It is difficult for non-professional investors to understand and recognize investment opportunities. It’s getting more attractive way for many investors to find investment managers and advisors for managing their assets due to lack of knowledge, experience, and available time. But reliability and expertise of asset managers are two crucial factors for successful investments. And track record of investment performance is the main criteria to define the reliability of asset managers.
There were many stories when asset managers cheated retail and even qualified investors about their track record. So today many investors need reliable source of information of investment performance of any asset manager.
This is important both for institutional and retail investors, but for retail investors it is becoming vital. Today we can see many social trading platform demonstrating trading performance of many successful asset managers, but not all investors fully trust available online platforms providing asset management and investment services because they believe that their investment accounts information might be deliberately distorted.
In order to increase the transparency and access to necessary information, as well as to avoid potential conflicts of interest between the investor and asset manager, a way of verifying information with a guarantee of the invariability of its provision is proposed.
At the MVP stage, while the platform is providing managed accounts services, in order to make adequate conclusions about the efficiency of trading algorithm performance based on immutable information, it is necessary to exclude the possibility for all system participants to change the results of the work of the algorithm retrospectively.
In case if investors assets are pooled into one managed account, verifying the results of the algorithm performance will require comparing the information provided with the exchange quotes of an independent source – oracle throughout the period of the algorithm usage.
It will require to store 2 types of reports:
• reports on transactions made by the algorithm;
• reports on exchange quotes on the basis of which the trading algorithms made decisions;
Blockchain Ethereum + Report files in the Internet
One of the possible ways to store the algorithm’s performance data in a blockchain is an additional use of report files published on the Internet.
In this case, the use of Ethereum blockchain is limited to confirming the fact of generation and existence of report files (Proof of Existence), which allows to overcome a number of significant limitations of Ethereum network.
Inside the report file there will be corresponding fields of table, which guarantee the internal integrity of the information contained within it in the off-chain mode.
A sample list of fields: date, balance, incoming value of hash, and new hash value.
After saving the data to the Quantor repository, a hash amount is generated based on the content, which is subsequently written into a smart contract. When data is recorded in a smart contract, a unique transaction address is generated, which we associate with the file. Changing the content in the file causes a change in the hash amount. Thus, verification of a hash from a smart contract with an actual file hash allows to determine whether the content was changed after recording.
As the complexity of the platform increases, the types of reports and the number of fields of the source information might be increased. For each type of report that is supposed to be published and verified in the blockchain, there will be a table in which the columns will remain unchanged: date, incoming value of hash, and new value of hash.
The remaining data will vary depending on the type of report. This approach eliminates expenses associated with the cost of storing data in Ethereum blockchain, and also partially solves the bandwidth and scalability problems of the Ethereum network, while reducing transaction costs.
Decentralized storage (IPFS) and privacy of data
In further development of the platform, to ensure the investor’s confidence in reliability of results of the benchmark trading algorithms presented on the platform, the following solution can be used:
when transaction is made by the algorithm, the algorithm logs information about the details of the transaction (price, date, time, profit / loss, exchange, trading instrument, etc.), packs the log into a file that is sent to the decentralized data store (IPFS).
After the data is saved in the decentralized repository, a hash sum and a unique address are generated based on the content. The hash amount will allow investors to verify that the data in the report file has not changed since the file was saved, and the unique address will allow to find the required file. The address and hash sum are saved in the blockchain, publicly available to investors.
In order to ensure the privacy of the data of the report and further audit if required by a regulator or investor, it is possible to save report files in encrypted form using a user’s key. Encrypted form of the file will ensure that the content of the file has never been changed, but it will not allow users to read private information about the details of the transaction to anyone other than the owner of the encryption keys. This approach excludes the possibility of public access to confidential information related to particular trading algorithm, while retaining the opportunity to provide details and content of the report if necessary.
In such form of report it is necessary to provide links to the data confirmation (it is possible to provide links to API requests that return the necessary information directly from required crypto exchange).
Thus, the user will be able to receive this information from two sources at once: Quantor and the exchange, which will significantly increase the level of confidence in the system.