SHORE CRYPTO PRICING AND ALLOCATION ENGINE

_______________

A Capstone Report

Presented to the

Faculty of CST 499 at

California State University, Monterey Bay

_______________

In Partial Fulfillment

of the Requirements for the Degree

Bachelor of Science

in

Computer Science

_______________

by

Holly Stephens

Fall 2021
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Copyright © 2021

by

Holly Stephens

All Rights Reserved

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EXECUTIVE SUMMARY OF PROPOSAL

Shore Crypto Pricing and Allocation Engine

by

Holly Stephens

Bachelor of Science in Computer Science

California State University Monterey Bay, 2021

Shore Crypto is a startup company aiming to insure smart contracts on blockchain

technology. The purpose of this project is to provide Shore Crypto with a prototype of a tool

which will enable the company to simulate the impact that changes in certain financial variables-

such as the price of insurance premiums or the interest rates offered to investors- will have on its

insurance risk pools. This will be implemented through a web application created exclusively for

Shore Crypto’s use. The population affected by this project is composed of investors in Shore

Crypto and clients of Shore Crypto. The anticipated outcomes of this project are that Shore

Crypto will be empowered to be more competitive in both the prices it sets for its clients, as well

as the interest rates that it offers to its investors, and lastly an optimization of the growth of

Shore Crypto’s insurance risk pools.

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TABLE OF CONTENTS

EXECUTIVE SUMMARY OF PROPOSAL 3

TABLE OF CONTENTS 4
LIST OF FIGURES 4
PART I 6
BACKGROUND AND APPROACH 6
INTRODUCTION 6
PROJECT NAME AND DESCRIPTION 6
END USER 6
ISSUE: DATA SIMULATION AND INTERACTION 7
FEASIBILITY REPORT 8
PART II 12
DESIGN REQUIREMENTS AND USABILITY TESTING 12
PLATFORM 12
MAJOR FUNCTIONS 12
USABILITY TESTING 14
USABILITY TESTING AND EVALUATION 15
PART III 15
FINAL DISCUSSION AND REFLECTION 16
TIMELINE & BUDGET 16
FINAL IMPLEMENTATION 17
DISCUSSION 20
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REFERENCES 22
APPENDIX 23
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LIST OF FIGURES

FIGURE 1: SIMULATION DIAGRAM................................................................................................................................13

FIGURE 2: SIMULATION RUN PAGE...............................................................................................................................14
FIGURE 3: FORECASTED MILESTONE TIMELINE............................................................................................................17
FIGURE 4: ACTUAL MILESTONE TIMELINE...................................................................................................................17
FIGURE 5: USER ACCESS DIAGRAM..............................................................................................................................18
FIGURE 6: SIMULATION ACTORS DIAGRAM..................................................................................................................19
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PART I

BACKGROUND AND APPROACH

INTRODUCTION

PROJECT NAME AND DESCRIPTION

The business of insurance is one as old as civilization itself. Over the millennia, the goal

has remained the same: to pool risk from individuals and redistribute it across a larger portfolio.

Like any business, success is largely defined by the ability to collect an economic profit. To

achieve this, any entity selling insurance must set premiums and assume risk in a way that is

auspiciously calculated. Technology has been a boon to market expansion and has made

insurance an even more ubiquitous practice. This expansion and increase in connectivity has

escalated competition across all markets, which in turn, has compounded the necessity for any

given business to find innovative ways to set themselves apart. For those in the insurance sector,

they now must make their aforementioned calculations with more precision and edge than ever

before.

END USER
Shore Crypto’s Pricing and Allocation Engine is a tool to provide additional insight into

making such calculations. It is a web application that is designed exclusively for a startup

insurance company called Shore Crypto and provides an interactive simulation experience for the

company and allows it to better hypothesize how any number of its insurance risk pools will
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react when adjustments are made to various inputs and outputs. These inputs and outputs include

things like investments, premiums, interest rate payouts, and insurance claims. These simulations

are stored for later reference and manipulation, so that Shore Crypto has a way of comparing and

contrasting different scenarios. This tool helps the company to better assess if the interest rates

they are offering on investments or premiums they are charging their clients are competitive

enough and are ultimately profitable for the company. It also aids the company in understanding

what interest rates and premiums are best suited for their targeted market.

