Richard Craib: Founder of Numerai, a crowdsourced hedge fund where anonymized data is given away free and trades are driven by machine learning models submitted by a global community who stake cryptocurrency on their predictions.
What this episode covers
Richard Craib joins Lex Fridman to dissect the GameStop/WallStreetBets short squeeze as a triumph of decentralized coordination over centralized hedge fund power. He explains how Numerai works: it gives away obfuscated stock-market data, lets anyone build ML models, and weights predictions by how much NMR cryptocurrency users stake, aligning everyone's incentives. The conversation explores why this is 'the hardest data science problem on the planet,' the difference between 'evil shorting' and benign quant shorting, and Numerai's mission to manage all the world's money. They also range across cryptocurrency, the meaning of money and finance, startup advice, poker with hedge fund titans, and reflections on mortality after Craib's bout with COVID.
Recommended on this episode
Zero to One
Peter Thiel
“i really what i was reading zero to one while coming up with numerai it's like i was like halfway through the book”— guest
The Beginning of Infinity
David Deutsch
“a book i like a lot is um maybe my favorite book is david deutsch's beginning of infinity um i just found that so optimistic”— guest
Also referenced (named, not recommended)
Billions
Showtime
“actually in the show billions they kind of do a little thing about this poker tournament thing with all the hedge fund managers and that's real life thing”— guest
XGBoost
XGBoost
“there is definitely something pretty nice about tree models like like xg boost and they just seem to work pretty nicely on this type of data”— guest
Zcash
Electric Coin Company
“but there are some that i like the privacy ones i mean i like z cash for it's like coolness it's actually a different kind of invention”— guest
Big reveals from this episode
- Craib says he now sleeps easy because he has less money in his own hedge fund than his users are staking on their models.
- One of Numerai's top users works at NASA's Jet Propulsion Lab on the Europa Clipper mission and models for Numerai only on weekends.
- Despite being early in crypto and holding NMR, Craib says he is no longer looking to invest in cryptocurrencies.
- The CEO of Renaissance Technologies told Craib he didn't think AI would have a big role in finance because it's 'too noisy', the same day poker AI Libratus started beating humans.
- Craib predicts a narrow AI will win all the money in the stock market long before AGI destroys the world.
- Craib admits the GameStop episode makes him think twice about shorting and that the targeted hedge funds were 'very badly risk managed.'
- His core startup advice: don't start a company unless you're prepared to make it your life's work.
Worth remembering
- GameStop was targeted not for nostalgia but because its short interest exceeded its own float, setting up a short squeeze.
- A short squeeze is positive-sum: the whole crowd can profit, unlike a watermelon bubble which is zero-sum.
- Numerai holds about 250 shorts at once and never lets any single position exceed one percent of the fund.
- Users never upload their code to Numerai, only predictions, so the entire hedge fund is built from models its operators have never seen.
- Staking solved Numerai's bot/multiple-account problem by forcing users to risk losing their NMR if their models fail.
- Counterintuitively, good models on Numerai data must minimize exposure to their strongest features to generalize on non-stationary markets.
- Numerai plans to 10x the amount of data it gives away every year for at least the next decade.
- Craib played a $10,000-buy-in charity poker tournament with Jim Simons and knocked out former champion Peter Muller.
- Craib describes a recent 15-day COVID and lung infection that, despite being depressing, shocked him into new energy and ambition.