Auto-balancing Algorithm

Metera Protocol employs a smart-contract-driven rebalancing mechanism to ensure index compositions remain optimal over time. The system dynamically adjusts the asset allocation by evaluating L1 distance metrics, ensuring that deposit and withdrawal operations enhance MTK stability. MTKs are composed of a list of assets with their corresponding target weights. Prices of such assets are constantly changing, and the actual weights of assets stored in the instrument are also constantly being updated. Unlike traditional instruments, Metera MTKs organically rebalance their asset composition to approximate the current asset weights to the intended weights the Index manager sets, via deposits and withdrawals. This means that MTKs will only accept assets in proportions that fulfill said condition.

Rebalancing Process:

• The protocol tracks the target balance of an index (based on predetermined weightings).

• It calculates the current balance based on real-time asset valuations.

• The distance to target is computed for each asset to determine the deviation.

• Transactions (deposits/withdrawals) are accepted only if they improve the index balance.

Mathematically, this process is governed by:

• Target Balance (T): The ideal asset weight distribution.

• Current Balance (C): The actual asset distribution within the index.

• Distance Metric (D): The absolute deviation from target weights.

• Balance Measure (BM): The sum of deviations divided by the total asset count.

Smart contracts ensure only transactions that improve balance alignment are executed, preventing market imbalances and price manipulations.