ISSUE: DATA SIMULATION AND INTERACTION

In recent years, data analytics has become an increasingly popular, powerful, and

necessary tool found in nearly every company’s arsenal. The global spending on big data

analytics topped 180 billion USD in 2019 alone (Research and Markets, 2020). In order to give

themselves a competitive edge, companies in their nascent stages are now looking for ways to

leverage data analytics. In this search, one can find a plethora of tools on the market, such as

Tableau and Microsoft Power BI, which offer robust platforms for data reporting, visualization

and analytics, and other tools such as Simcad Pro, which provide users with interactive

simulation modeling environments. While these tools are designed to be highly customizable and

relatively easy to use, they can also add complexity and overhead when attempts to fit them to

very particular end user experiences are made. Companies like Shore Crypto seeking to use

interactive data simulations with a certain level of granularity, and with very particular ends in
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mind, end up spending more time and money than they need to, using a number of these tools in

orchestration to achieve their goals, while ultimately compromising on the desired end user

experience.

FEASIBILITY REPORT

During the nascent research stage of this project, an environmental scan was conducted to

assess what similar products might already exist. While there are a number of tools and

applications that exist to aid users with the visualization and analysis of their data, such as

Microsoft Power BI, Google Data Studio, and Tableau, nothing was found that would achieve

Shore Crypto’s specific simulation goals out of the box. The important distinction between these

tools and Shore Crypto’s Pricing and Allocation Engine is scope and focus.

Microsoft Power BI is particularly noteworthy because of just how customizable and

interactive it is. A user can “use developer tools to create custom Power BI visuals” (Microsoft,

2021). With a Power BI account, VS Code, and a command line, a user can design visuals that

they can import into their Power BI environment. While this kind of customization is incredibly

robust, Shore Crypto requires a more focused simulation experience that goes beyond what

Power BI provides out of the box. While this project lacks much of the broad scope and back-end
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customization that Microsoft Power BI offers, it supports a highly specific network of variables

and effectively simulates how they interact with one another.

As previously mentioned, Shore Crypto is an insurance company specifically aiming to

insure smart contracts on blockchain. With this in mind, the stakeholders of this project can be

identified as Shore Crypto, individuals or entities that invest in Shore Crypto, and individuals or

entities that purchase insurance from Shore Crypto. The communities that define these groups

are the finance and cryptocurrency communities. This project directly impacts the success of

Shore Crypto because it plays a critical role in deciding interest payout rates made to investors

and insurance premiums for customers. This is because the project provides simulation

capabilities for the company to better assess how its risk pools are affected by different premium

and interest payout rates. In having a tool to compare hypotheticals, Shore Crypto can now offer

optimally competitive rates. With this outcome, the project also affects investors and clients

because of its involvement in financial factors that are directly linked to these parties. If

leveraged correctly, investors will see satisfactory returns and will continue to keep their

currency invested in Shore Crypto, and those buying insurance from Shore Crypto will deem the

cost of insurance well worth the mitigated financial risk in using smart contracts. Shore Crypto

will benefit from this three-way symbiotic relationship as well. Another possible outcome is that

smart contracts will become more ubiquitous and established in mainstream corporate finance,

because of this aforementioned mitigation of risk.

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With any new product, it is important to diligently survey the ethical and legal landscape

it will tread upon. While a few ethical and legal issues were identified, these all had to do with

potential misuse of the product. Because this product is designed for such a targeted audience,

attempting to mitigate these risks within the scope of the project was deemed infeasible. To

elaborate on these potential issues further, the product could be used to set price points that are

heavily skewed towards the benefit of Shore Crypto at the expense of the investors and clients.

Moreover, because this company is aiming to be the first to market, there will be virtually no

alternatives, making this concern more salient. This concern is somewhat innately addressed by

the argument that entering the market with price gouging tactics would benefit no one, and this

would be an unlikely and inauspicious pursuit. Beyond the scope of this project however, I think

it would be worth considering developing a service that could help its users assess economic

health holistically and provide forecasting capabilities for the impact various simulations might

have on the broader economy.

The potential legal issues noted stemmed from the litany of legal considerations that are

concomitant with insurance agencies. That being said, this product was not designed to have any

involvement in policy making or the handling of claims. It is merely designed to help Shore

Crypto determine optimal price points. Because it is intended to be strictly an internal tool for the

company, it is likely to be exempt from any salient legal hurdles.

