🔌How it works

In this section, we describe the mechanisms implemented in Arcanum

Practically, each ETF is a smart contract managing the multipool containing a basket of assets.

In short, the in-built mechanism of the multipool is as follows:

• multipool works similarly to any AMM except for the fact that users can swap multiple assets in the pool apart from two in a common case;

• users can mint and burn an ETF (share of an index) by providing liquidity with one of the underlying assets which makes an ETF similar to a traditional LP token;

• apart from an AMM, where you should provide both assets proportionally to put in liquidity, in Arcanum you can mint an ETF using just a single asset.

The ETF balance stabilization is enforced by the inbuilt algorithms determining the shares of assets in the equilibrium state of the pool in response to the changing market conditions, while dynamic pricing is supported by oracles and aggregated prices from leading volume exchanges.

The protocol charges a minimal fee aka base fee which is lower than on other AMM's - 0,01% for operations (mint, burn or swap), for operations that bring the ETF’s multipool to balance.

If after the operation the deviation increases, the protocol charges extra fees which can grow as high as 100% depending on the deviation caused. extra fee depending on deviation rate is charged.

The base fee and a portion of deviation fee are aggregated in the treasury, whilst the major portion of the latter is redistributed to traders performing stabilizing actions.

Multipools

Multipools enable decentralized swapping mechanics - users can interact with the protocol directly and bring it to balance by swapping, minting/burning and leverage rewards for their stabilizing actions.

An ETF can be minted using any index asset in a corresponding multipool and burnt to redeem any index asset.

The ETF's main goal is to keep tracked assets shares close to the balance to maintain the ETF's peg to its equilibrium price.

So if the deviation from the balance calculated after any action with the protocol - mint, burn or swap, is lower than before the action, then the protocol charges a minimal fee (0.01%) aka base fee.

If the deviation after the action is higher, the fees increase exponentially according to the formula (can be found on White Paper).