Authorito Capital -- The Ultimate Crypto Fund

https://authorito.com
https://t.me/authorito
February 01, 2018

“Nothing strengthens authority so much as silence.” 

— Leonardo da Vinci 

Summarised version of this whitepaper is available ​here​.

The trust in central authorities is disrupted. The assumption, “we need someone telling us
what to do,” has finally been questioned. We had been putting all our eggs in one basket, and
that too, someone else’s. We have found a better alternative to a central authority to deliver
trust between two strangers. Blockchains - a trustless protocol.

Blockchains provide the same trust that a central authority does but in a decentralized and
distributed manner. It means, no one individual or corporation has the control. The world has
started going decentralized. This is the biggest shift in the society since the Internet. Or
perhaps, electricity. Just like the internet made it feasible for masses to build a global
business, blockchain makes it possible to engage in a trade with a stranger across the globe.

There are at least two kind of actors in a blockchain network. There are people who record
transactions and maintain the ledger. We’ll call them ‘nodes’. On the other hand, we have
people who want something to be recorded on the ledger. We’ll call them ‘users’. The two
roles are not mutually exclusive. Users can also be nodes and vice versa. These two sides of
the network make up a blockchain but one wouldn’t come until the other comes in the
network. There’s a chicken-and-egg deadlock.

Users cannot record anything till there are enough nodes in the network maintaining the
ledger. Nodes won’t have anything to record till there are enough users who want to record
information on the ledger. To break this deadlock, the concept of cryptographically secured
reward was introduced in the network. These are called cryptocurrencies.

Nodes are incentivised to maintain the ledger even if there’s no transactions happening in the
network. For this effort, they are rewarded with some newly minted cryptocurrency out of
thin air. And since this brings the nodes in the network, users weren’t far behind.

The point is a blockchain protocol is powered by a fuel called cryptocurrencies. These

cryptocurrencies are not limited by geographies but by use cases. The trade with the users on
a blockchain happen using these cryptocurrencies and therefore, making blockchain not just a
technology but also an economy.
It is interesting to see that for the first time, technology and economy are working so closely
together. More the money gets in the economy, better the technology will eventually become.
But putting the money in the economy is a problem for many. Authorito Capital solves that.

PIE Token
PIE is a cryptographic token (ERC-20) on top of the Ethereum blockchain that represents a
fund of various cryptocurrencies/cryptoassets in various proportions. Being an ERC-20 token,
token holders can keep track of it in most of the Ethereum wallets, transfer it to any other
Ethereum wallets, or sell it in the open market. Ownership of a PIE token will represent the
ownership in the fund’s underlying assets under management, which will come with
additional benefits of voting rights for major decisions by the fund and earning rewards.

For newcomers, investing in a new and unfamiliar asset class such as cryptoassets can be
daunting. We aim to bridge that insecurity for our investors by diversifying our portfolio in a
transparent manner. The global cryptoasset markets run nonstop and are impacted by news
and events around the world. We believe the best way to navigate the volatility of such a
market is with an actively managed fund that holds a variety of cryptoassets. Our team will
diligently research and analyze numerous tokens/projects to find the best ones to add to our
portfolio on your behalf.

In 2017, cryptocurrencies exploded from a market cap of $17 billion to a value of $600
billion by the end of the year. While we do feel that the magnitude of increase value for 2017
is an anomaly, we firmly believe that the cryptoasset class is still in its infancy and will
outperform other asset classes for the indefinite future. We also believe that PIE tokens offer
an easy, simple way to enter into a diversified position for newcomers.
The volatility of an individual currency keeps several interested people away from investing
in them. They are the people who are on the border of investing but need a nudge.
Introduction of PIE token will allow this large segment of people become part of the
cryptocurrency ecosystems.

Currently, unique active users of cryptocurrency wallets is estimated to be around 20mn. Of

over 7 billion people on the planet, out of which over 2 billion are on the internet, only about
20mn have a cryptocurrency wallet. The market is nascent but growing.

