The prices of cryptocurrencies varies across exchanges, this is because demand and supply vary according to the characteristics of particular markets, limitation of capital flows between countries, and reputation of particular exchange. A Bitcoin could be worth a few $100 dollars more in Korea than on an exchange in Europe. This could be because the demand for Bitcoin in the Korean market has increased because supply is constricted. If the situation on a European exchange does not have the same dynamics, then the price of Bitcoin will start diverging between the two exchanges.
This price difference can be exploited for a profit, a market maker can buy Bitcoin in the cheaper market and sell it in the more expensive one. Together with market making within Ripple Transaction Protocol, this is the business plan of RIALTO.AI, their ICO (initial coin offering) is planned on the 15th of July 2017.With the funds they plan to scale up existing infrastructure, software and a pool of capital.
These assets will enable RIALTO.AI to become one of the largest cryptocurrency market makers. Any profits will be distributed to the coin holders.Rialto.ai goes beyond just arbitrage in Bitcoin, it can easily do the same for other crypto currencies if the market conditions are right. The algorithms monitor the market order books 24/7 and only enter a trade when the parameters enable profitable execution. Their market information can be monetised further in different formats.
Ultimately they could become the go to exchange to acquire coins at their true global price. Rialto.ai@RialtoAI will serve the cryptocurrency market by providing Liquidity, Matching orders and thus improving efficiency.
Vito Martin Hrzenjak, a finance specialist provides key insights to prospective investors in Rialto.ai.
Your description of Arbitrage is “the simultaneous purchase and sale of a cryptocurrency to profit from a difference in the price on two different exchanges. Trader bears no risk from price movements. Arbitrage algorithm is designed as a 24/7 “vacuum cleaner” that collects a few dollars every time a divergence occurs, regardless of a bull or bear market.”
What are the risk mitigation measures that allow traders not to bear risk from price movements?
The trading algorithm only executes arbitrage trades when all of the predefined criteria are checked (calibrated monthly). One parameter for example, is sufficient divergence. This is the minimum difference in prices between two exchanges that still enables a profitable trade after netting execution fees. The second parameter is depth and the deviation of the market order book, which insures that the trade will be executed simultaneously, or will not enter the trade at all. In arbitrage, we do not hold net open position.
What can go wrong when performing Arbitrage operations and how is Rialto mitigating against them?
The RIALTO.AI’s arbitrage risk exposure is weighed mostly on the partial amount of the funds stored at several exchanges in order to be well positioned for arbitrage. These funds are potentially vulnerable for hacker attacks, etc. To mitigate that risk, RIALTO.AI uses the balancing system of storing majority of its funds in cold wallets and only transferring the optimal amount needed for positions. The optimal balance is constantly recalculated to signal the need before the spilling effect among the exchanges. Furthermore, RIALTO.AI carefully selects only reliable exchanges that pass thorough demanding background check (known owners, compliance, secure access points, audit, etc.).
Why is an ICO needed to run this AI trading algorithm? Wouldn’t it be more profitable for the team to run the whole thing for themselves?
To scale up. A person or a team can successfully execute arbitrage only among few exchanges on a very limited volume. Transactional market for crpytocurrencies and digital assets is growing rapidly and there is a real need from its users for large institutional market makers. Spreads among gateways are too large, transactions too slow and matching of orders inefficient. By establishing a market-making fund, we will have the advantage of creating one-point access to largest numbers of gateways, earn a fraction on growing number of transactions, and drastically increase efficiency of the crypto markets.
Example of two gateways, where, at its peaks, users had to take 15% and even 25% haircut for USD dollar to USD dollar transaction. Of course, the whole market consists of much more gateways and 15+ crypto and fiat currencies. The potential for market making on Ripple payment protocol is unprecedented.
How will the ICO proceeds be used?
Majority of ICO proceeds (75%) will represent the working capital of the fund. This will ensure the coverage of the largest number of gateways and enable the maximization of arbitrage and market making trades. The working capital of the fund will never be withdrawn. ICO participants will share profits made by the fund. The rest (25%) of the proceeds will be used as equity, within a lock-up period, to ensure the further development of the projects.
