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SingularityDAO Platform Whitepaper
Democratised Alpha Generation. DAO driven dynamic on-chain portfolios of token assets
28th of April 2021

Executive Summary

SingularityDAO is a decentralised platform, governed by the SDAO token, tasked with governing DynaSets. DynaSets are diversified baskets of cryptocurrency assets dynamically managed by AI and curated by the protocol. SingularityDAO brings the financial sophistication AI-managed funds to DeFi, deploying SingularityNET’s AI technology to navigate complex markets.
Hedge funds actively take positions on a multitude of financial instruments, allowing investors to generate alpha returns by selecting higher assets, diversifying the risk and taking market neutral positions when risk increases. Similarly, DynaSets take exposure to cryptocurrency assets and actively manage single positions and market risk. Single asset exposures, even in high quality projects, increase the risk for investors, but when they are bundled together diversification kicks in for better risk/ reward profiles.
SingularityDAO starts with this basket-of-assets model and adds Artificial Intelligence to optimise performance in complex markets. The architecture and economics of SingularityDAO don’t require Artificial Intelligence to function, but SingularityDAO is an outgrowth of SingularityNET, an AI-networking project building an interconnected network of AI agents.
SingularityDAO uses sophisticated AI to dynamically manage portfolios, execute efficient asset allocations and market making functions to provide liquidity for high-quality tokens on DEXs, and predictively model asset management strategies.
The protocol is democratically governed as a Decentralized Autonomous Organization (DAO) with a governance token called the SDAO token.
This gives a blockchain architecture consisting of three layers:
  1. 1.
    a layer of DynaSets, the basic building block. These are dynamically managed collections of utility tokens, much like Hedge Funds in traditional finance. Each DynaSet is managed by a DynaSet Asset Manager (DAM), which can be a human, but will more likely be an AI or a combination of the two.
  2. 2.
    liquidity pools associated with the DynaSets. These are used for farming yield by making loans to the DynaSets.
  3. 3.
    the DAO layer, decentralised governance driven by SDAO tokens. These tokens grant rights to vote on proposed changes to the platform. Users can earn SDAO tokens by providing liquidity to DynaSets on DEXes.
This creates a democratically-governed infrastructure of DeFi portfolios driven and optimized by SingularityNET’s AI.

