What is the Northern Equinox Fund?
The Northern Equinox Fund is a cryptocurrency-based fund that will operate in a similar way to a hedge fund. The Northern Equinox Fund will be valued in Bitcoin and will actively manage a portfolio of cryptocurrencies, with the intention of providing monthly returns to the investors in the fund.
The purpose of the Northern Equinox Fund will be to relieve selling pressure on the Northern market, by creating an additional use case for the coin, that will provide its holders with another revenue stream, besides staking and running masternodes.
Furthermore, the fund will also serve as a way to lock up the supply of the NORT coin, and lower the amount in circulation, thus benefiting the holders of the coin.
NEF - The Northern Equinox Fund
AUM - Assets Under Management – the total valuation of assets held by the fund, denominated in Bitcoin. This includes other cryptocurrencies and excludes the NORT taken in from investors.
NUM – Northern Under Management – the total amount of NORT taken in by the fund from investors.
IS - Investor’s Share – the investors share in the fund, shown as a percentage.
EIM - Earnings in Month – the total profit earned by the fund in a given month.
How will the NEF operate?
The NEF will have its value denominated in terms of Bitcoin – all of the fund’s total assets under management (AUM) will be converted into BTC value for reporting statistics and returns on the fund.
Investors who wish to buy into the fund will only be able to do so using the Northern (NORT) cryptocurrency, that will serve as the native coin to the NEF. Once an investor has deposited into the fund, their NORT coins will be locked up for a minimum of 90 days and during that period, the investor will be eligible to receive monthly pay-outs from the profits of the fund.
The total amount of NORT that the fund holds on behalf of investors (when they buy into the fund with their NORT coins) will be known as the NUM, or “Northern under management”. The NUM will be capped so as to not allow it to surpass the value of the AUM – as this would lead to a situation where the fund has taken more value in NORT from investors than it has in assets under management.
NUM value < AUM value
How will an investor’s contribution be calculated?
The valuation of the fund has two parts – the AUM and the NUM. When an investor buys into the fund, he does so with NORT coins and these coins contribute to the amount of Northern under management (NUM).
An investor’s share (IS) of the fund will be calculated and presented as a percentage, that will be a calculation of the following:
For the sake of illustration, we will give an example of how this will work in practice. Let’s imagine the current NUM or Northern under management of the fund is 90,000 NORT.
Next, lets introduce “Investor A” who wishes to buy into the fund. He will need to do so by purchasing Northern (NORT) coins and depositing them into the NEF for a period of 90 days or more.
If Investor A has 10,000 NORT coins he wants to buy into the fund with, he can calculate his IS as follows:
Assuming that the NUM stays the same, Investor A will receive 10% of the fund’s earnings over the duration of his investment into the NEF.
How will an investor’s pay-outs be calculated?
Now that we have calculated how an investor’s share of the fund (IS) is calculated, we can determine how much the investor will be paid out from the NEF. In order to be eligible to receive monthly payouts from the fund, the investor’s funds must have been invested into the fund for at least 30 days.
Once the 30-day requirement has been met, the user will be eligible to receive payments. On the day of that particular monthly payment, the investor will receive his portion of the fund’s earnings in the month (EIM).
Assume the fund earns 0.5 BTC in a given month, Investor A (who owns a 10% share in the fund) will receive 10% of the earnings that month, which will equate to 0.05 BTC (0.5 BTC * 10%).
Investor pay-out = Investor share (IS) x Fund earnings in month (EIM)
Therefore, at the end of every month, every investor in the fund who has had their NORT coins invested for at least 30 days, will receive a pay-out from the fund which will be calculated based on the investor’s share in the fund as a percentage (IS), multiplied by the fund’s earnings for the month (EIM).
To mitigate causing confusion and difficulty when calculating the NUM and IS, for the purposes of paying out investors, we will only allow funds to be deposited for one day, every 30 days. This means, at 30-day intervals we will allow new users to invest NORT into the fund.
Should an investor miss the contribution period in a particular month, the investor will need to wait 30 days until the next contribution period. This is because we don’t want to create a situation where we have different users depositing and withdrawing every day, which would cause a constant fluctuation in the value of the NUM.
Rather, we will on-board everyone’s funds for the month on one day, and run the fund with that NUM for the next 30 days, after which all investors will receive their monthly pay-outs.
Can an investor withdraw their NORT?
After an investor’s funds have been locked into the fund for the minimum period of 90 days, he will be eligible to withdraw his NORT coins from the fund if he wishes to do so.
