WHITEPAPER ver.2 2019 - Market Arbitrage Coin
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Market Arbitrage Coin
WHITEPAPER
ver.2 2019
Denys Westerholt, March 2019www.marcoin.cc
TABLE OF CONTENTS
Introduction ................................................................................................................. 3
History ........................................................................................................................... 3
The main provisions .................................................................................................... 5
Selection of pairs ........................................................................................................ 6
Terms of execution of trade transactions .............................................................. 6
Closing time ................................................................................................................. 6
Initial list of exchanges .............................................................................................. 7
Technical solution ....................................................................................................... 7
Integration of the MARC coin into the project ecosystem .................................. 11
Abitrage (StatArb) trade bot with the choice of strategy and parameters ...... 11
Demo pool .................................................................................................................... 11
Pool for depositing fiat funds ................................................................................... 12
Pool for investing in a MARC coin ............................................................................ 12
Coin economics and Investment .............................................................................. 13
Portal structure ........................................................................................................... 15
Pull of automatic arbitration .................................................................................... 15
Personal Cabinet Structure ....................................................................................... 15
Blockchain Technology .............................................................................................. 16
Proof-of-stake ............................................................................................................. 16
Masternode ................................................................................................................. 17
Teams ........................................................................................................................... 18
Important Links .......................................................................................................... 18
Reference .................................................................................................................... 19
2www.marcoin.cc
INTRODUCTION
The primary focus of the Market Arbitrage Coin project is to introduce proven
trading strategies from traditional Wall Street markets into cryptocurrency
trading. From the variety of strategies Wall Street traders use, we chose pairs
trading and more specifically, statistical arbitrage (StatArb). This strategy is
fundamental for many large investment firms and hedge funds due to its
neutrality to the market and reliable return on investment. Central to this
strategy is the comparison of a long position with a short position in a related
or correlated instrument. Which, when properly traded, makes it possible to
profit regardless of market conditions.
Open data, responsive APIs on many exchanges and smart automation tools
are the foundational elements needed for StatArb and they all exist in today’s
cryptocurrency markets.
HISTORY
The origins of pairs trading are usually attributed to a group of computer
scientists, mathematicians, and physicists assembled by Wall St. Morgan Stanley
& Co in the early to mid 1980s. The team, which included Computer Scientists
Jerry Bamberg and David Shaw, and Quantum Trader Nunzio Tartaglia, was
brought together to explore the possibilities of arbitrage in stock markets using
advanced statistical modeling techniques and the development of automated
trading programs to extract profits from market imbalances. Central to their
research was the development of quantitative methods for identifying pairs of
stocks which showed similar historical price movements or which were highly
correlated. As a result, while the team’s black box successfully traded, in 1987
the group reported about $ 50,000,000 in profit for Morgan Stanley - the next
two years of trading yielded quite a few results, which caused the group to
disintegrate in 1989. For years, pairs trading has attracted the attention of
individual, institutional and hedge fund traders as a market-neutral investment
strategy. Using technology — as well as relying on fundamentals, probabilities,
statistics, and technical analysis — pairs traders attempt to identify the
relationship between the two tools, determine the direction of the relationship,
and make transactions based on the data presented.
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THE MAIN PROVISIONS
Pairs trading is nothing more than a
simple trading strategy in which we
first choose 2 interconnected pairs:
The most reliable in terms of
interconnection is a pair with a
fundamental connection - the same
pair on two different exchanges for
example :
- COINBASE : BTC/USD
- BITFINEX : BTC/USD.
Pair couples can also be chosen with
a statistical relationship, which is
expressed when the price ratio of
two different instruments tends to
return to a certain average value in
the long term, for example :
- CEXIO : LTC/USD
- KRAKEN : XRP/USD
It should be clarified that the second symbol in the pair, USD, is used to preserve
the concept of market neutral. On crypto exchanges, all deposits are stored on
the account in USD and are used to enter the arbitrage deal. The base currency -
the one in which we are trying to generate profit, can be anything as long as it is
available on the exchanges where trading is taking place… BTC, ETH, USD. Stable
coins like TUSD, USDT and USDC can be considered as a market neutral due to
weak volatility and “pegging” to real currency.
Having made a choice, we open a long position on one and a short position on
another. We do this whenever we feel that the gap between their prices is
suddenly widening. And we do this because we believe that the gap between
their prices always means a return to the previous price.
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There are three popular styles of trading pairs, and we will discuss each style
separately.