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In considering the long term life of the product, if it is fully adopted by Shore Crypto and

development continues, it has the potential to become a core piece of the business and potentially

a marketable product further down the road. As previously mentioned, there is a growing list of

future enhancements, as the initial scope of the project was limited for the desired objectives.

There are a number of features that could be added that would improve the user experience of

running a simulation. Currently, when a simulation is selected and then run, there are daily

snapshots that can be stepped through frame by frame and a section for comparing the initial and

final state of the risk pool. Added visualizations in both of these sections and data filtering

capabilities would greatly enhance the end user experience. Additionally, the administration

aspect of the product could be further improved upon with more self-service options, the ability

to create user new roles and permissions, and the ability to delete existing users and simulations.
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PART II

DESIGN REQUIREMENTS AND USABILITY TESTING

PLATFORM
This project is implemented as a Node.js web application using an Express framework

and a MySQL database. Node.js was selected for this project for its high performance,

scalability, and adaptability. The primary goal of this project was to enable risk pool simulation,

which can be achieved with the foregoing. The secondary goal was to provide complementary

visualization capabilities. As the project progressed, it became clear that this task was too

wieldy for the scope of this project, and has been added to a list of future feature

recommendations.

MAJOR FUNCTIONS
As this project was developed to be a proprietary product, there is a default administrator

account that has been handed over to the CEO of Shore Crypto. This account handles user

administration, should the user base for this project grow. The administrator account is able to

create new accounts and delegate a role of either “standard” or “administrator” to them. Users

with an administrator account are able to view and modify all data. Users with a standard

account will not have access to user administration and will only be able to modify simulations

they are the owner of, however they will be able to view and run all simulations.
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In creating a new simulation, a user is prompted to fill out a number of variables that will

dictate how the simulation is run and what decisions will be made during said run. There are two

(interdependent) heuristics that are used to set the interest rate Shore Crypto will offer to

investors on a given day and to determine the amount investors will invest or divest on any given

day. Each of these heuristics have variables that the user can define and adjust during simulation

creation and editing.

Figure 1: Simulation Diagram

When a simulation is run, it’s information is pulled from the database and starting daily

values are calculated and set. An array of simulation days is created and the first day is populated

with the starting values. From there, the remaining simulation days are calculated one at a time

using heuristics with user defined parameters and information from the previous day to calculate

and set the current day’s metrics. There are a number of tracked variables in which these

aforementioned metrics are added to. Once all simulation days have been calculated, these
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variables will represent the total metrics of the simulation run. From an end user’s view, the final

metrics are displayed and below this a series of slides showing each simulation day’s data.

Figure 2: Simulation Run Page

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USABILITY TESTING
As previously stated, Shore Crypto is a startup company in its nascent stages of

development. This means that the project will have a singular test subject: the CEO of Shore

Crypto and the creator of the concept this project has been based upon. Since the objectives of

this project were written as user stories, extrapolating a list of tasks to perform during testing was

quite straight forward. These tasks involved logging in, finding list views, creating users and

simulations, and lastly, running a simulation. While there was continuous communication and

feedback with and from the CEO of Shore Crypto throughout the duration of the project, due to

the simulation feature taking longer to complete than projected, the first of the two planned

meetings was deemed premature and canceled.

USABILITY TESTING AND EVALUATION

User acceptance testing was conducted in person with the CEO of Shore Crypto on

11/29/2021. Testing was done on my device, meaning all that was needed to perform the testing

was a laptop and internet connection. There were no issues completing any of the tasks and

feedback was positive. Despite the majority of the aforementioned tasks focusing on data

creation and administration, the bulk of the time spent was on the simulation run logic. My client

was able to create a simulation on his own, run the simulation, and interpret the results. There

were questions about the backend heuristics used, and after some discussion, we agreed pulling
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the majority of previously fixed constants used in the heuristics up into the UI would be

beneficial for the company’s use.

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PART III

FINAL DISCUSSION AND REFLECTION

TIMELINE & BUDGET

Shortly after drafting an initial timeline, there was some considerable rearranging of the

milestones in the project timeline. This was due to concerns with the simulation milestones

potentially growing and consuming the entire project timeline. It became clear early on in the

development process that completing the simplest features first, would be an easy way to ensure

these features were not compromised as a result of the possible aforementioned outcome.