Reporting to investors
The Northern team will report the value of the NUM and AUM to investors on a weekly basis, as well as the total earnings accrued in that week. For the first implementation of the fund, this will be done manually, but in future, a platform will be built that will allow 24/7 monitoring of all of the abovementioned statistics.
Funding the NEF
The NEF will fund itself in the following ways: Firstly, the Northern team currently holds an amount of Northern, recovered from the previous blockchain, that will be slowly liquidated – primarily via OTC (Over-the-counter) deals, to secure more Bitcoin and thus more assets for the fund.
The team funds can be viewed here:
Of course, these funds will not be enough to fund the NEF for the entirety of its operations, therefore, the Northern team will also make use of the treasury system that has been built into the Northern blockchain.
When in need of more funds for the NEF, the Northern team can submit a budget proposal to the Northern blockchain and all Northern masternode holders will be able to vote on this proposal.
This will allow for up to 10% of the block reward on the Northern blockchain to be used to fund the NEF, with the consensus and approval of the Northern community and masternode holders, as well as investors in the fund.
When a budget proposal is passed by the community, the network will pay out the desired funds to the Northern team, and the team will then diligently use these funds to fulfil of the activities that the funds were requested for.
How does the value of the NORT coin affect the fund?
As the fund will consist of a basket of cryptocurrencies, the overall value of the fund (AUM) will not be affected by the price of the NORT coin. However, the price of NORT will be used to determine the maximum amount of NORT that the fund can take in from investors, before ending up with a situation that dilutes the investors’ shares in the fund.
As we do not want to dilute the shares that investors have in the fund, we will cap the amount of NORT that can be taken in by the fund, using the price of NORT as a guideline. In order to prevent dilution, we will not allow the NUM to exceed the value of the AUM – meaning we will never take in more value from our investors than we currently hold in assets under management.
How much NORT can be invested into the fund at one time?
As mentioned above, we do not want to dilute the shares that investors have in the fund. Dilution would occur when we take in too much NORT and are not able to produce enough of a return each month to justify the amount of NORT invested into the fund.
Imagine a situation where the fund has a total value or AUM of 1 BTC. In order for us to avoid dilution of investors’ shares in the fund, we would need to keep the value of the NORT invested into the fund (NUM) under 1 BTC.
By doing this (not allowing users to deposit more than 1 BTC worth of NORT into the fund while when our AUM is 1 BTC), we will never be in a situation where we have taken in more value from our investors (who invest with NORT) than we currently hold in the NEF.
If we did not take this approach of limiting the amount of NORT that can be invested into the fund, a situation could arise where we would likely end up taking more value from our investors than we hold in the fund.
For instance, by allowing unlimited NORT to be invested into the fund, we may end up having taken 2 BTC worth of value from investors while only having 1 BTC of assets under management.
Not only is this unethical, but it would also lead to dissatisfaction from our investors, should we not be able to produce 2 BTC’s worth or returns with only 1 BTC under management in a particular month.
Therefore, we will always ensure that the value of NORT invested into the fund does not exceed our AUM and to do this we will need to calculate user’s investments based on the current price of NORT coins.
How is the price of NORT determined for the purpose of the fund?
For the purpose of calculating the maximum NUM the fund can have, we will determine the value of the NORT by referring to the NORT market and evaluating the current price of the coin.
For instance, if we have 100,000 NORT in the fund, held in NUM, we will calculate its value by taking the price of Northern from the market and multiplying it by the amount of Northern in the NUM. If the current price of Northern is 1000 satoshis, the value of our NUM would be 1 BTC (100,000 NORT x 0.00001 BTC).
Therefore, we would need to ensure that our AUM is higher than 1 BTC, to ensure the value of the NUM does not exceed the value of the AUM. To counter market fluctuation and volatility in the price of Northern, we will only allow the fund to take in 75% of the value of the AUM.
At any given time, the fund will only take in 75% of its total capacity from investors in the form of NORT – meaning the NUM would ideally not exceed the AUM too rapidly.
By using the NORT price as a guideline, the team will have a way of determining whether or not the portfolio needs to be rebalanced and if NORT should be redistributed to investors.
Safety measures to counter dilution
Dilution refers to investors’ shares losing their overall “weight”, due to the issuance of more NORT into the fund. As mentioned above, we will counter this by not allowing more than 75% of our total capacity to be exceeded at one time – which allows some space for an increase in the price of NORT coins, before we would need to re-distribute Northern coins back to investors.
