TLDR:
- A new Cosmos EVM Chain: Canto Network
- Providing initial Free Public Infrastructure (FPI) for its Users
- $NOTE a decentralized Stablecoin as part of FPI
- Fast User Adoption by providing a Bridge, DEX and Lending Market
Status Quo
Blockchains have the promise of providing a free infrastructure for everyone, neither geographic nor time hurdles. Developers are given free hand to write any applications they want. This gradually creates the infrastructure of applications that are necessary to offer users a good experience. The following applications can be counted as essential infrastructure:
- Decentralized Exchanges
- Lending Markets
- Stable Units of Account
- Bridges to other Networks
Unlike networks that have grown gradually over a long period of time, such as Ethereum, many new networks have problems providing this infrastructure initially to their users. The result is illiquid trading pairs, bad UI and the need to use applications from unverified developers. Fraud and the approval of harmful contracts can be the consequence here.
Canto – a brand new Cosmos SDK chain with an EVM execution layer – takes a different approach here.
What is Canto?
Website StakingRewards Twitter Docs
“Canto is a layer-1 blockchain built to deliver on the promise of DeFi. As a post-traditional financial movement, Canto enables accessibility, transparency, and freedom for new systems. Driven by a loosely organized collective of chain-native builders, Canto provides a new commons powered by free public infrastructure.”
Canto is a sovereign Cosmos SDK chain, which has EVM-enabled. This means applications written in Solidity code can be directly deployed from the Ethereum Network. The first iteration of the protocol is technically a fork of the Evmos chain, which was the first Cosmos SDK enabling EVM. A Cosmos chain offers many advantages over other network setups. The standardized and tested approach ensures a robust design and flexible customization.
Canto was designed to support free public infrastructure while eliminating centralized incentives. Hence, the developers represent an anonymous team that has no funding and thus no VCs.
The launch started with a public testnet. Starting on July 16th first users could test the functionalities and bridge some first funds. More than 26,000 unique wallets participated in this program and got partially rewarded with a 15,000 $CANTO airdrop.
$CANTO
The denomination used for staking, governance and gas consumption on the EVM is the CANTO token. $CANTO provides the utility of: securing the Proof-of-Stake chain, token used for governance proposals, distribution of fees to validator and users, and as a mean of gas for running smart contracts on the EVM.
Total Supply: 1,000,000,000 CANTO
Canto aims to bootstrap network security through a policy of minimum viable issuance of new tokens to staker. The network’s security issuance will start with an inflation rate of 200M CANTO per year for the first 30 days and mint 16M new CANTO tokens. In each subsequent period, security issuance will decrease exponentially.
With the current issuance of new Canto tokens, the reward rate is very high. If you adjust with the inflation, the APR is around 40%.
Due to the combination with EVM and the need to bring proposal information from SDK governance to EVM, Canto uses Cross-Runtime Governance. By using the GovShuttle module, proposals can be transported through the contract PORT on EVM. Contracts on EVM can now read data from SDK and could, for example, decide that an application becomes a Free Public Good.
The Canto network is connected to the Ethereum chain and the Cosmos Hub via various bridges. From Ethereum to Canto users have to choose bridge.canto.io – Canto’s native bridge. Assets such as USDC or ETH can be transferred here, but they must also be brought to the Canto EVM by using convert.canto.io. From Canto back to Ethereum, the Gravity Bridge is used. Bridging ATOM is enabled via IBC transfer. More possibilities, e.g. a connection to Osmosis, are currently being worked on.
What makes Canto unique?
Canto advocates the idea that central DeFi primitives and applications should exist as Free Public Infrastructure (FPI). But what do they mean by FPI?
“Public infrastructure refers to infrastructure facilities, systems, and structures that are developed, owned, and operated by the government. It includes all infrastructure facilities that are open to the general public for use.”
The traditional definition of FPI can also be applied to a blockchain. The infrastructure is controlled by the government here as well. The government on PoS chains are the staker. With their decision-making power, they can initiate fundamental decisions on future developments and parameter adjustments.
Validators and delegators on the Cosmos Hub can vote on proposals that can change preset parameters of the system automatically, coordinate upgrades, as well as vote on amendments to the human-readable constitution that govern the policies of the Cosmos Hub. In this system, holders of the native staking token of the chain can vote on proposals on a 1 token 1 vote basis if they have delegated their token to a validator.
Canto is expanding the capabilities of its on-chain governance. The Canto staker can also freely dispose of the Free Public Infrastructure and implement changes. Improvements as well as new innovations can be initiated directly by the governance of the chain and be useful in the long term.
What does Canto see as the need to offer Free Public Infrastructure?
With the emergence of DeFi, three core primitives have emerged that are necessary for a functioning DeFi ecosystem: DEXs, Lending Markets, and Stable Units of Account.
Beginning with the DeFi summer of 2020 you could see that each protocol has launched its own governance token. The most used reason for this was the “need” to decentralize governance. But of course, no one just wanted governance! This development went hand in hand with the utilization of these tokens and the creation of income streams. In other words, the introduction of a fee for the use of the services.