You have a strong team of six with high profile work experience. In addition, three team members have impressive PhDs. How did you manage to rally such talent around the idea of an Arbitrage bot?
The project started around a private arbitrage algorithm in the team of 3. At the time, the key members were colleagues at The Jožef Stefan Institute, which is the leading Slovenian scientific research institute, covering a broad spectrum of basic and applied research. From there the team grew further. Co-founders have a tremendous experience in developing professional data software for the banking industry. We are confident that we have one of the strongest teams of data scientists, not only in the crypto world, but also outside of it. However, our project is not the arbitrage bot. The team understands the potential of a market maker that enables a single point access to cryptomarkets in the future.
What share will the investors be eligible from the profits of the Arbitrage bot?
100% of the profits will be distributed to the token holders on a semi-annual basis.
Will there be an insurance or provision fund to restore any potential losses by the bot?
The fund will have a reserve holding for the case of potential downturns. The profits of the team’s equity share (25%) will fuel the reserve fund until it reaches the 25% watermark.
Will you cover only Western exchanges or those based worldwide?
Exchanges and gateways covered by the fund will be selected solely based on a predetermined criteria check, not geographically or otherwise. We are responsible to ensure the reliability of each trading partner beforehand.
At this time the test bot is covering only BTC ETH and XRP. The crypto sphere has many more coins with probably considerable arbitrage opportunities. Are less traded coins riskier for arbitrage strategies?
The number of tokens covered, is directly dependant on the number of exchanges and gateways covered. As we expand to other partners, further tokens that fulfil specific trading criteria will be added.
Will any code of the bot be public?
We are planning to open data market tools, so that each trader will be able to use our market databases (back testing, correlations, etc.). However, all the algorithms are proprietary and give us a competitive advantage. Therefore, we do not plan to make them public.
When will the ICO start?
On 15th July 2017. Subscribed supporters will have early preferential access to ICO two weeks before.
What will be the terms of the ICO?
The terms will be revealed in the Whitepaper in the beginning of June.
Can you tell us about the economics of the coin?
It will be revealed in the Whitepaper in the beginning of June. Due to the maximization of returns to the supporters, ICO size will be capped.
Will decentralised exchange such as Internet of coins and Blocknet have an impact on Rialto’s arbitrage bot?
We do not see our trajectories crossing in the short or medium term. The blockchain transaction industry is at its inception and there will be a growing need for the connectivity of different cryptocurrencies and digital assets on the market. Just like the need for different directories on the internet.
Will Rialto’s focus be solely the arbitrage bot, do you envisage expanding in other sectors of cryptocurrency exchanges and if do which ones?
A successful establishment as the largest market maker would enable us the coverage of the
largest number of exchanges and gateways in the blockchain transaction industry (cryptocurrencies, digital assets and payment protocols). This means that we will have the competitive advantage to create a single point access platform, where users will be able to buy or sell any crypto asset at the currently best price worldwide. The long-term goal is to evolve into an entry single point for crypto transactions, as Google is for the searches.
What are the Rialto ICO terms and coin economics:
Token Name: RIALTO (XRL)
Total Supply: 100,000,000 tokens. Tokens not sold during the ICO will be burnt. No additional RIALTO (XRL) tokens will ever be created.
Price Per Token: 1 XRL = 0.2 USD
What does it represent for a supporter?
RIALTO (XRL) tokens represent a Proof-of-Membership in RIALTO.AI digital asset pool. It grants right to 100% profit distribution, ownership rights of RIALTO.AI proprietary software, data tools, algorithms, and other intellectual property.
Distribution of tokens:
The 75% of total fund equity will be distributed among the crowdsale supporters.
The 25% is reserved within a 180 day lock up period to insure long term development of the project.
For optimal performance and maximization of fund’s returns for all supporters, crowdsale is capped and available to a limited number of participants on a first come – first serve basis.
Crowdsale will finish on 15th of August or once the total raised amount will reach the nominal value of $10,000,000.
Minimum capitalization is set to the nominal value of $1.0 million. If minimum cap will not be reached, the funds in full amount will be returned to the supporters.
For more information on Rialto visit: Rialto.ai
We thank Vito Martin Hrzenjak for the interview.