satoshi•Pie: Blockchain Traded Fund

Dima Starodubcev, Konstantin Lomashuk, Vitaly Lvov

Satoshi • Fund Last edited 16 January 2017

Abstract. The blockchain technology has brought to life a new type of assets and thus laid ground for investments in blockchain assets. Though these new investments are available to everybody worldwide without any restrictions, doing it requires deep expertise in blockchains, understanding of the underlying technology, new ways of decision making and mastery of security tools. The investments in blockchains are also time-consuming. These factors prevent average users from investing in blockchain assets. In this paper we propose a trusted blockchain-based investment fund that will enable anybody to invest in blockchain assets without specific knowledge and without any restrictions. Despite growth opportunities due to blockchain nature of the fund it also has properties that are not inherent to any traditional investment funds, namely, zero-cost infrastructure, high security based on multisignature control, independence from the state-based legal systems, transparent audit-free operations, programmable due diligence, and backing by the liquid assets from the beginning.

1. Fund Structure

2. Fund Managers

Fund managers are:

Konstantin Lomashuk. PGP signature: 0C78 FFA2 1E9D 9145
Vitaly Lvov. PGP signature: 0E79 77F0 221B 1773
Dima Starodubcev. PGP signature: 4EC7 4465 2CAA 89D4

As fund managers we are responsible for:

Making of investment decisions
Providing efficient, transparent and provable operations
Ensuring security and taking contingency measures

We have a unique background in managing investments into blockchains since 2011. We formed our first blockchain fund in April 2011. It had $10k, 30% were our own means. It was closed in December 2013 and had a capitalization of $240k. The overall return was 24x in 30 months.

In the end of 2014 we made an analysis of the blockchain economy [CER] and stated a hypothesis that a new type of assets like Bitcoin can grow faster than traditional assets and Bitcoin. Our second fund was formed in 01.01.2015. It had $10k, 50% were our own means. We closed it in May 2016 with 267% of profit. Each transaction was saved on blockchains. There is a link for audit [PE2013].

3. Fund Operator

4. Fund Partners

5. Investment Strategy

Our investment strategy is based on 6 hypotheses:

Exponential growth of information technologies in accordance with Moore’s Law [MR]
Ultimate efficiency of decentralized consensus and blockchain technologies for any type of economic interactions [CR]
Exponential growth of Bitcoin and blockchain economy in accordance with network effects [NE] and Metcalfe's law [ML]
Inevitable gradual reduction of Bitcoin share in blockchain economy due to similarities in evolution process of existing economic systems namely according to wealth distribution based on Zipf's law [ZL]
Uneven growth of autonomous systems in accordance with diffusion of innovations theory [DoI] extended with Gartner's hype cycle [HC] model
Lifetime blockchain transaction volume will multiply tenfold every 18 months.

The investment can be executed if investment object (a blockchain system or a blockchain application) meets the following requirements:

Blockchain asset is compliant [CR]
Has no issuer risks after full project deployment
Underlying blockchain has no single point of failure

The primary investment focus is on solutions that enable the essential autonomous infrastructure for supranational economy: decentralized computation, data storage and communications, decentralized exchanges, investment solutions, prediction markets, pegged assets protocols, cross chain gross settlement systems, identity protocols, governance and smart contract frameworks, reputation systems and social networks.

The inability to predict the future of particular asset due to black swan events [BST] already has been proven. Thus, maximalism strategies https://blog.ethereum.org/2014/11/20/bitcoin-maximalism-currency-platform-network-effects [BM] in pursuit for maximising profits remain high risky. Our investment strategy is aimed at finding the right profit/risk ratio betting on the growth of the whole blockchain economy, not particular assets. Setting optimization goals for US dollar or bitcoins could be not the best way as blockchain economy landscape is changing rapidly. Our investment strategy relies on allocation of fund in the blockchain economy measured based on cyber•Rating. Thus, increasing the share of fund inside the whole economy we could ensure that our investment strategy provides corresponding increase in case of industry growth.

6. Enter and Exit Strategy

Positioning. Fund Managers takes exclusively long spot positions on its assets, and does not employ any hedging or short positions.

Investment horizon. Fund managers shall acquire assets with a long term investment horizon (2 to 5 years), provided that the assets continue to fulfil the investment Committee's satisfaction that a given investment remains fundamentally viable and provided that none of the "Exit Strategy" triggers are fulfilled.