• Distance pairs trading
In this strategy, we will trade the
difference between the prices of the
two instruments; this difference is
also called spread.
• Correlation pairs trading
The correlation based strategy is to
short the outperforming instrument
and go long on the underperforming
one whenever the temporary
correlation weakens which means
one instrument going up and
another going down.
• Cointegration pairs trading
The Cointegration strategy is to
short the outperforming instrument
and go long on the underperforming
instrument whenever the temporary
correlation weakens which means
one instrument going up and
another going down.
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Regardless of style, there are three essential elements.
SELECTION OF PAIRS
Statistical concepts can be applied to identify potentially interesting pairs for
each trading style.
TERMS OF EXECUTION OF TRADE
TRANSACTIONS
One approach is to identify the Sortino coefficient for the selection of the
optimal number of trading signals. We are also considering the possibility of
introducing machine learning to optimize the process of choosing the
beginning and period of the transaction.
CLOSING TIME
Using the Curve Bell method, we make a selection of weights - the intersection
of the zero axis in the weighted average spread chart is a signal to close the
arbitrage transaction.
** In classical pairs trading, the trading approach on different exchanges is
not used, everything happens within one, identifying and using the statistical
connection between the instruments. We do not reject this approach, but
understanding the promise of working with inter-exchange trading, we rely on
it.
The theory of pairs trading implies the existence of margin trading on one of
the exchanges for short sell. As far as not all crypto exchanges support this
type of trading, we have a restriction for this type of transactions.
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INITIAL LIST OF EXCHANGES
MARGIN WITHOUT MARGIN TRADING
BITFINEX BINANCE
OKEX COINEX
KRAKEN BITTREX
POLONIEX OKCOIN
CEX.IO KuCOIN
www.hbg.com (HUOBI) HitBTC
BitMex bitstamp
coinbase.com (GDAX)
TECHNICAL SOLUTION
The result of the development is the implementation of the trading bot
performing:
• Collection of information on prices and the volume of available orders
• Preliminary selection and ranking of pairs and exchanges
• Backtesting with Walk-Forward Analysis
• Designing portfolios from different assets dynamically
• Arbitration
• Optimization of parameters in the course of work
• Performance Monitoring
**Some aspects of the terms of reference will be disclosed here to
demonstrate the approach and research in the field of algorithmic trading.
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The basic algorithmic strategy contains the following steps:
1. The definition of a pair of one of the methods – here cointegration by
Engle-Granger. This step should be performed periodically to get a pair (or
several pairs) to be used in the next steps.
2. Find asset price history by length n. Calculate the return on each asset (for
example, A and B) in a pair:
At
returnsA,t = At-1
-1, A - prices of asset A;
Bt
returnsB,t = Bt-1
-1, B - prices of asset B.
3. Calculate the difference between incomes:
spread1 = returnsA,t - returnsB,t
4. Calculate z-score, z-score is the number of standard deviations from the
mean, which is the data point:
spreadN - spread
zscore = Ospread
.
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This picture illustrates the z-score.
19.1% 19.1%
15.0% 15.0%
9.2% 9.2%
4.4% 4.4%
0.1% 0.5% 0.7% 0.7% 0.5% 0.1%
Standard
Deviation: O -3 -2.5 -2 -1.5 -1 -0.5 0 +0.5 +1 +1.5 +2 +2.5 +3 MathBits
Z-Score: -3 -2.5 -2 -1.5 -1 -0.5 0 +0.5 +1 +1.5 +2 +2.5 +3
Cumulative
Percent: 0.1% 2.3% 15.9% 50% 84.1% 97.7% 99.9%
Standard normal distribution
5. Check the rule for entering position:
The maximum difference between the target limit price and the computed limit
price of an order. That is the price generated by looking at the current liquidity
in the order books.
If the difference is greater than liquidityDelta} then no trades will be generated
because there is not enough liquidity (risk of slippage)
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Open a long position for A and a short position for B if this condition is true:
zscore > zscoreupper and abs(spreadN) ≥ spreadmin,
where spreadmin is a constant value (e.g. 0.01),
zscoreupper is value that located on an upper bound
of the interval (e.g. 95%).
Open a short position for A and a long position for B if this condition is true:
zscore > zscorelower and abs(spreadN) ≥ spreadmin,
where spreadmin is a constant value (e.g. 0.01),
zscorelower is value that located on a lower bound
of the interval (e.g. 95%).