Aren’t cryptocurrencies just another fad?

We don’t think so. Going back to the point where we understood why cryptocurrencies came
into the existence, we can think of cryptocurrencies as fuel for blockchains. We cannot
believe that 50 years from now, the most important things in our life will still be controlled
by third-parties. Decentralization is the future. Thus, making cryptocurrencies an essential
part of our lives eventually. Cryptocurrencies are here to stay, survive and thrive. Mass
adoption of these cryptocurrencies is just a function of time.

Figure above shows that bitcoin miners alone have earned over $2 billion to date. This further
evidences the evolution of cryptocurrency mining from a hobby activity in the early days to a
professional industry where large amounts of capital are at stake.

Isn’t Bitcoin the best cryptocurrency to invest in? Why do we need a portfolio?
Wasn’t MySpace the best social network to socialise? Wasn’t AltaVista the best search
engine to look for information? Now we know that they weren’t.

They were among the first ones to introduce the new concepts in our lives but they were far
from being the best. I believe bitcoin will go down the same story eventually. Bitcoin made
us discover our ignorance towards middlemen, but it is far from being the ultimate
cryptocurrency.
It is the currency with the largest market cap, but it is fighting its own battles. In the year
2017 alone, bitcoin went from a domination market share of over 87% to 37%.

“40 years from now, blockchain and all that followed from it will 
figure more prominently in that story than will bitcoin.” 
Larry Summers, US Former Treasury Secretary

As of today, nine years since bitcoin was launched, there are more than 4000 existing
cryptocurrencies, out of which roughly 1400 are traded actively on a daily basis. The
cryptocurrencies are not only used as an instrument for exchange in transactions but also have
proven to be an investment vehicle with high rates of return. The major currencies such as
Bitcoin and Ethereum have shown a growth rate of 1400% and 38000% respectively in 2017
alone.

The promising rates of return often lure people into investing in the cryptoassets as mere
speculators. Due to little available knowledge resources in the public domain of the
cryptoassets and also the inability to match up with the constant shift in prices of the dynamic
currencies, investors often end up with smaller returns on investment as compared to the
maximum possible returns.

Cryptocurrency exchanges operate at all hours of the day every single day. It means trading,
sales & purchase of cryptocurrencies can be done 24 hours a day 7 days a week unlike the
traditional exchanges which are regulated and have fixed opening and closing schedule.
Active management funds such as ours have someone monitoring the global markets at all
hours to look for any events or news that might impact price movements.

The prices of the PIE token will be decided by the USD value of the assets under
management. The underlying idea of PIE fund is to maximise the profits for the investor in
the cryptocurrency market and minimising the risk by hedging and diversifying the portfolio.
While the diversifying strategy is already described in the section “Investment Thesis” below,
hedging strategy will be ever evolving according to the market.

Cryptocurrencies are an evolving investment asset which shouldn’t be overlooked by an

investor willing to diversify his portfolio. The fund is an ideal investment for people who are
optimistic about the futuristic technology of blockchain. Several wall street banks and
traditional investment funds have not only shown interest but also invested in blockchain
startups and cryptocurrencies.

What does the market look like?

On the basis of volatility and returns cryptocurrencies are of two types:
The Front Runners:​The list consists of names like Bitcoins, Ethereum, NEO, Ripple etc
which are like blue chip stocks. These have been leaders of the pack and typically have low
risk and yield high returns and also have a market cap of USD 1billion+.

The Followers:​This list consists of names like Zcash, Monero which are relatively new in
the market and have high volatility. These are the coins that have the potential to generate
higher rate of returns as they are still in the early stages.

​Graph: Bitcoin Risk-Adjusted Return vs Other Asset Classes ​

(S​ource)​

The risk adjusted return of Bitcoin is significantly higher than the traditional asset class such
as oil, stocks, gold etc.

