Design

To build a successful Digital Asset Management protocol, it is fundamental to pro- vide a safe, real-time, easy-to-use subscription, redemption, and exchange functionality, while ensuring trustworthy custody. Our approach to solving the problems relies on a similar mechanism that underpins ETFs. We model our protocol so that our fund’s tokens would be directly linked to the underlying, thus eliminating the need for third-party custody and the associated risks. We named our custody policy as AlgoCellar Smart-Custody. On the one hand, given our smart custody, Investors can keep full control of their assets. On the other hand, due to links between the investors’ assets and the fund’s tokens, it is possible to efficiently manage a portfolio using what we call an arbitrage mechanism (AM) which will be specifically regulated by smart contracts.

While ensuring transparency and security, the smart-contract ecosystem imposes some limitations on our consideration. Until the digital assets and the artificial intelligence ecosystems are considered to be mature, it would be unreasonable to think of a “sophisticated” smart contract able to safely interact with the real world independently. Moreover, this would assume the presence of well-defined and static digital assets infrastructure already compliant with national and international regulations. The sophisticated smart contract should be able to take in and manage various types of orders, satisfy compliance requirements, calculate the fund’s NAV and define asset prices. We believe that no system can safely perform all the above tasks at the present state of technology. Such a system will always have some backdoor access for the developer to constantly update it, which will present a significant risk for the assets owned by the Investors. Our solution is to push the complexity outside the contract and use a “streamlined” smart contract that enforces an arbitrage mechanism strictly, predictably, and transparently (AM). As evidenced by the extreme success experienced by the traditional ETF markets, the AM appropriately addresses the pricing requirement. The system only needs to assume that prices will move asynchronously which is corrected by the existence of Arbitrageurs, who