However, if a situation does happen to arise where the value of the NORT coin rises rapidly in price, the effect would be that the fund would end up with a NUM valuation higher than its AUM.
For instance, imagine at the start of the month that the NUM is valued at 1 BTC and the AUM is valued at 2 BTC. In this situation, 1 BTC of value has been taken in by investors in the form of NORT coins (NUM), and the fund holds assets valued at 2 BTC in the AUM. The fund then has only 50% of the value in the NUM than it has in the AUM.
As NUM must always be less than AUM, this situation is safe and is favorable to investors. However, let’s imagine that over the course of the month, the price of the Northern coin doubles. This would now mean that NUM is 2 BTC (as the price of Northern has doubled, we now have double the value of Northern under management).
If the AUM is still 2 BTC, we are now faced with a scenario where the fund is on the point of holding more value from its investors in the form of Northern, than it has in other assets. In this situation, at the end of the month, NORT coins will be redistributed to investors based on their IS and based on the current value of the coin.
This means that in any given month, if the value that the fund has taken in from investors exceeds the value of the fund’s assets, as a result of the Northern coin going up in price, the NEF will pay back NORT coins to investors (in addition to their profit pay-out), to re-balance the NUM to a point where it is within the 75% threshold.
To summarize, the NEF will ensure it never withholds more value from its investors than it holds in other assets. If a situation arises where this is not true, the NEF will, in addition to the normal earnings, pay back NORT to investors in the fund to re-balance the value of the Northern under management.
Unlike a traditional hedge fund, the Northern Equinox Fund will only be cryptocurrency-based and will not hold any other assets. Furthermore, the fund will not be making use of leveraged trading, nor will it be taking “short” positions in the market.
The fund will derive its main profits from the income generated by holding and running a basket of masternode coins. This will account for roughly 70% of the assets under management. The other 30% will be kept in liquid BTC and will be used to “market make” and “arbitrage trade” cryptocurrencies across a variety of markets.
The profits from both of these activities will be added to the EIM and paid out to fund investors on a monthly basis, based on their IS at the time of the payment.
The cryptocurrencies selected to be added to the fund will be done by the Northern team, with the guidance and assistance of the community and investors in the fund. Furthermore, the Northern team will attempt to broker deals and form partnerships with other cryptocurrency projects, with the intention of being able to add those coins to the NEF for some kind of discount.
Custody of investor funds
The Northern team will be tasked with the handling and safe-keeping of investors’ funds, for the duration of their investments in the NEF. The Northern team will implement industry-grade security measures to ensure the funds remain safe in our custody – such as using hardware wallets for applicable coins, along with securely encrypted wallet files for any coins not compatible on hardware devices.
Although the Northern team absolves all liability in the event of a hack and no guarantee is given on the return of the funds (in the event of a hack or an unforeseen event), the Northern team will still implement any measures possible to reimburse investors, should anything happen to their funds while in the custody of the NEF.
Such measures would include: Paying investors’ NORT back from team funds, making use of the treasury to pay back funds, or liquidating an excess of AUM to cover any losses investors may have faced.
Once again, although the Northern team will take these measures to make investors whole again, no guarantee is made on the return of funds, partly or in entirety, in the event of a hack or unforeseen event.
Terms and conditions
The Northern Equinox Fund is a purely cryptocurrency-based fund, and is subject to the volatility of the cryptocurrency markets. Therefore, there is no guarantee on the amount that will be paid out to investors on a monthly basis. The amount paid out will be determined by the profits generated from the fund in that month.
In order to be eligible to receive returns, an investor needs to have their funds invested into the NEF for a minimum period of 30 days before the first payment will be made. A lockup period of 90 days will be mandatory for all deposits into the fund.
As the Northern Equinox Fund is the first of its kind, there may be some aspects of the structure and mechanics of the fund that are subject to change. The Northern team reserves the right to change any structure or terms of the fund, subject to the notification of all investors.
In the case of a major change that would completely change the properties of the fund, all current investors will be given the opportunity to withdraw their funds before the change is made and given the option to re-invest after a material change has been made. The 90-day rule will not apply in the case of a change like this.
Furthermore, the Northern team reserves the right to change any of the fee amounts described below, in order to meet the demand of the fund or pay for any costs associated that are currently unforeseen.
Deposit fee (when depositing NORT into the fund) – 2% in NORT
Withdrawal fee (when withdrawing NORT from the fund) – 2% in NORT
Monthly management fee (taken before monthly pay-out) – 5% in BTC