6. Check the rule for closing positions, close all positions if the condition is met :
(LongA and zscore ≥ - zscoreout)
or (LongB and zscore ≤ - zscoreout),
where zscoreout is some value inside the interval.
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INTEGRATION OF THE MARC COIN INTO
THE PROJECT ECOSYSTEM
The scheme is designed to maximize transparency, provide complete
statistics and provide benefits for investors and coin holders.
The primary task on which all further development of the project is based on –
ABITRAGE (STATARB) TRADE BOT WITH THE CHOICE
OF STRATEGY AND PARAMETERS.
By providing a free trial period everyone can be convinced of the strategy’s
efficiency and its implementation. By connecting their exchanges, a user grant
bot access to make an arbitration transaction, directly affecting the balance of
user’s exchange accounts. The bot will have settings for partial customization of
the trading strategy. The user, making the selection of strategies / parameters
can achieve improved results.
Having built a certain level of user confidence in the platform, we can proceed
to the phase of making a deposit on the joint account, in order to use a simpler
profit-making scheme.
The main monetization for the development and support of the project - payment
of access to the bot by subscription.
DEMO POOL
Just as the results of back testing are used for making decisions on trading in
pairs, so the demonstration data can serve as a motivation for investing. To do
this, we create demo pools in which various combinations of strategies and
parameters are tested and applied. Using historical and current data - monitor
performance in real time, but using virtual balances.
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POOL FOR DEPOSITING FIAT FUNDS
Provide the opportunity to make real funds without connecting users
exchanges via API, but directly to the arbitration platform, where the settings
will be preset based on the results of testing successful virtual pools and / or
strategies of other users.
All commissions (1/10) for transactions in the pool of fiat funds will be sent to
fill the pool for investing in the MARC coin
POOL FOR INVESTING IN A MARC COIN
600000
500000
400000
300000
200000
100000
0
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51
total in arb pool MARC pool filling 1/10
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Using the most successful strategies, create a pool / pools for investing in MARC.
Ensure that it is filled with funds for trading operations at the expense of profits
from the commissions of the pool of fiat funds. Gradually increasing the size of
the pool (the total amount available for investment). Thus, the invested coins
will not be sold to participate in arbitrage transactions on crypto exchanges, but
will be kept as collateral.
COIN ECONOMICS AND INVESTMENT
1) Invested coins can be withdrawn at any time, without additional fees (only
blockchain commission per transaction).
2) At the time of investing, coins at the current price of $ reserve the amount
available in the pool.
3) If the coins were not withdrawn within 14 days, dividends are paid - the coins
are returned automatically, and the amount reserved at the beginning of the
period is multiplied by the % profit of the current period and is paid in MARC
equivalent to $ at the time of payment.
4) The reinvestment function is available - after 14 days the investment is
automatically withdrawn, the withdrawn coins and dividends are added up, a
new recalculation into $ takes place to reserve the corresponding amount from
the pool.
5) Coins for the payment of dividends are redeemed from the exchange
(Crypto-bridge) for transparency always from one account (monitoring via
BitShares explorer https://bts.ai/ )
6) Everyday quota for subscription in MARC will burn. Quota (if 24hr coin price
change in % < 0) = 24hr coin price change in % * 50% from average demand on
24hr for subscription.
So, in moments of price grows, quota is 0, in price dump we apply quota for
service subscription for 50% from demand on it, and burn all of the coins.
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Buyout policy from the exchange of coins for the payment of profits in the
MARC arb pool
BUYOUT COINS FROM EXCHANGE EACH WEEK
4500
4000
3500
3000
2500
2000
1500
1000
500
0
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51
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PORTAL STRUCTURE
Portal Dashboard - the main indicators of the platform
Pairs Compare - visualization of the selection of pairs / exchanges for
trading
PULL OF AUTOMATIC ARBITRATION
Demo Pool - demo pool
Fiat Pool - a pool of fiat money for automated trading
MARC Pool - automatic pool in MARC
PERSONAL CABINET STRUCTURE
User Dashboard – key personal indicators
Bots - setting bot parameters, choosing trading strategy, choosing exchanges
and accounts
Trading Settings
a) Accounts - account management API keys for trading
b) Assets - view current balances and the ability to limit / highlight part of the
account balance for a separate trading strategy
Trading Info
a) Orders - where and what was sold in one transaction, displaying informa-
tion about the change in balance on the accounts that took part in the trans-
action
b) History – detailed transaction history, with the ability to filter by exchanges
c) Statistics - output of grouped transaction information
Settings
User settings
Logs – detailed logging of bot / user actions
Payments
Payments history
Deposit/Withdrawal
15www.marcoin.cc
BLOCKCHAIN TECHNOLOGY [1]
A blockchain is, in the simplest of terms, a time-stamped series of immutable
record of data that is managed by cluster of computers not owned by any single
entity. Each of these blocks of data (i.e. block) are secured and bound to each
other using cryptographic principles (i.e. chain).