Van-Petersen, a Saxo Bank analyst is assuming cryptocurrencies in general – not just bitcoin–
will account for 10 percent of the average daily volumes (ADV) of fiat currency trade in 10
years. Foreign exchange ADV currently stands at just over $5 trillion, according to the Bank
for International Settlements. 10% of $5 trillion is $500 billion. This is the ADV that
cryptocurrencies can have. Analysts also predict that bitcoin’s price has the potential to hit
over $100,000 in 10 years, which would mark a 3,483 percent rise from its recent record
high.

The market cap of Bitcoin alone is predicted to reach $1.75 trillion in 10 years from the the
current figure of around $231bn.

Economics of PIE Token

PIE token will represent an open-ended fund where the initial batch of tokens will be created
at a fixed price during the first token sale. Post the completion of the token sale, whatever
capital will be collected, it will be traded in several decentralized assets, and the value of the
fund will decide the price of a PIE token thereafter.

Let’s understand the economics of the PIE fund using an example.

Imagine, the fund contains the following assets (numbers are for representation purposes
only):

Cryptoasset Value in USD

Bitcoin $6,000,000

Ethereum $3,000,000

Monero $1,000,000

Total $10,000,000

To start with, PIE token’s value is $1 per token. Therefore, to represent the fund of $10mn
value, we’d need to have 10,000,000 PIE tokens in supply.

Formula used to calculate the price of a PIE token:

Price of PIE token = Total value of the fund (in USD) / Supply of
PIE token

Value of Portfolio Supply of PIE Token Price of 1 PIE Token

$10,000,000 10,000,000 $1

The price of a PIE token is calculated and updated on the blockchain at 0000 hours GMT.
This is done so that in the future, not even us can go back on our claims. It will permanently
store, for eternity, the daily value of PIE token on the blockchain itself.

Imagine, if an investor wants to buy PIE tokens worth $250,000. According to the currency
price ($1) we’ll create new 250,000 tokens and distribute it to the investor.

Formula used to calculate how many new tokens should be created:

New tokens to be created = Total invested amount (in USD) / Price
of PIE token (in USD)

Value of Portfolio Supply of PIE Token Price of 1 PIE Token

$10,250,000 10,250,000 $1
Now, in some time period (say 12 months), the value of the fund goes up to $25,000,000,
then each of the token in supply will be worth $2.43.

Value of Portfolio Supply of PIE Token Price of 1 PIE Token

$25,000,000 10,250,000 $2.43

At this point, an investor can return some or all of the tokens to get back the returns. Once the
PIE tokens are returned to us, we destroy them after paying out the returns from our portfolio.
We need to destroy the tokens to maintain the supply such that every token is always backed
by the assets that we have under management. Whenever money enters, new tokens are
created, and whenever money exits, returned tokens are destroyed.

Formula used to calculate how much returns has to be paid out:

Amount to be returned (calculated in USD but paid in ETH) = Number
of PIE tokens returned * Price of PIE token (in USD)

If an investor return 25,000 PIE tokens to us, the updated portfolio will look something like
the following:

Value of Portfolio Supply of PIE Token Price of 1 PIE Token

$24,939,250 10,225,000 $2.43

The supply of PIE tokens will completely be based on the market demand.

Lock Reward
We intend to share the profits with the holders of PIE token, thus, making holding PIE token
more valuable. When a new token is created, it is locked for seven (7) days before you can
transfer it to anyone. Post the completion of seven days, the tokens are absolutely liquid and
you can transfer/sell them to anyone (on or off the exchanges). As a fund, it helps us if you
continue holding the tokens with yourself, so that we can make long term investments. To
incentivize holding the token more valuable, the token has a reward associated with it, called
Lock Reward.