Despite these concerns, all milestones initially set for the project were completed. The

create and run simulation milestones did take more time than initially planned; the create

simulation milestone tasks were stretched into the preceding and following week, and the sprint

for the run simulation milestone ended up being extended into a second subsequent sprint. Both

of these milestones taking additional time were a result of the complexity of the requirements.

With this timeline adjustment, it also made sense to cut the two planned client reviews down to

one. No major bugs were encountered. While scheduling changes to the run simulation milestone

did stretch the project timeline by an additional week, this was not an issue as the project was

initially planned with an extra week in reserve for this reason. There were no incurred costs in

the development of this project.

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Figure 3: Forecasted Milestone Timeline

Figure 4: Actual Milestone Timeline

FINAL IMPLEMENTATION

The end result of the project is a web application in which a user can securely sign into.

There are two types of user accounts: administrator users and standard users. Once logged in, an

administrator user can create, edit, and delete simulations and other user accounts, run

simulations, and change their own password. A standard user will not be able to view or manage

other users and will only be able to edit or delete simulations that they themselves have created.

Standard users can view and run all simulations and are also able to change their own password.
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Figure 5: User Access Diagram

The structure of the simulation consists of what we can think of as three separate entities:

the risk pool entity, the client entity, and the investor entity. The risk pool entity holds the data

about the insurance risk pool that is being simulated. It contains variables like an initial balance.

The client entity represents the people or corporations that are either adding to the risk pool

during the simulation by paying insurance premiums, or subtracting from it by filing claims.

During the run of the simulation, this data remains static and distributed evenly throughout the

duration of the simulation. Making this entity dynamic and predictive is on the list of future work

suggestions for the project. The investor entity represents the people or corporations that are

either adding to the risk pool during the simulation by investing in the risk pool for an interest

rate offered to them or subtracting from it by either divesting or receiving interest payments on

their investment. The investor entity has the largest number of user input fields, as this entity’s
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behavior changes during the run of the simulation, and it was deemed paramount that the user be

able to control as much of this behavior as possible.

Figure 6: Simulation Actors Diagram

When a simulation is run, there are two heuristics in the code that will use the

information from the investor entity section of the simulation to determine investor behavior and

the company’s adjustment to the interest rate offered to investors. More specifically, the first

heuristic determines the amount invested on a certain day by looking at recent risk pool growth

and the interest rate offered to investors on that day. The user specifies weights of significance

for each of these factors and this outcome scales the initial expected daily investment by some

amount. This of course can be negative, which would signify divestment. The second heuristic
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sets the interest rate by comparing recent risk pool growth against a target growth goal.

Depending on how these numbers compare, the interest rate may be stepped up or down,

provided this would not cross the bounds of user dictated minimum and maximum values.

Ideally in the future, other factors would weigh in as well. Perhaps tracking more long term

trends of investor behavior, and in considering how much of the risk pool funds have been

allocated. Samples of code have been omitted from this section at the client’s request of

maintaining confidentiality.

The rollout of the project is fairly straightforward, as the user base is currently only one

person, the CEO of Shore Crypto. There is detailed documentation on access, use, and set up for

future development (Appendix A).

DISCUSSION

As previously mentioned, some considerable adjustments were made to the project

milestones timeline early on. The planned development time for the features allowing users to

create and run simulations was nearly doubled. This was not an unexpected or unplanned

outcome- the vision behind this project remains incredibly complex and will take far more

development time than the scope of this project could have ever accommodated. The main

challenge this posed, and what ultimately proved to be the most difficult problem to solve in this

project’s lifecycle, was having to boil these goals down into something both achievable and

meaningful. Compounding this problem of nailing down technical specifics was that there were

no written technical requirements for this project provided by the client; only broad strokes of
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the end goal were described over several conversations. In grappling with this issue, priorities

were shifted. It became increasingly clear that a more meaningful prototype would attempt to

tackle some of the logistical hurdles, rather than simply creating visuals that were nice to look at.

Consequently, what was originally planned to be a predominantly visual user experience became

a more technical one. Once goals and priorities were reorganized, however, there were no major

issues with the execution of the goals.

This project was completed individually, which also had its challenges. Tasks could not

be delegated and technical discussions were not possible. Despite these issues, having sole

control over the direction and implementation of the project was incredibly empowering.