DISCLAIMER

The Company is registered in St. Lucia and structured as an International Business Company in accordance with the St. Lucia International Business Companies Act (the “Act”), Chapter 12.14, fully established, compliant and capable of performing all proposed activities stated within this Whitepaper.
This Whitepaper contains information of an experimental proof-of-concept ecosystem through the use of the Company future token. The future token is not an investment product; it is not collateralized and has no intrinsic value; it is envisioned to be a future utility token for the Company speculative ecosystem. The Company is not a registered broker, analyst or investment advisor.
Everything that the Company provides is purely for guidance, informational and educational purposes. None of the information contained in this Whitepaper constitutes an offer to sell, or a solicitation of an offer to buy or subscribe for, any future tokens or any form of offering to any legal entity within any jurisdiction, nor shall it, or the fact of its distribution, form the basis of, or be relied upon, in connection with or act as an inducement to enter into any contract or commitment therefore. The Company does not accept any liability for any loss or damage whatsoever caused in reliance upon information contained in the Whitepaper. Neither the Company nor any third party, provide any or guarantee as to the accuracy, completeness or suitability of the information and materials found outside the Whitepaper. In no event should the content of this Whitepaper be construed as an expressed or implied promise or guarantee. Content in the Whitepaper or should not be considered or relied upon as advice or construed as providing recommendations of any kind.
The full functionality of the Company’s proposed ecosystem and future tokens is not yet complete, and no assurance can be provided of such completion. The functionality of the Company’s proposed ecosystem and future tokens is complex and may require enhancements and product support over time, and full functionality may take longer than expected. There may be a fatal flaw in the Company code, including a fatal flaw in the Company’s proposed ecosystem, future token, the platform and any other proposed Company operation. Expectations regarding the form and functionality of the future tokens may not be met upon release of the future tokens for any number of reasons, including a change in the design and implementation plans or delays or differences upon execution. The Company, the proposed ecosystem and the future token may fundamentally change as circumstances develop as the Company adjusts.
The Company envisions launching a future token, commonly referred to as a cryptocurrency. The future token is envisioned to be based on the Ethereum blockchain. The Ethereum blockchain is still in a relatively early stage of development and is not entirely proven. Any malfunction, flaws, breakdown or abandonment of the Ethereum blockchain may have a material adverse effect on the Company’s plans contained in this Whitepaper. Advances in code cracking, or technical advances such as the development of quantum computing, may present risks to the Company. All forms of participation in cryptocurrencies involve risk. Cryptocurrencies are the subject of regulatory scrutiny by government authorities and other regulatory bodies around the world, and the Company could be adversely affected by one or more enquiries or actions. None of the content published in this Whitepaper constitutes a recommendation that any particular cryptocurrency, including the Company’s future token or related activity defined herein, is suitable for any specific person. None of the information provided is intended to advise you personally concerning the nature, potential, value or suitability of any particular cryptocurrency or any other matter.
There is also no guarantee that the Company will deliver on the contents contained in this Whitepaper. The Company and all functionality may need to undergo substantial development, as part of which they may become subject to significant conceptual, technical, financial or commercial changes. There is also no guarantee that the Company’s objectives will be achieved. Past results are no indication of the future. The development or deployment of the Company’s proposed ecosystem and future token may fail, be abandoned or be delayed for a number of reasons, including lack of funding, lack of commercial success or prospects, or for any internal or external cause.
Information contained in this Whitepaper may be outdated. The Company has no obligation to update the information contained in the Whitepaper. Information provided in this Whitepaper is intended solely for general purposes and is obtained from sources believed to be reliable.
Information contained in this Whitepaper is in no way guaranteed. Any product and/or service mentioned in this Whitepaper are not, and should not be construed as offer to any person or entity in any jurisdiction or country where the engagement with such products and services are restricted or prohibited by law or regulation, or where the Company would be subject to any regulatory obligation, licensing requirement, restriction, or otherwise.
NOTHING IN THE WHITEPAPER SHOULD BE CONSTRUED AS ANY FORM OF ADVICE, INCLUDING, BUT NOT LIMITED TO FINANCIAL, LEGAL OR TAX ADVICE.

Acknowledgements

Dear AGI Token Holding Community,
We would like to express our sincere gratitude and appreciation to you, for your continued support, enthusiasm, feedback, immense knowledge, valuable contributions, and volunteering. Thanks to your vote in the SingularityNET Phase 2 proposal, SingularityDAO will exist and will enrich the future of finance through a Decentralized Autonomous Organization enabling AI-powered DeFi portfolio’s.
Thank you. We are changing the world together. In the name of SingularityDAO and the team,
Sincerely,
Marcello Mari
CEO of SingularityDAO

Background & Motivation

In early 2019, there was only $275 million locked in the DeFi economy. By April 2021, that number had grown to over $70 billion, and it continues to rise. Market Data Forecast’s report on the FinTech industry predicts a market value of $305 billion by the end of 2025, a compound annual rate of about 22.17% over the period of 2020-2025. DeFi has grown not just in scale but in sophistication too; first-generation cryptocurrency tokens fulfill the roles of simple currency while remaining decentralized and separate from any government, and DeFi builds on that to create more sophisticated financial instruments in the same decentralized environment, with AI, blockchain, APIs, and other advanced tools. SingularityDAO is an important step in this direction.
Gross Value Locked and Net Value Locked (Ethereum DeFi). Calculated by taking the total value (USD) of all ETH and other ERC-20 tokens locked in DeFi smart contracts. Net Value Locked excludes assets that are double counted in multiple protocols. - Graph by The Block Crypto
DeFi is an array of technological innovations that democratize finance out of institutions and into a decentralized digital realm. The centralized finance industry has long kept the best financial opportunities behind closed doors, reserving the best instruments – such as AI asset management – and information to an elite community, increasing wealth inequality. DeFi makes sophisticated investment and trading products more accessible, thanks to open access, lower minimum investments, and platforms easily usable by anyone with an internet connection.
Use of AI to manage financial assets has grown hugely over the past years. Market Research firm Preqin estimates over 1360 hedge funds use AI to make their decisions. AI-managed funds like Renaissance Technologies and Two Sigma have achieved spectacular returns, and AI-managed funds as a class outperform traditionally managed funds. This too has remained out of reach of most investors.
In 2017 we launched SingularityNET: a decentralized, user-governed marketplace that uses blockchain to connect AIs in all specialities together to create synergistic AI teams with broad capabilities. SingularityDAO applies these principles of democratic governance and synergistic AI to crypto trading.
SingularityDAO’s investment model also brings the power and sophistication of DeFi to early-stage cryptocurrencies to which increased liquidity can unlock significant value. By bundling high-quality early-stage cryptocurrencies together, investors can direct their resources to diversified baskets of smaller cryptocurrencies with diminished risk. The goal is to encourage investment in promising cryptocurrencies, thus driving innovation in the crypto ecosystem.

