CASE
STUDY


BLOCKCHAIN DEVELOPMENT

HIGHLIGHTS

  • FINTECH INDUSTRY
  • BLOCKCHAIN DEVELOPMENT
  • QUALIFIED FOR PAYROLL OFFSET
  • COMBINED CREDIT $250,000 FOR FIRST YEAR

This company is a financial technology company specializing in algorithmic cryptocurrency trading using sophisticated probabilistic models to drive automated trade execution. They began their effort in 2020 with a small team of 3 employees. Like most startups, this company was bootstrapped by its owners who continue to play a key role in platform development. They are involved in all aspects of the workflow from signal identification to creation of their trading algorithms.

R&D QUALIFICATION

One of the challenges of development when it comes to blockchain and cryptocurrency is that it is still in its relative infancy. Most developers do not have the types of resources available to development teams working on traditional software and platforms. As such, when this company started their work much of it was from a blank slate. This started with the development of their alpha model. Their first model for predicting market movement was based on analysis and identification of signals in the data they were receiving in real time from the various exchanges that represented larger market trends.

The research process at this company was highly collaborative and was focused on improvement in performance, functionality, and reliability of these systems. Initial alpha model development began with manual study of long positions. They simultaneously worked on developing a model for short term strategies that changed daily. The effort included tuning input parameters for dozens of cryptocurrency pairs and the constantly changing market landscape. Each one of these changes allowed for further refinement of their model. As a result, they were able to develop a system for tracking market capitalization and liquidity for each trading pair.

Once their alpha model was developed, the team began the highly risky process of testing their model and trading algorithms. Unlike companies with history and strong capitalization, being a small entity forced the team to utilize their own capital to test their trading system. 

HIGHLIGHTS

  • FINTECH INDUSTRY
  • BLOCKCHAIN DEVELOPMENT
  • QUALIFIED FOR PAYROLL OFFSET
  • COMBINED CREDIT $250,000 FOR FIRST YEAR

Through continued trade execution, analysis, and evaluation, the team was able to validate the accuracy of their probabilistic model and the reliability of their trading algorithms for order execution.

Another area where this company spent a lot of development effort was data warehousing. Like most companies that specialize in algorithmic trading, the need for historic data storage was paramount. This would allow them to back test their alpha model utilizing real historic data in a simulation environment without the need to utilize their actual managed funds to test future models and algorithms. The team quickly dealt with a wide variety of problems including exponentially increasing data storage needs and the need for quickly extracting compressed and archived data.

During the first year of the company’s journey, the team quickly found that their assets under management were growing much faster than they had initially projected. Because of this, they began extensive research into developing a reliable system for placing limit orders and to prevent order transmission until approved. During this development, their effort broadened to include investigations into order history and order filling. Development on all aspects of their platform continues.

RESULTS SPEAK FOR THEMSELVES

The total combined federal and state tax credit for this company was approximately $250,000 for their first full year of development. While the company did qualify for the startup small business payroll tax offset, their immensely successful first year allowed them to take their credit against their normal tax liability.