Scientists created a crypto portfolio management AI trained with on-chain data

A pair of researchers from the University of Tsukuba in Japan recently constructed an AI-powered cryptocurrency portfolio management system that utilizes on-chain data for training, the very first of its kind according to the researchers. Called CryptoRLPM, short for “Cryptocurrency reinforcement learning portfolio supervisor,” the AI system utilizes a training strategy called “reinforcement knowing” to execute on-chain information into its design. Reinforcement knowing (RL) is an optimization paradigm wherein an AI system communicates with its environment– in this case, a cryptocurrency portfolio– and updates its training based upon reward signals.CryptoRLPM applies feedback from RL throughout its architecture. The system is structured into 5 primary systems which interact to process information and manage structured portfolios. These modules include a Data Feed Unit, Data Refinement Unit, Portfolio Agent Unit, Live Trading Unit, and an Agent Updating Unit. Screenshot of pre-print research, 2023 Huang, Tanaka, “A Scalable Reinforcement Learning-based System Using On-Chain Data for Cryptocurrency Portfolio Management”Once established, the scientists evaluated CryptoRLPM by assigning it three portfolios. The first included just Bitcoin (BTC) and Storj (STORJ), the 2nd kept BTC and STORJ while adding Bluzelle (BLZ), and the third kept all 3 together with Chainlink (LINK). The experiments were carried out over a period lasting from October of 2020 to September of 2022 with three distinct stages (training, validation, backtesting.)The scientists measured the success of CryptoRLPM versus a baseline evaluation of standard market efficiency through three metrics: “collected rate of return” (AAR), “day-to-day rate of return” (DRR), and “Sortino ratio” (SR). AAR and DRR are at-a-glance procedures of just how much a property has actually lost or gotten in an offered time period and the SR measures an assets risk-adjusted return.Screenshot of pre-print research, 2023 Huang, Tanaka, “A Scalable Reinforcement Learning-based System Using On-Chain Data for Cryptocurrency Portfolio Management”According to the researchers pre-print term paper, CryptoRLPM shows substantial enhancements over standard efficiency:”Specifically, CryptoRLPM shows at least a 83.14% enhancement in ARR, at least a 0.5603% improvement in DRR, and at least a 2.1767 enhancement in SR, compared to the standard Bitcoin.”Related: DeFi fulfills AI: Can this synergy be the brand-new focus of tech acquisitions?

Other Questions People Ask

What is the significance of the AI developed by scientists for crypto portfolio management?

The AI developed by researchers from the University of Tsukuba, known as CryptoRLPM, represents a groundbreaking advancement in cryptocurrency portfolio management. By utilizing on-chain data and a reinforcement learning approach, it optimizes portfolio performance through continuous interaction with its environment. This innovative system not only enhances decision-making but also demonstrates significant improvements over traditional market efficiency metrics.

How does CryptoRLPM utilize on-chain data in its portfolio management strategy?

CryptoRLPM leverages on-chain data to inform its decision-making processes, allowing it to adapt and optimize cryptocurrency portfolios effectively. The AI's architecture includes multiple modules that work together to refine data and manage investments based on real-time feedback. This integration of on-chain data ensures that the AI remains responsive to market changes, enhancing its overall performance in managing portfolios.

What metrics were used to evaluate the performance of the crypto portfolio management AI?

The researchers evaluated CryptoRLPM using three key metrics: collected rate of return (AAR), daily rate of return (DRR), and Sortino ratio (SR). These metrics provide insights into the AI's ability to generate returns and manage risk compared to traditional benchmarks. The results indicated that CryptoRLPM achieved substantial improvements in these areas, showcasing its effectiveness in optimizing cryptocurrency investments.

What are the main components of the CryptoRLPM system?

CryptoRLPM is structured into five primary modules: Data Feed Unit, Data Refinement Unit, Portfolio Agent Unit, Live Trading Unit, and Agent Updating Unit. Each component plays a crucial role in processing information and managing portfolios effectively. This modular design allows for a comprehensive approach to portfolio management, ensuring that the AI can adapt and respond to market dynamics efficiently.

How did the researchers test the effectiveness of CryptoRLPM?

The effectiveness of CryptoRLPM was tested by assigning it three different cryptocurrency portfolios over a two-year period. The testing phases included training, validation, and backtesting to assess the AI's performance comprehensively. By comparing its results against standard market efficiency benchmarks, the researchers were able to quantify the improvements achieved by CryptoRLPM in managing cryptocurrency investments.