Enter Venues. In principle, the Satoshi•Fund endeavours to seeks assets where ICO usually are announced on so called ICO platforms, including, but not limited to cyber•Fund [CF], TokenMarket [TM] and BitcoinTalk/ANN [ANN].

Strict ICO requirements:

Whitepaper describe exhaustive technical details of implementation
Proposed consensus design has no single point of failure
Team is solid and have proven blockchain related records
Proof-of-Concept open source code is exist

Recommended ICO requirements:

There are independent security audit of the code
There are independent investment due diligence
The project is technically functional at the ICO date

Exit and Balancing Venues. In principle, the Satoshi•Fund endeavours to seeks assets which can be sold using regularly traded on popular "crypto exchanges", including, but not limited to Poloniex, Bittrex, Bitfinex, Kraken Yunbi, Livecoin, Gatecoin.

Investment Committee. The Investment Committee is composed of all fund managers, and decisions are adopted by majority. The Investment Committee may be convened by a single member of this Committee. The Investment Committee is responsible for:

Proposing new investments, within the scope of the Satoshi•Fund's investment universe
Analysing the investment case for each proposed investment
Reviewing, on an ongoing basis, the investment case for each of the Satoshi•Fund's holdings
Replacing one or several holding for other holdings
Exiting an investment, for any reason beyond "Exit Trigger Events"

Entry Strategy. The Satoshi•Fund will enter new long positions, based on fundamental research considerations, according to the Investment Committee's motivated decision, notably regarding viability of the proposed investment's activities, competitors, comparable price metrics, and liquidity of the investment.

Exit Trigger Events. Exit Trigger Events are events which override the Investment Committee's decisions and for the fund to liquidate an investment.

Exit Trigger Events include:

The asset is illiquid more than 1 year;
Development team do not publish updates more than 3 months.
Critical issues are discovered in consensus code.

7. Holding Strategy

Holding blockchain assets implies additional revenue streams depending on underlying consensus. The fund managers’ goal is to maximize portfolio growth. The following sources of revenue streams are possible:

Collateral Deposits. It is possible that some holdings enable possibility to make nearly risk-free collaterals to perform validation or processing functions of a network. For instance Ethereum’s Casper [EC] will enable validators to earn 10% yearly interest on collateral [8]. Fund managers are responsible for appropriate actions.

Dividends. It is possible that assets under management will generate dividend revenue. Fund manager’s focus is on assets’ dividend distribution function that doesn’t hold counterparty risk and is completely programmatic. For instance, Melonport [MP] will have such revenue streams in case of Melonport protocol will generate transactions.

Sharedrops. It is possible that some asset holdings will generate new tokens. For instance, BitShares holders were sharedroped by DacPlay and Muse communities. Bitcoin holders recenlty was subject for Byteball and Stellar sharedrops. Decision of selling/holding such tokens is responsibility of fund managers.

Forging, minting, harvesting is a way of earning through securing a network of Proof-of-Stake systems. Fund managers are responsible for appropriate actions.

Curation. It is possible that some assets like Steem [STEEM] and Golos [GOLOS] can generate revenue from curation of content. Fund Managers can curate or may delegate it.

Other activities. It is possible that holding some tokens implies responsibilities. For instance, Augur’s REP holders should report on events’ result [REP]. Fund managers have a right to outsource these responsibilities only in case if outsourcing is based on a smart contract and is free of counterparty risks.

All potential revenue streams mentioned above increase fund’s capital and are a subject of investment under conditions defined in this document.

Holding crypto assets in some cases (for instance, BitShares [BTS], Dash [DASH], Steem [STEEM], Golos [GOLOS]) enables voting and decision making rights. Fund managers’ responsibility is to use these rights in order to maximize portfolio growth.