Every token holder can lock some or all of his/her tokens in a smart contract for a duration
between six months and sixty months. Every locked token gets rewarded with a portion of the
profit for every profitable quarter ​in the form of additional PIE tokens​. If the quarter is not
profitable, there will be no Lock Reward for the token holders in the quarter. Even if the
quarter is profitable, the decision of how much of the profits have to be distributed as the
Lock Rewards lies with the fund. We decide that based on several parameters, including but
not limited to:
1. Movement of the market in the quarter
2. Anticipated launches of new assets in the upcoming quarter
3. Currently held assets in our portfolio

At the end of each quarter, we’ll calculate the change in the value of the portfolio using the
formula:
Profits = Value of portfolio on the last day of the current
quarter - Value of portfolio on the last day of the previous
quarter

If the calculated profit is above zero, we call it a ‘profitable quarter’. Lock Reward will be
paid out for each profitable quarter. A discretionary portion of the profits will be distributed
as Lock Rewards proportionately to the number of PIE tokens and the time period for which
an investor locks.

At the end of each profitable quarter, the value of one locked month per token is calculated
using the following formula:
Reward per token per locked month = Total Lock Reward / ((Number
of tokens locked for Duration 1 * Duration 1) + (Number of tokens
locked for Duration 2 * Duration 2) + (Number of tokens locked
for Duration 3 * Duration 3)...(Number of tokens locked for
Duration n * Duration n)

Once the reward per token per locked month is calculated, the reward for per token is
calculated using the following formula:
Lock reward per token = Reward per token per month * Number of
months for which it is locked

Total reward for an investor is calculated using the formula:

Lock reward of an investor = Lock reward per token * Number of PIE
tokens locked by the investor

The rewards will be sent to the wallets of the investors, therefore, making it possible to hold
PIE token in offline wallets without much of an hassle.

A sample Excel sheet for you to play with numbers and calculate Lock Rewards is available
here​
.

Management Fee
Management fee will be the 1% of the total value of portfolio at the end of each quarter.
Additionally, there will be a profit sharing system where Authorito takes 20% of the profits
as long as returns are over 10%.

Example: Fund starts quarter with $20 million. The quarter brings a return of $6 million
(30%). Authorito would receive $1.2 million of the profits as performance fee. And then, the
management fee would be 1% of $24.8 million (= $248,000). The AUM at the end of the
quarter would be $24.552 million.

Reinvestment
Any profits after paying out rewards and management fee will be reinvested back in the
portfolio, therefore, making the PIE token appreciate in the value. This reinvestment is
mandatory.

Voting
Last but not the least - another privilege the PIE token will bring along is the right to vote in
all major decisions of the fund. The limitation of the token is that the owners would not be
allowed to vote on which tokens or coins to invest in. The privilege will come in use when
we’d be required to venture in some direction that affects all the owners of PIE token.

Each votable decision will be carried out by a decision-specific smart contract on the
Ethereum blockchain. It should be mentioned that, not all decisions will be up for the vote.
Also, the decision of which matters to be voted upon will never be up for vote.

Example 1: In future, the decision to use a different currency to benchmark performance

against could be up for voting.

Example 2: In future, we might want to change the number of decimal places of a PIE Token,
and the decision could be up for voting.

Redeeming the Tokens

At the end of sixty months, any investor can apply to redeem their tokens in full. When a
redemption happens, the redeemed tokens are destroyed and the value of those tokens are
paid to the investor in ETH (or any other highly liquid cryptocurrency at that time).

Within sixty months, every quarter, we will buy back some of the tokens in supply from the
open market. Every time we do that, anybody who has tokens that are not locked-in, can
redeem on a first-come-first-served basis. The buy back will be done with a limited portion of
the portfolio, therefore, these buybacks doesn’t guarantee you can always redeem your tokens
from us within first sixty months.
It is to be noted that there can be certain quarters where we do not buy back any of the
tokens. A lot of factors are taken into consideration when deciding how many to buy back at
the end of a quarter, which include but are not limited to:
1. Number of people willing to sell
2. Number of new people willing to buy new PIE tokens
3. Movement of the market in the quarter

The redemption will be carried out by a Smart Contract. Token holders will have to send their
PIE tokens to the Smart Contract to receive an equivalent amount of ETH in their wallet. The
Smart Contract will be supplied with a limited supply of ETH and will continue to accept PIE
tokens until it runs out of the initially supplied ETH.

