Though distributed ledger technology (DLT) is an innovative breakthrough, the financial market for cryptographic assets built on DLT is currently far from completely explored. In order to take a further step toward professionalism in the industry Decentriq has teamed with HSLU (Lucerne University of Applied Sciences and Arts). Both entities are situated in the heart of the Swiss Crypto Valley. There, we have decided to conduct research on the topic of “Structure and Economics of Markets for Cryptographic Assets.” This early-stage evaluation has already been supported by Innosuisse — the Swiss Innovation Agency.

Backtested portfolio with systematic risk management vs market development. Source: Decentriq

The main objectives of this research are:

  • To obtain a better understanding from various perspectives of the market for cryptographic assets
  • To enrich the knowledge of the financial aspects of the market
  • To come up with explanations for price fluctuations for market participants, enabling better-informed decisions

Choice of partners

We believe the collaboration with this Swiss academic institution will enable us to combine the practical insights accumulated at Decentriq with the academic approach and years of research experience in finance at HSLU. As evidenced by this statement, Alexander Katz (co-founder, Decentriq) strongly believes

“It is crucial to combine practical experience with fundamental and theoretical knowledge.”

Such collaboration will allow us to achieve the goals of this partnership. The choice of the partner was made in favor of HSLU because of its remarkable expertise:

  • HSLU holds an excellent reputation and good track record in FinTech-related research.
  • Research in Blockchain has already been performed by staff members at HSLU.
  • Professor Ankenbrand and other members of the team who will be working on this project are experts in agent-based models for financial markets.

More importantly, Professor Ankenbrand has said,

I am very interested in Distributed Ledger Technology and its applications, and hence I am looking forward to working together with Decentriq on this project. […] What I like about this partner is that they have both ‘business’ people focusing on the economics side and ‘tech’ people exploring the technologies, such as anonymity protocols, that are on the edge of innovation and then combining the knowledge of the two to make decisions.

Choice of research direction

When one is dealing with modeling crypto markets, the most straightforward way to do so is to implement standard prediction techniques using regressions such as ordinary least squares (OLS). However, the market is still immature and not efficient and is run by individuals of different “types,” many of whom do not always act rationally. Hence, the use of agent-based models is an alternative and promising structural modelling approach in such an environment. By grouping the individuals and examining the behavior of each of the groups, the aggregate behavior of the market can be modeled. This method provides a potential explanation for the observed price patterns of the market as well as allows for inference on the conditional future distribution of returns.

Insights can be relevant when one is constructing predictive models for the price of cryptographic assets, which in turn can help investors — be they individual or institutional — and asset managers make more informed and thus more accurate investment decisions.

Next steps

Upon completion of the current project we plan to continue researching and deepening our academic insights into this still-nascent asset class. The range of entities involved will also be expanded, including working in collaboration with Multichain Asset Managers Association (MAMA).

“Decentriq is one of the very strong forward-thinking companies operating in the crypto space, connecting blockchain and financial services. Great to see Decentriq and HSLU teaming up on the research side. We are excited to be involved with these academic insights!” Hansjoerg Hettich, Executive Director at MAMA, has said.

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Because no central entity lasts forever, we develop, apply, and invest in decentralized technologies. We don’t want history to repeat itself, nor to let our future be determined solely by central powers. From anonymity preservation to zero knowledge, we shape answers that last.

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