8. Structure and Limits

In order to manage target profit/risk ratio the following limits should be controlled by fund managers:

Holding of assets based on a particular blockchain: <70% from net asset value (NAV)
Holding of assets with similar consensus algorithm: <70% from NAV
Holding of assets based on similar code base: <50% from NAV(excluding Bitcoin)
Holding of an asset: >1% but <45% from NAV (excluding Bitcoin)
Holding of assets in market segment: <40% from NAV(excluding Bitcoin)
Holding of assets under non multisig accounts: <15% from NAV
Holding of illiquid assets: <10% from NAV
Holding of conditionally liquid assets: < 20% from NAV
Holding on centralized exchanges: <10% from NAV

Illiquid asset are usually non transferable assets which are impossible to liquidate within 1 payout interval. Such assets evaluated using buy price. Conditionally liquid assets are assets which has market valuation but liquidity level do not allow liquidate position with 1 payout interval. Conditionally liquid assets are evaluated using discounted market price.

In case of non-compliant structure fund managers are responsible for appropriate actions within 48 hours.

9. Tokens

The Satoshi•Pie corresponds to SPIES asset ID 1.3.1010 that was created at block 5972460 using Bitshares blockchain as User Issued Asset by account satoshifund [SF].

Supply

Supply of tokens depends on incomes and outcomes of fund’s capital.
New SPIES tokens can be issued only then new funds arrive at the fund.
If SPIES tokens is destroyed (redeem or burn procedure) equivalent amount of funds should be sent to a redeem purchaser.

Secured

The Fund is designed in a way that at any given moment SPIES tokens are backed by 100% of crypto property under management.

Transferable

SPIES tokens also designed to be perfectly transferable. Holders can sent tokens at any time.

Tradable

A holders can sell SPIES tokens in the open market at any time.

10. Economic Model

The economic model of Satoshi•Pie enables lifetime assets management without management fees. Hence, there are 3 sources of revenue for motivating fund managers: profitable decisions, Satoshi•Fund, a continuous development and from investment agents, and new buyers of SPIES tokens.

Entry fee. Any time a purchaser wants to enter the fund 5% of issued SPIES tokens is being deducted to reward fund managers, Satoshi•Fund and referrals. The allocation of rewards is the following:

Fund managers: 2.5 % of SPIES
Satoshi•Fund: 2.5 % of SPIES. Referrals are subject to The primary purpose of the entry fee is a motivation of investment agents.

Minimum entrance is 10 bitcoins. If amount sent to generated address is less than 10 bitcoins it will be accumulated until reach 10 bitcoins.

Exit fee. Any time a purchaser wants to exit the fund 5% of bitcoins of payout is being deducted to reward fund managers and Satoshi•Fund. The allocation of rewards is the following:

Fund managers: 2.5% of bitcoins
Satoshi•Fund: 2.5% of bitcoins

Management fee. Every month 0.2% deducted from NAV in bitcoins in order to cover management expenses.

Fund managers: 0.1% of bitcoins
Satoshi•Fund: 0.1% of bitcoins

The primary purpose of the exit fee is to create incentives for selling SPIES tokens in the open market.

SPIES tokens are transferable without any restrictions. Thus entering and exiting the fund is possible without fees mentioned above by trading on decentralized BitShares exchange or making private deals. This creates opportunity for primary source of revenue for fund managers and Satoshi•Fund.

Trading and transfer fees. Every time SPIES tokens are traded or transferred 0.15% is allocated as a fee managed by satoshifund account. Thus liquidity of SPIES token is a key factor to success of underlying business model of a product.

All rewards are a subject to reduction depending on a stage of development of Satoshi•Pie.

The proposed economic model is more cost efficient in comparison to traditional investment vehicles:

No offices to operate
No enforced legal compliance costs
No audit costs as all transactions are accounted on blockchain or provable
No enforced taxation losses
Near zero IT infrastructure costs

11. Reporting and Transparency

Net asset evaluation of Satoshi•Pie is available here: https://cyber.fund/@satoshi_pie.

Market cap of SPIES tokens is available here: https://cyber.fund/system/SatoshiPie.

All transactions, references and proofs should be published here: https://satoshi.fund/SatoshiPie/transparency. This address should contain the following information:

The possession proofs using public messages containing PGP fingerprints of fund’s managers signed using private keys of the published addresses
All historical data on a daily basis
The references to proofs on issuance and burning of SPIES
The references to proofs on income and outcome of capital
The references to proofs on investment decisions, trading and transfer operations

All announcements and changes to this document should be published in official twitter https://twitter.com/@satoshi_fund.