However, at the end of sixty months, the tokens will become fully redeemable and can be
redeemed anytime from the fund. Until then, an investor can either transfer the tokens to
someone else in the open market or redeem them in the quarterly redemptions.

Token Offering
The token offering will open with an exchange rate of ~$1 USD per PIE token. The price will
be adjusted everyday to make sure it is at $1 until the fund starts trading (Jan 20, 2018).

Investment Thesis
Authorito Capital’s investment strategy is simple. At least 80% of our investments will be in
the long-term positions. This slice of the pie will be held for 3+ years and rebalanced every
week. Up to 20% of the investments will be to back blockchain projects in their early days by
participating in their ICOs/token offerings at discounts.

In totality, upto 10% of the portfolio can be used for short-term profitable opportunities.
Ultimately, as a fund, our obligation is to figure out profits for our token holders and in the
quarters, when the market is down (bearish), the team will try to make profits for the
investors by participating in short term positions with upto 10% of the portfolio.

In summary, our thesis is very simple:

1. At least 80% of the portfolio will be long positions, rebalanced weekly.

2. Upto 20% of the portfolio will be for participation in the ICOs.
3. Overall, upto 10% of the portfolio will be for short-term opportunities.

To evaluate an asset for long positions in this nascent industry, one doesn’t need to be just a
master of finances, but rather needs to be a master of technology as well as finances.

Security of the assets under management

As a fund, it becomes our responsibility to keep the assets under the extreme security to avoid
hacks, theft and loss due to natural disaster.

To achieve this, at least 80% of our assets are always in the multi-sig cold storage. Not more
than 5% of the portfolio is in one hardware wallet. Further, each hardware wallet is in
different geographical location. At any point in time, some or all might be in the same
geographical city. In case of a natural disaster of large scale, only a tiny portion of the assets
will be lost.

Mineable Hedge Fund

Besides trading between various cryptoassets, our unique insight comes into the picture when
you talk of the mining aspect of cryptoassets. We intend to build a global network of
consumer devices that would use our software to mine various cryptoassets throughout the
day.

Unlike, other mining software, we don’t intend to promote them as profitable mining
software, instead, ours will help individuals invest their idle electricity in our fund.
Throughout the day, consumer devices are plugged in the power but sitting idle consuming
energy. Our software allows these devices to talk to each other and cluster themselves in
various groups so that they can identify and mine the most worthy currency at given point in
time.

The software won’t allow the user to pick which currency he/she wants to mine. Instead,
he/she will allow us to use his device for a certain period of time and we would mine
whatever we want to mine on his device.Whatever we would mine, that would immediately
invested in the fund on behalf of the user and the newly minted PIE tokens will be distributed
to him/her.

All a user would get to see is how much PIE tokens does he/she owns. We do it to bypass the
human bias to think from the worm’s-eye view. Because we would have the real-time state of
all the devices in the network (bird’s-eye view), we can tell them to pool themselves together
in several clusters to mine cryptocurrencies.

We would never be competing with the idea of ‘profitable mining’ on consumer devices.
Instead, we would be spreading the idea of reducing the energy wastage when the device in
not in use.

Our solution is to allow everyone to participate as a node on the blockchains. Hobbyists and
sophisticated ones can tinker with open source projects to run their mining nodes but it is still
a nightmare for a regular internet user to participate in cryptocurrencies. Our software for
mining is what Windows was for computers. Easy. Cross-hardware. For masses.
We’ll start with delivering a cross-platform software using which is as simple as pressing the
button, ‘Start’. Once started, it figures out to which blockchain your computer must be joined
at that particular time to make most profit.

This decision is calculated by a deep learned Neural Network that we’ve trained over several
months of mining. It figures out the mining worth of a cryptocurrency based on the following
parameters:
- Exchange rate trend of the cryptocurrency
- Competition trend (i.e. network hashrate) of the cryptocurrency
- Capability of the computer that the software is running on

Once calculated, the system arranges the available users in our network in such a
configuration that when they mine together, they make most optimized profit that then gets
shared among everyone proportionally.