DynaSets: Noncustodial Dynamic Asset Sets

The basic financial element managed by SingularityDAO is the Dynamic Asset Set (DynaSet). These are selections of utility tokens in a ratio that is dynamically balanced and optimized by AI.
The user holds shares of the DynaSet in a non-custodial fashion, while the Dynamic Asset Manager (DAM) is authorised to manage the ratio of assets held by the DynaSet via trustless smart contracts. The DAM will execute trades on Uniswap, the leading noncustodial decentralized exchange. The manager may be human, a fully automated system, or a mix of both, but given the general predisposition of the project toward AI, there will be a bias toward AI-managed DynaSets with sophisticated predictive agents. This is discussed in detail in the section on ‘AI portfolio management’.
This DAM will keep the assets in the DynaSet at the targeted ratio; for example if a simple DynaSet consists of 50% BTC and 50% ETH, and an investor deposits ETH, the DAM will convert half of that into WBTC on Uniswap, keeping the ratio of the basket at 50:50. See the section on The Forge below for more details on how this rebalancing works.
DynaSet tokens have another use: they can be staked or used to provide liquidity to farm governance tokens that are used to participate in the governance of SingularityDAO itself. This is explained in the paper on DAO governance.
As DynaSet holders are in control of their private keys, they can withdraw their funds at any time. However there is a cooldown period to prevent sudden withdrawals from throwing the basket out of balance and protect the wider community of investors. For example, a DynaSet might have a rule that a user can only withdraw 33% of the total funds in the basket at once. The DynaSet will release the excess only after a certain period, giving the manager time to balance the assets in the basket by executing transactions on Uniswap.
At launch, SingularityDAO will offer a handful of thematic DynaSets, with the community participating in the process and able to makes own proposal in the future. These DynaSets will be based on a select set of criteria.
Just to give the reader an idea, a potential list of Dynasets could include –
  • ETH and WBTC
  • Defi Pulse Index (DPI)
  • SingularityNET universe, including the AGI token
  • Launchpad tokens dynaset
  • NFT vault containing NFT related governance tokens.
DynaSet generation and inclusion criteria will be vetted by the DAO though a decision-making process described in the ‘DAO governance’ section of this document.

Liquidity Pool and Vault

By default, when you deposit crypto assets to a DynaSet, you receive DynaSet tokens in your wallet, representing your share of that DynaSet. You can leave them there and get exposure to the upside – the funds are accessible only to you – or you have the option of putting your DynaSet tokens into DEXes Liquidity Pools to earn fees and farm SDAO tokens. Optimizers (see below) can borrow the crypto assets underlying these DynaSet tokens. In return you receive shares of that Liquidity Pool, an LP token. Each DynaSet will have its own LP token.
There are a number of LP tokens representing the assets held in the Liquidity Pool. As the pool grows by earning interest (in the manner described in the next section), the value of each token goes up, benefiting the holders of LP tokens.
Users who stake their assets in the Liquidity Pool help the ecosystem run more smoothly by providing the assets DAMs need to do their job. As a reward for this service, these users receive the SDAO governance tokens described in the section on DAO governance below.

Optimizers

Optimizers borrow DynaSet tokens from the liquidity pool to perform financial operations with them, and later pay back the funds with interest, growing the Liquidity Pool. This benefits users who staked their DynaSet tokens and got LP tokens: each LP token is now worth that bit more.
When Optimizers perform ‘flash-loan’ strategies in which tokens are borrowed and returned in the same transaction, no collateralization is required and no interest charged.
But many Optimizers will follow longer-term strategies (for example, some of our AI-based predictive modelling and reinforcement learning algorithms execute strategies over several weeks or months). In these cases, they must secure their loan with collateral and pay it back with interest. The percentage collateral required and the interest charged may be adapted in real time based on system needs. The interest paid goes into the Liquidity Pool.
However, Optimizers who return more than they borrowed into the DynaSet Pool will receive Liquidity Token rewards, and also a higher reputation score, which will give them priority when multiple Optimizers are bidding to make transactions.
Optimizers can run on any software platform capable of communicating with the SingularityDAO smart contracts. However, initial prototyping will be done with AI-driven Optimizers running on SingularityNET, which is specifically designed for decentralized AI operations.