12. Security & Contingency

The following measures are mandatory in order to eliminate a risk of loosing private keys by fund managers:

Primary way of storing funds is 2 of 3 multisignature accounts
If multisignature scheme is not available any of the fund managers is assigned to store the asset

There is a working mechanism of programmed wills that will be enforced if fund managers key accounts are not in use more than 30 days. In that case the access to private keys is granted to available fund managers. If all fund managers are unavailable more than 30 days, the access is granted to a trusted person or persons with instructions for executing liquidation procedure.

The following measures are mandatory in order to reduce risk of private keys theft from fund managers:

Majority of operations are signed using offline tools
The access to the centralized exchanges is possible only by using two-factor authorisation
There are other security measures taken that cannot be disclosed.

13. Risks

The purchase of SPIES tokens carries with it significant risks. Prior to purchasing SPIES tokens, the purchaser should carefully consider the risks disclosed in cyber•Rating methodology in Risk Assessment section [CR]. Purchasers and fund managers are exposed to the following risks: inherent risk, loss risk, theft risk, regulatory risk, miscomprehension risk. By sending bitcoins to address the purchaser agrees that he or she understands and accepts these risks and potential losses of all funds without a possibility to restore. Fund managers do not hold any risks except for risk of losing personal investments which comprise currently about 15% of assets under management.

14. Liquidation

The following events could trigger the liquidation procedure:

Decision of 2 fund managers
Fund managers alive is less than 2
3 months passes since one of fund managers decided to resign from position and no replacement found.

The following procedure will be executed in case of liquidation: Liquid assets are terminated Nonliquid assets

All available holdings are exchanged into BTC in 2 weeks period
All BTC are split across SPIES holders proportionally their share of SPIES tokens
All BTC are sent to the registered addresses
If there is an illiquid asset under possession, it is held by fund managers or a trusted person until it could be exchanged into BTC.

15. Taxation

No party involved with the Creation of makes any representations concerning the tax implications of the Creation of SPIES tokens or the possession or use of SPIES tokens. The purchaser bears the sole responsibility to determine whether holding of SPIES tokens or the potential appreciation or depreciation in the value of SPIES tokens over time have any tax implications for him/her in his/her home jurisdiction.

The SPIES tokens are issued when the purchaser sends BTC to the designated fund account. Thus the purchaser does triggers SPIES issuance by his/her own actions. To the extent permitted by law, third parties or individuals associated with the Satoshi•Fund are not liable for any tax liability associated with or arising from holding of SPIES tokens.

16. Token Price Calculation

Token SPIES is tradable asset. Everybaody can trade it using decentralized exchange of Bitshares blockchain protocol. SPIES price is determined by the market forces. Любой владелец может свободно перемещать и продавать токены SPIES.

For redeem и issue operations Satshi•Fund calculates valuation based on Net Asset Valuation (NAV).

All parametrs for calculations as of 12:00 GMT - Calculation Time
Base asset for calculations is BTC. That means that in order to calculate price in asset that differ from BTC we should use BTC/USD ratio. Example: Asset price in USD = Asset Price in BTC * BTC price in USD)

Every week the following procedures should be executed in order to calculate SPIES price by NAV:

calculate balances for all Satoshi•Pie accounts (base format: account,symbol,amount,date)
calculate asset prices (base format: asset,symbol,price in btc,price in usd,date)
calculate SPIES tokens supply
calculate NAV
calculate price of 1 SPIES in BTC

All assets are divided into liquid and illiquid.

Price of liquid assets For price calculations is being used prices from the markets that are best fit for asset liquidation. See source Apx.2 Price Sources

Value of Liquid Assets = Amount of Tokens * Asset Market Price

Price of illiquid assets

illiquid assets are usually nontransferable assets due ti Неликвидные - не имеющие рыночной стоимости или неперемещаемые активы

Для калькуляции стоимости неликвидных активов используется Asset Buy Price. Asset Buy Price фиксируется в активе за который он приобретался и для целей рассчета NAV пересчитывается в биткоины по состоянию на Calculation Time

Example: Asset Buy Price in BTC = (Amount of invested ETH / Amount of Asset) * ETH price in BTC

Методика рассчета цены неликвидных активов приводится в Apx.2 Price Sources

Value of Unliquid Assets = Amount of Tokens * Asset Buy Price in BTC

Supply количество токенов SPIES существующее на момент Calculation Time

Таким образом учитывая вышеизложенное рассчет производится

Token Price by NAV = (Value of liquid Assets + Value of unliquid Assets) / Supply

17. Issuance Process

Issue - выпуск новых токенов обеспеченный эквивалентным пополнением портфеля

Выпуск новых токенов SPIES осуществляется один раз в неделю
Calculations based on a Net Asset Valuation
minimum amount to initiate new SPIES issue is 10 BTC
Срок исполнения операции по выпуску и перечислению токенов с момента Calculation Time - до 24 часов

Every time user sends bitcoins to individual Satoshi•Pie bitcoin address satoshifund issues SPIES tokens based on a Net Asset Valuation.