So, what is so special about it and why are we saying that it has industry
disrupting capabilities?
The blockchain network has no central authority — it is the very definition of a
democratized system. Since it is a shared and immutable ledger, the information
in it is open for anyone and everyone to see. Hence, anything that is built on the
blockchain is by its very nature transparent and everyone involved is accountable
for their actions.
The blockchain is a simple yet ingenious way of passing information from A to B
in a fully automated and safe manner. One party to a transaction initiates the
process by creating a block. This block is verified by thousands, perhaps
millions of computers distributed around the net. The verified block is added to
a chain, which is stored across the net, creating not just a unique record, but a
unique record with a unique history. Falsifying a single record would mean
falsifying the entire chain in millions of instances. That is virtually impossible.
Bitcoin uses this model for monetary transactions, but it can be deployed in
many others ways.
PROOF OF STAKE [2]
Proof of Stake (PoS) is a type of algorithm by which a cryptocurrency blockchain
network aims to achieve distributed consensus. In PoS-based cryptocurrencies
the creator of the next block is chosen via various combinations of random
selection and wealth or age (i.e., the stake). In contrast, the algorithm of proof-
of-work-based cryptocurrencies such as bitcoin uses mining; that is, the solving
of computationally intensive puzzles to validate transactions and create new
blocks.
Various projects are using delegated proof-of-stake, or DPoS. The system uses a
limited number of nodes to propose and validate blocks to the blockchain. This is
meant to keep transaction processing fast, rather than using several hundred or
several thousand nodes. MARC uses a limited number of block validators, 21.
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Incentives differ between the two systems of block generation. Under proof of
work, miners may potentially own none of the currency they are mining and
thus seek only to maximize their own profits. It is unclear whether this disparity
lowers or raises security risks. Under proof of stake, however, those "guarding"
the coins always own the coins, although several cryptocurrencies do allow or
enforce the lending of staking power to other nodes.
MASTERNODE [3]
Masternode is simply a cryptocurrency full node or computer wallet that keeps
the full copy of the blockchain in real-time, just like your have Bitcoin full nodes
and is always up & running.
But masternodes are considerably different in their functionality than normal
nodes.
They are different because they perform several other functions apart from just
keeping the full blockchain and relaying blocks/transactions as a full node does
in Bitcoin/Litcoin.
Some of the special functions that these nodes perform are:
• Increasing privacy of transactions
• Doing instant transactions
• Participating in governance and voting
• Enable budgeting and treasury system in crypto
These masternodes are not standalone but they are always communicating with
other such nodes to make a decentralized network and are often referred in
short form as MN.
How Are Masternodes Useful For Crypto Investors?
Masternodes are very useful for crypto investors because of running a
masternode you are incentivized. Consider it just like earning a monthly or
weekly interest on your crypto holdings.
Different cryptocurrencies have different incentive models through which an
MN operator can earn a decently monthly or weekly income. People usually call
it smart passive income.
17www.marcoin.cc
TEAMS :
CEO & Founder : Denys Westerholt
CTO & Senior Developer : Andrey Sayak
Blockchain Developer : Stepan Smirnov
Communication & Marketing Officer : Angga Aditya Nugroho
IMPORTANT LINKS :
1. Website : https://www.marcoin.cc
2. Twitter : https://twitter.com/ArbitrageCoin
3. Medium : https://medium.com/@MarketArbitrageCoin
4. Facebook : https://www.facebook.com/MarketArbitrageCoin/
5. YouTube : https://www.youtube.com/channel/UCwkYb1RbWhrdYpTxn-19Z_Q
6. Bitcointalk Thread : https://bitcointalk.org/index.php?topic=5053948
7. Github : https://github.com/MarketArbitrageCoin
8. Discord : https://discord.gg/7zZfJNH
9. Telegram : https://t.me/joinchat/AAAAAEUP6ZvjoFgwCMiGpQ
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REFERENCE :
1. https://blockgeeks.com/guides/what-is-blockchain-technology/
2. https://en.wikipedia.org/wiki/Proof-of-stake
3. https://coinsutra.com/masternodes/
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