On a user’s device, the switching happens multiple times throughout the day such that the
user makes more money than the amount of electricity our software consumed for the day.

The software mines various currencies on a user’s machine but the user get rewarded in our
own cryptocurrency token - PIE token. The mined cryptocurrencies are added to our portfolio
of cryptocurrencies behind the scenes whose value is represented using PIE tokens.

For an average user, it is the easiest, securest and safest way to participate in
cryptocurrencies.

The software is currently in the development state and a proof-of-concept version is done. It
would still take efforts of at least two quarters to make it production ready. The usage of the
software is entirely optional, and, its usage will not be immediately profitable.

Why an open-ended fund?

We plan on continuously increasing our NAV through our mining software as well as allow
more investors to join in the future. Because new money will keep coming in (thus,
increasing the size of fund beyond what the trading can do), we were needed to keep it
open-ended. A close-ended fund would not have allowed to apply our unique insight to the
fund.

If PIE tokens can be traded on exchanges, why should I buy from you directly?
PIE token might be traded on the exchanges at a different price than what we would offer at.
But the minimum price of the token is guaranteed by us through the underlying assets that we
hold. It would be irrational to sell the token at a price lower than NAV in the open market.
Still, if the token is traded at a lower prices than its NAV in the open market, we’ll buy those
tokens ourselves and pass on the profits to our token holders.

Chances are that tokens could be sold at a higher price in the open market. Therefore, to
avoid arbitrage, we lock up all the newly minted tokens for seven (7) days. Therefore, no one
can immediately buy from us and sell in the open markets.

Risks
- The Fund is not a Registered with the Securities and Exchange Commission as a
Broker-Dealer.
- No assurance of investment return.
- The PIE Tokens are subject to significant transfer restrictions.
- There is no existing trading market for the PIE Tokens and an active trading market
may not develop.
- PIE Tokenholders will have no liquidation rights.
- PIE Tokens have limited redemption in the first sixty (60) months of purchase.
- Cryptocurrencies are not regulated and regulations might arrive that would make
running a crypto fund extremely difficult, if not impossible.
- Tax risks are to be borne by the token holders themselves.
- Storage and security of PIE tokens in an Ethereum wallet is the token holders’
responsibility.
- The Issuer does not intend to register with the CFTC as a “commodity pool operator”
or as a “commodity trading advisor.”
- Substantially all of the Issuer’s computer and communications hardware is located at
a single facility, which leaves us vulnerable.
- The fundamental value of Bitcoin, Ether, and other cryptocurrencies is sensitive to
subjective perception.
- Misconduct by employees of the Issuer or third party service providers could cause
significant losses to the Issuer.
- The performance of the prior investments of the members of the Issuer’s executive
team may not be indicative of the Issuer’s future results.

Team
Mohit Mamoria
Cofounder, CEO

Sahil Sarpal
Cofounder, CTO

Jatin Mamoria
Operations
Parth Sharma
Investment Committee

Jimmy Jing
Investment Committee

Manasi Vora
Investment Committee

Legal
Authorito Capital is advised by ​Inventus Law​.

Summary
- Ownership in the underlying assets is represented by the ERC-20 token, called PIE.
- Minimum buy-in: $50k. Recommended buy-in: $500k - $2mn. ​(Minimum buy-in till
February 28, 2018 is $​10k.​)
- 1 PIE token initially priced at $1 until trading begins
- Open ended hedge fund; unlimited PIE tokens can be in the supply
- profit will be shared with the investors in the form of lock reward
- First 60 months, tokens can be redeemed during quarterly redemptions. After 60
months, tokens can be redeemed anytime
- Fund assets will always be held in cryptocurrency
- World’s first crypto fund with a mining component
- Ownership of PIE also brings along the privilege of voting on major decisions
- PIE token will be tradeable asset on open markets
- Regularly audited by third parties
- Daily reporting of fund’s valuation and PIE’s price on the blockchain itself, and
through a dashboard