The investment process is the following:

user register bitshares account using Satoshi•Pie Web App
Satoshi•Fund generate individual purchaser btc address to which purchaser can send BTC to execute process of issue new SPIES tokens
After registration of bitshares account Satoshi•Fund links this account to individual purchaser btc address by sending transaction in BitShares Network:

transfer from satoshi-pie-reg to satoshifund-reg with memo: {"addr":"individual purchaser btc address","name":"purchaser bts address","referral":"referral bts address"}

All record should be recorded in Satoshi•Pie issue BTC addresses Registry

sending BTC to a individual purchaser btc account - is token issue request
Satoshi•Fund make record about token issue request to a SPIES Token Issue Registry

SPIES Toke Issue Registry contain information about: SP TX ID, state, individual purchaser btc address, purchase btc tx hash, # of block in which btc tx included,bts acccount of purchaser, bts acccount of referral, amount of satoshi received, SPIES issue tx id, SPIES sent tx id, fee tx id

проверка всех инвестиционных адресов на наличие входящих транзакций за период с предыдущего Calculation Time (
если сумма поступлений на individual purchaser btc address > 10 BTC - запрос включается в расчет для выпуска новых токенов
for every purchaser Satoshi•Fund calculate Amount of SPIES to issue and Amount of SPIES to sent to purchaser

Amount of SPIES to issue = Sum of BTC received on individual purchaser btc address / SPIES Price by NAV in BTC

Amount of SPIES to sent to purchaser = Amount of SPIES to issue - 5%

after calculations is done satoshifund account issue amount of SPIES tokens equal to the amount of received funds
satoshifund account sent SPIES tokens to a purchasers bts accounts
satoshifund account sent reward to a fund managers
satoshifund account sent reward to a fund agents
change states in SPIES Token Issue Registry
add issue and sent tx ids to SPIES Token Issue Registry

txs: bts: issue SPIES to satoshifund bts: sent SPIES from satoshifund to clients bts: sent SPIES from satoshifund to sp-man-reward bts: sent SPIES from satoshifund to sp-agent-reward btc: sent BTC from btc-sp-accept-msig to btc-sp-vault-msig // mass tx

18. Redeem Process

Redeem is уничтожение токенов с последующим выводом из портфеля эквивалентной суммы

The redeem (burn) process is the following:

link-to-list-of-reedeem-tx-in-bts-chain (timestamp, bts-tx-id, from-account, to-account, amount, asset, memo)

tx: bts: sent SPIES from satoshi-pie-redeem to satoshifund // proposal bts: redeem SPIES from satoshifund // proposal btc: sent BTC from btc-sp-vault-msig to btc-sp-redeem-sent btc: sent BTC from btc-sp-redeem-sent to btc-clients // template, mass tx

minimum amount to initiate SPIES redeem (burn) is 1000 SPIES

в течении суток клиенты осуществляют инвестиции и ридимы
фиксирование входящих транзакций на индивидуальные инветиционные адрес (получившие 3 и более подтверждения)
фиксирование транзакций на ридим (BTS satoshi-pie-redeem)
рассчет количества SPIES к выпуску
рассчет количества BTC к отправке клиентам (ридим)
рассчет количества SPIES для вознаграждения агентов
рассчет количества SPIES для вознаграждения менеджеров
формирование отчетов для менеджеров
формирование proposal на Redeem Asset
формирование proposal на Issue Asset
формирование proposal на отправку клиентам
формирование proposal на отправку агентам
формирование proposal на отправку менеджерам
формирование proposal на отправку выручки в хранилище
подписание bts транзакций менеджерами
подписание BTC транзакций менеджерами
изменение статусов входящих инвестиций
изменение статусов ридимов