Stepping into multiple roles involving planning, communication, reporting, and development

simultaneously was a tremendous opportunity for growth.

From the genesis of this project, it was always understood that a litany future work would

follow in its wake in order to achieve the client’s ultimate vision. Throughout the development of

this project, these next steps were more concretely elucidated. Improvements to the predictive

heuristics would greatly benefit the project, with considerations like percentage of risk pool

funds that are allocated when setting the offered interest rate. The expansion of these heuristics

to all entities, and additionally creating a way for users to dynamically pull more entities, such as

other risk pools, into the simulation creation process will also be key in a continued effort to

strive towards the client’s vision. Aside from logistical improvements, visualization capabilities
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are also on the list of important features to add. There is a Node.js library called Chart.js that

seems like a good candidate for proof of concept work in this area.
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REFERENCES

Microsoft Documentation. (2021).

https://docs.microsoft.com/en-us/power-bi/developer/visuals/develop-circle-card

Research and Markets. (2020, January).

Global Big Data Analytics Market Size, Market Share, Application Analysis, Regional

Outlook, Growth Trends, Key Players, Competitive Strategies and Forecasts, 2019 To

2027.

https://www.researchandmarkets.com/reports/4992328/global-big-data-analytics-market-

size-market?

utm_source=dynamic&utm_medium=GNOM&utm_code=jjrj62&utm_campaign=13593

21+-+Big+Data+Analytics+Industry+Report+2020+-+Rapidly+Increasing+Volume+

%26+Complexity+of+Data%2c+Cloud-Computing+Traffic

%2c+and+Adoption+of+IoT+%26+AI+are+Driving+Growth&utm_exec=joca220gnomd
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APPENDIX

APPENDIX A

Application Set Up Instructions

Accessing the Application

The project can be accessed at [redacted]

For further development, see notes below.

Recreating the Development Environment

Tools Used:

 GitHub
 Visual Studio Code
 Heroku
 MySQL Workbench
 Express.js

Create a GitHub Repository

Create a GitHub account and a repository to hold the application.

Copy the ssh url under the green code button in the repository and save this for establishing a
connection via the command line

Connect a local directory to your GitHub repo via command line

From the command line:

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mkdir [local directory]

cd [local directory]

git init

git config --global user.name [your username here]

git config --global user.email [your email here]

(establish default ssh with token)

ssh -T git@github.com

(use ssh url from git, pulls remote to local)

git pull [ssh url from git repo copied from previous section]

(establishes local connection to remote repo)

git remote add origin [ssh url from git repo copied from
previous section]

(verify connection)

git remote -v

(branch for development)

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git branch dev

(set remote branch to make pushes/changes to)

git push --set-upstream origin dev

git checkout dev

Now you can make local changes! Copy existing project files into [local directory]

To commit the changes to your git hub repository initially, and every subsequent time in
the future, enter the following commands:

git add .

git commit -m "[describe changes here]"

git push

Run node express app on localhost

To run the newly created project locally, to test changes before commiting to your
GitHub repo, run the following commands:

cd [local directory]
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nodemon app.js

Note: Node.js will need to be installed before this, if it has not been already. Detailed
instructions can be found here: https://docs.npmjs.com/downloading-and-installing-
node-js-and-npm

Set up Heroku App with a MySQL Database

In the event that this project is taken up by someone else and it is desired
to continue hosting the app on Heroku, the Heroku App will need to be
recreated

Create a new app in Heroku and connect it to your GitHub repository.

In the Heroku app, add a MySQL database connection:

Resources> Add ons> JawsDB MySQL (free tier)

This will create a remote database you can manage through MySQL Admin.

Copy the database connection url generated in Heroku:

Settings> Reveal config vars > (copy value for JAWSDB_URL)

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APPENDIX B

End User Testing Instructions

To test the application, log in with the following administrator credentials:

[redacted]

Complete the following tasks:

1. Find the Simulations list view page

2. Find the Users list view page

3. Change the account password

4. Create a standard user

5. Create a simulation

6. Run the simulation

7. Edit the simulation

8. Run the simulation again

9. Log in as the standard user

10. Run the same simulation

11. Observe access limitations (cannot access edit pages, delete buttons, or user views)

12. Log back in as administrator and edit the standard user to have administrator role

13. Log back in as user elevated to admin

14. Observe differences in access

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