cyber•Fund, a decentralised investment service based on the Ethereum blockchain, has achieved USD 70% and BTC 15% profitability over the last year. The company’s founder Dmitry Starodubcev shares with CoinFox how to earn on bitcoin without speculation.
CoinFox: There is a great deal of investment projects out there. Why is decentralisation a must?
DS: We wanted a decentralised platform to stay out of control of customers’ money. It is really important. We wanted it not to come down to one website, otherwise, you cannot call it decentralised. A domain is a vulnerable point after all. Gradually, the idea emerged that it just must be a platform based upon and dedicated to blockchain. The accounts must be open, everything seen on the blockchain, checkable, verifiable, with real-time evaluation of net assets.
CoinFox: Why Ethereum?
DS: Ethereum allows you to create smart contracts. When we first considered building a decentralised investment platform we began to explore whatever new technologies were emerging, looking for those we ourselves would like to invest into. Finally, we found that Ethereum can be used to create something never done before. At the current stage, we can clearly see what we are going to develop and what technologies to employ, while we have gained unique experience and implemented a centralised Proof-of-Concept. This year will see the project executed on a blockchain.
CoinFox: How did you come up with the idea to create something like that?
DS: We started making investments about 2 years ago. By early 2011, we had already had some bitcoins earned through mining and were looking for the way to multiply these bitcoins without converting them to fiat. After all, if bitcoin is a real currency it must have its own market. At first, trying to find appropriate projects we were investing into everything that moves. Thus, we managed to invest into Ethereum, Safe Network, BitShares, Factom, Augur and many other now prominent projects when they were still at the creation stage. As a result, we ended up with a group of portfolios under management totalling $150,000. As the number of transactions was rapidly growing, we ran into the problem of real-time evaluation of assets under management without the need to keep them on exchanges and expose them to certain risks. Remember Mt. Gox.
We have never followed speculative strategy but rather prefer long-term solutions and wait for projects to grow. We came to the idea of creating cyber•Fund, a web application to show capitalisation of various blockchain systems. Today we receive real-time data from more than 30 exchanges and endorse some blockchains, and display it all on the website.
CoinFox: But similar platforms already exist on the web. What is unique about your project?
DS: Indeed, there are three or four websites showing capitalisation of blockchain systems. However, in my opinion, their owners do not work with projects as thoroughly as we do. All they have to offer is simple listing. If you take Coinmarketcap, it lists about 650 projects, up to 500 of them being scams with phoney inflated volumes.
We too used to have this problem in the beginning but then carefully screened over more than 1,000 systems and discarded above 900 of them. Therefore, in my opinion, our product is more representative of the real situation on the market and more sound methodologically.
As regards to other investment platforms (Etoro, WealthFront, AngelList), they have serious disadvantages: they do not offer users full control of their assets and require identification. These projects are local in scope, have crazy service fees of 5-10%, a legion of intermediaries and zero transparency. They are centralised, bound to their websites and do not create a truly global decentralised p2p market, which is only possible to do using the blockchain technology.
Besides all this, we have created a rating system for the projects, which works similarly to Standard & Poor’s, only for blockchain.
CoinFox: What are your project selection criteria?
DS: It is not difficult. There are certain technical criteria to filter off scams and phoney schemes. There is a specification for collecting data with open-source scripts. All this is verifiable, public and free, and is displayed on the website in full detail. Our cyber•Rating ranks blockchain systems using about 50 different factors, and in this respect we are unique. Nobody does anything like that. Although to be frank, I cannot say we have already reached our ideal, but as the methodology is being adjusted, the quality and quantity of incoming data constantly grows. You can already see that at the output the platform provides very interesting and valuable information for those investing in blockchain projects and systems.
CoinFox: Still, you had to introduce some of your own criteria for the evaluation of investment attractiveness?
DS: Absolutely. The blockchain market is still too young and rapidly developing while traditional criteria of investment evaluation mostly work over longer periods of time. That is why we had to develop our own metric, CMGR or Compound Monthly Growth Rate. It is based on the existing concept of CAGR, Compound Annual Growth Rate, but instead of the annual rate of return, it shows the project’s growth over a month’s period.
CoinFox: So, is the growth that rapid?
DS: Sometimes CMGR hits 50% while about ten projects on our list grow at the rate of 15% per month. If you look at the last 67 months, bitcoin has shown a monthly growth rate of about 13%. As you can see, there are projects growing faster than bitcoin. That is what we are interested in.
Last year our funds gained 70% in US dollars and 15% in bitcoin: there are not too many venture funds out there that show such results. Over the first two months of this year, we have already exceeded 100% growth in all funds. Our target annual rate of return is 50% in US dollars and 15% in bitcoin. There is nothing yet out there that can give you 15% in bitcoin, neither p2p lending (BTCJam, Loanbase), nor margin funding (Poloniex, Bitfinex). Meanwhile, we don’t think that it is the limit. I am sure that in three years our funds can reach tenfold growth. In bitcoin, that is. To make it possible we are developing a technology to automatically detect the fastest growing projects and build a portfolio with them, either personal or for trust management.
CoinFox: These figures may be considered unrealistic by many. How would you justify such a big growth?
DS: Easy. Consider the so-called network effect. The value of the network is growing exponentially with the increase of the number of users, which means, the growth is disproportional. The bigger the network, the better it is capitalised, as seen from the example of Facebook or telecom companies. Cryptocurrency networks work like any other networks. These figures are not pulled out of a hat. If something triggers the network effect, it keeps growing until it becomes a part of everyday life, like the fridge or the television, something used by everyone.
Also, keep in mind that some technologies, if one gets engaged with them, never go out of use. Blockchain is one of the cases when there is no turning back. Whoever starts using it soon realises how cost-effective and secure it is.
CoinFox: How would you define your target audience?
DS: We have two types of customers. First of all, it is those interested in the technology itself, who want to explore the projects and the software, and do not need intermediaries or trustees. For them, we create cyber•Fund. It works already, although there is still a lot of things to do. Come and try it, we would appreciate any feedback. The second group is clients primarily concerned with profitability. For these, we create a trust company for blockchain assets management Satoshi•Fund, a client of cyber•Fund and a demonstration of the platform’s features.
We see our mission as making blockchain investments profitable, straightforward, easy and accessible.