StableETF: A Mint & Burn Protocol

As explained earlier in this document, the Arda StableETF ecosystem is designed to accumulate and channel the vision of the global community into changemaking action.

A primer on standard ETFs

A standard ETF is a fund that tracks an index, usually characterized by some sort investment theme such as the S&P 500 Index. Investors can buy and sell shares of the ETF on an exchange the same way they would stock. The price of the ETF is affected by 1) market demand for shares in the ETF and 2) changes in the Net Asset Value (NAV) of the basket of stocks held by the ETF. The natural price of an ETF share can be calculated by dividing the NAV by the total number of outstanding ETF shares.

However, the price of an ETF share can be higher (trade at a premium) or lower (trade at a discount) than the NAV of the basket of stocks as demand for ETF shares fluctuates. In these scenarios, organizations called Authorized Participants (AP), typically large banks, have the authority to regulate the supply of shares by creating new shares of the ETF (to bring the price down) or redeeming existing shares of the ETF (to boost the price up) to match the NAV. This system ensures that shares of the ETF always remain aligned with the fund's NAV.

How the Arda StableETF works

The Arda StableETF seeks to replicate this exact same process with ARDA share tokens taking the place of ETF shares. In practice, this utilizes the mechanisms used with a rebase stablecoin (explained below).

The six components of the Arda Index (Happiness, Social Cohesion, Health & Nutrition, Freedom, Economic Inequality, and Climate) are represented by six indicators in the Arda StableETF basket. The six indicators are: -Global average of annual country-level Happiness scores -Year-on-year change in the percentage of Achieved and On-Course 2013 and 2017 global nutrition commitment goals -Global average of annual country-level Social Capital Index scores -Global average of annual country-level Global Freedom scores -Global average of annual country-level CCPI scores -Global average of annual country-level Gini Index scores

The indexed sum of the indicator scores are multiplied by 100,000,000. This represents what we are calling the Net Indicator Value (NIV).

Mint-Burn Price Modulation: Rebasing

A key component of ETFs is ensuring that share price remains aligned with the fund's NAV. The same is true with the Arda StableETF. Our goal is to ensure that Arda is not a tool for financial speculation but remains tightly bound with real world data on the state of global flourishing.

While regulation of a standard ETF price is done through an Authorized Participant, the Arda StableETF ecosystem leverages decentralized smart contracts to play the same role by modulating the supply of share tokens as needed.

The Arda StableETF smart contract pushes the price of ARDA share tokens towards the NIV by modulating supply. It does this by minting new tokens to push down the market price when it exceeds the NIV. Conversely, it burns tokens to increase the price when the market price exceeds the NIV.

To accomplish this, the smart contract automatically expands or contracts the quantity of tokens in user wallets based on price relative to the NIV. When ARDA share token price > NIV, the smart contract automatically increases the supply of share tokens in users wallets to gradually bring the price back to the target (the NIV). When ARDA share token price < NIV, the supply of share tokens in users wallets decreases, boosting the price until it reaches the target.

Because the Arda protocol moderates demand and prices by modulating supply, it does not require collateral, a buyer-of-last-resort, or a market maker to remain at a stable price point.

Mint-Burn Schedule

The data from which the current set of indicators in the Arda Index are derived are updated in a series of reports by the host organizations, primarily in the fourth quarter of a given year. Starting from 2023, this likely means that data fed into the Arda Index will be updated on up to six separate occasions per year. The smart contract will then immediately adjust the token supply by burning or minting ARDA share tokens to move the price in alignment with the NIV.

With 2022 being the launch year for Arda, the smart contract will incorporate all of the 2022 changes to the supply on December 31st 2022 at 11:59 UTC. Going forward, the smart contract will amend the supply in real time as the data is released publicly.