Decentralized short positions

All financial trades aim to buy low and sell high. The more familiar form (a ‘long’ position) involves first buying an asset first, and later selling it. A short position does the same thing backwards: sells first and buys later. As we’re still aiming to buy low and sell high, this amounts to a bet that the value of an asset will fall.
To sell something that you haven’t bought yet requires someone else to temporarily loan it to you, or loan you collateral. SingularityDAO includes a DeFi version of this instrument: the liquidity pool lends crypto assets to DAMs so they can sell assets on credit, creating short positions in an entirely decentralized way. Then, when the DAM closes the short position, it pays the crypto it has borrowed back to the liquidity pool (at, they would hope, a now reduced price).

Rebalancing

The typical method for rebalancing a token portfolio is to sell and purchase sufficient amounts of each asset to reach the target weights. This typically involves trading with on-chain decentralized exchanges like Uniswap, or using an auction system. Any method of swapping on-chain to rebalance will cause some amount of loss for the DynaSet, potentially quite a lot. On-chain exchanges are illiquid, and auctions on Ethereum have a history of being exploited.
DynaSets rebalance themselves over time by creating small arbitrage opportunities that incentivize traders to gradually adjust token balances and weights. As tokens are swapped, their weights move slightly toward the targets set by the DynaSet controller. This weight adjustment occurs at a maximum of once per hour in order to create small arbitrage opportunities over time that eventually bring the portfolio composition in line with the targets.
While this rebalancing process is not instantaneous, it is permissionless, it works for arbitrarily large DynaSets, it is generally more gas efficient and it does not assume that the DynaSet or its controller can access external liquidity to execute rebalances.

Re-weighing assets

DynaSets can be re-weighed to adjust the composition of the current desired tokens in the DynaSet.
The current desired tokens are the underlying tokens in the DynaSet with a target weight greater than zero. Re-weighing a DynaSet adjusts the target weights of each asset but does not remove or add tokens and does not change the overall value of the DynaSet.

Weight Adjustment

In order to rebalance through internal swaps, DynaSets set a target weight () parameter for each asset. If the target weight is greater than the actual weight, the DynaSet takes steps to increase its balance of that token. If the target weight is lower than the actual weight, the DynaSet should decrease its balance in that token.
Each DynaSet has a minimum update delay, which by default is 1 hour, and a weight change factor, which by default is 1%.

The Forge

At the time of writing, Ethereum transaction fees are high enough that they make small transactions impossible; sending $50 of Ether might incur a $20 fee.
The only feasible solution is to bundle these small transactions together into big transactions. While a $20 fee on a $50 transaction is prohibitive, a $20 fee on a $200,000 transaction is fine. The SingularityDAO platform includes a ‘forge’ to weld together multiple transactions from different DynaSets, lowering transaction fees without affecting the flow of assets across the platform.
Suppose a hypothetical DynaSet has four assets – AGI, ENJ, WBTC, and CRV – with the target weights of 3 ETH-equivalent AGI, to 3 ENJ, 3 WBTC, and 2 CRV.
As users deposit an asset, say AGI, we could continually sell a portion of the AGI for WBTC, ENJ, and CRV to keep the ratio constant. But this would incur prohibitive transaction fees, so instead we weld small transactions together until we can make a transaction of a minimal threshold size.
Say the threshold we have chosen is 10 ETH-equivalent. A transaction this size makes Ethereum’s fees negligible as a percentage.
Scenario One:
Users deposit various assets in a somewhat random ratio, the ratio put in by the crowd of the users rather than determined by the DynaSet’s logic or AI:
Nothing will happen in the situation illustrated above because the deposits in the buffer have not yet hit the threshold of 10 ETH-equivalent. But when a little more comes in, the buffer could look like this:
The threshold has been met in this scenario, and rebalancing will be triggered, selling off the deposited assets in a few large transactions into the DynaSet’s target ratio.
Users who make their deposits to the DynaSet pre-mixed in the DynaSet’s ratio will receive a small bonus as a reward for saving the need for these transaction fees.

