at [email protected]