AI portfolio management

In keeping with the project’s aim of bringing the benefits of AI to the ordinary user, we will deploy an ecosystem of AI agents to support trading decisions on SingularityDAO. These agents will help increase the value and returns of the DynaSets by providing liquidity to decentralized cryptocurrency markets.
SingularityNET was designed to use blockchain to knit together multiple AI agents with multiple specialties into a larger, broader intelligence. SingularityDAO uses multiple specialised AI agents, detailed below, to perform different functions in the ecosystem to the greater benefit of the token holders. Each of the agents in the ecosystem provides insights which are tied together by the smart contract and DAO architecture.

AI Agents

The Price Predictor aims to predict the price of an asset in the immediate future, based on AI/ML from all sorts of market, fundamental and sentiment data. This will draw on market data scraped from exchanges such as Binance. Depending on the exchange, this data may be available in the form of a complete list of historical trades, or aggregated together as OHLCV data. (OHLCV is an aggregated form of market data standing for Open, High, Low, Close and Volume.) Predicting the future price may seem sufficient for a trading strategy, but it is not: the system must still make several decisions about the trade, such as how much of its assets to assign to a trade, whether to jump in at the market rate or place a limit order on the order book, etc.
The Portfolio Planner uses on-chain market data and gets predictions on price trends and volatility from the Price Predictor to provide long-term weights on tokens, helping plan and build long-term investment strategies for DynaSets within bounded volumes and levels of risk.
The Strategy Evaluator uses the same on-chain data and price trend/volatility predictions to evaluate different competitive strategies and parameters of these strategies. It backtests various strategies on historical data, and recommends the best one for current market conditions to the Portfolio Balancer applications. These strategies specify the best way for the DynaSet to rebalance its inventory, deploy smart contracts for liquidity provision on the portfolio instruments, and execute corresponding trades.
The Weighting Agent relies on the same data and predictions suggesting short-term weights on tokens, helping the Portfolio Balancer adjust portfolio inventory given short-term risks.
The Sentiment Watcher monitors news feeds, and online media, and social media chatter about specific tokens and overall crypto-related buzz. It feeds this data to the Price Predictor and Signal Generator.
The Signal Generator takes predictions of current price fluctuations and sentiment buzz about specific tokens, and tells trading and liquidity provision applications when to buy, sell, create or cancel limit orders and what are the optimal sell, buy, ask and bid prices appropriate given the market momentum.
The data feeding the AI agents will be collected in number of ways, including:
  • scraping centralized exchanges such as Binance for trading data like trades and limit order book snapshots (Binance Scalper)
  • crawling DEX on-chain trades on protocols such as Uniswap V2 using 3rd party data gateways such as The Graph service (Contract Scalper)
  • monitoring corresponding DEX smart contracts on the live Ethereum Node using Infura API or such.
Moreover, the information about the overall supply and distribution of the instruments (tokens) will be collected from live Ethereum Node as well (Token/Wallet Scalper).

Community NFTs

Non-fungible tokens (NFTs) have recently exploded into a huge market, with tokens frequently trading hands for over $1 million, and one close to $70 million. NFTs are unique tokens whose ownership can be transferred on the blockchain. The most prominent use-case for NFTs now is to denote ownership of digital art, but other use-cases are possible, such as controlling items in video games.
SingularityDAO will make use of NFTs as rewards and incentives for community participation. For example, a special NFT might be minted for the first investor in a DynaSet, the first to get to 100,000 tokens, the first to lock his tokens for six months, etc.
These NFTs incentivise participation in the community. Like any NFT, they will be non-custodial and the holder will be free to sell them on the free market, though they are not necessarily intended for speculative trading.

DAO governance

The DAO allows users to vote on proposals using liquid democracy, also known as delegative democracy. In effect, this means users can vote directly on proposals, or take a more hands-off approach by delegating their tokens’ voting power to someone else to vote for them.
The DAO will control, in a democratic way, which DynaSets are on the platform. It will also have the power to make changes to the economic variables and protocols of the platform. Proposals can be tabled only by the Foundation at first, with this power being decentralized to the community of token holders later.
For more information about SingularityDAO Governance and its mechanics, we invite you to read the SingularityDAO Governance Whitepaper available on singularitydao.ai.