Canto wants to follow a different path. They do not want to launch a governance token that derives value from its ability to extract rent from future users. They want to lay the foundation for a free infrastructure that everyone can use.
“Where existing protocols serve their community more similarly to a pay-by-hour private parking garage, Canto’s FPI intends to provide for its community in a manner more akin to free parking on a city street.”
Canto DEX
Canto offers its users an AMM DEX, which uses well-known and audited contracts. It is responsible for providing initial trading pairs and giving users the opportunity to deploy liquidity. The DEX cannot be upgraded and remains ungoverned. It will run on Canto in perpetuity without ever launching a token or introducing additional fees, preventing the possibility of a predatory move toward rent-seeking behavior.
The Canto DEX has no official interface. Slingshot.finance is the first aggregator which provides an UI for traders.
The DEX supports 2 AMM pool types:
A constant product formula for volatile assets and concentrated pool for stable pairs.
Key takeaways:
- No governance token
- Contracts are not upgradeable
- No fees
- No official interface
- Code based on Solidly Exchange
Canto Lending Market
Canto’s Lending Market (CLM) is governed by Canto staker. It is assumed that Canto’s staker have a broad interest in growing the ecosystem and fostering an optimal environment for both developers and DeFi users. Therefore, they have no incentive to charge rent at the application level. All interest paid by borrowers will be distributed to lenders, with no interest extracted as revenue. The lending market for assets on Canto including LP tokens is based on Compound V2 lending logic and so well proven.
Asset lending and borrowing represents another building block for a healthy ecosystem. Depositors provide liquidity to the market to earn a passive income, while borrowers are able to borrow in an overcollateralised fashion.
Key takeaways:
- Governed by Canto staker
- Contracts are upgradeable
- No additional fees
- Code based on Compound V2
Stable Unit of Account $NOTE
Stablecoins account for a significant share of the volume on DEXs and Lending Markets. They promise value stability in a highly volatile environment. Nowadays there are different types of stablecoins. They exist in centralized, collateralized and algorithmic units.
Canto’s Stable Unit of Account is called $NOTE. It’s an over-collateralized currency with a value perpetually rebalanced toward $1 through an algorithmic interest rate policy. It will be backed by USDC, USDT, CANTO, ETH, ATOM, or Canto LP tokens. In the first iteration it’s only backed by USDC and USDT.
$NOTE cannot be created, but must be borrowed through the Canto Lending Market (CLM) from the Accountant – a smart contract that implements the algorithmic interest rate policy. Since $NOTE cannot be created, only borrowed, the Accountant contract utilizes interest rates to manage the circulating supply of $NOTE, and its stability.
The interest rate on $NOTE automatically adjusts up or down every 6 hours based on a TWAP of the market price of $NOTE. It’s based on the following formula:
All interest charged by the Accountant contract is earmarked for funding public goods. It is held in the Community Treasury, which is governed by the Canto DAO.
Key takeaways:
- Over-collateralized and conservate parameters
- Minting by borrowing $NOTE form CLM
- Fully governed by Canto staker
- $Note contract has no upgradeability
- Price Stability by adjusting interest rate on CLM
- Charged interest goes to the Community Pool
FPI as a Key Driver for a Successful Launch
With the launch of Canto at the beginning of August 2022, you could see traction right away. In addition to social media metrics such as twitter engagement, the fundamental values were also positive.
These figures one month after the launch of the network are very impressive, especially in a bear market. A number of well-known Cosmos validators have already started their work, creating additional confidence. Thus, the number of staker as well as validators exceeds the majority of cosmos chains – 1month after launch.
In addition to pure staking data, other metrics are also looking pretty good.
Nearly $100M of assets were bridged in the first 30 days. The fact that Canto had opened a bridge early on meant that ETH, ATOM, USDC, USDT and CANTO could be transferred right from the start. A lot of these assets were provided as liquidity on the FPI DEX and Lending Market. Still being at an early stage, high volume trades lead just to a minimal slippage and ensure hereby a good user experience.
In combination with their Liquidity Mining program they’ve attracted a lot of assets to stay on CANTO. The TVL is currently at $98.71M, which is number 28 compared to all other chains – according to DeFiLlama. The MCAP/TVL ratio is also very attractive with a value of 0.3.
This rapid increase in TVL is also due to the use of EVM. The widely used standard offers users a familiar experience. Developers can fork other protocols and create more applications and by this more TVL.
Conclusion
Canto has gained a lot of traction with its concept. The combination of Liquidity Mining incentives and the release of so-called Free Public Infrastructure has already brought Canto a lot of attention in the first month of its launch. It will be exciting to see how the concept of FPI will develop. As far as one can observe, it seems to be very successful. It is already becoming apparent that other DEXes, NFT projects, and Lending markets are deployed and starting their own liquidity mining programs. This in turn attracts new liquidity.
However, Canto also shows negative aspects. The protocol is not as decentralized as it tries to be. The top three validators account for more than 56% of the deployed tokens, and the top two validators control as much as 39% of the network. Thus, the Canto Chain has a Nakamoto coefficient of 2. Compared to other chains this value is extremely low – but can be remedied over time. Furthermore, looking into the genesis distribution you can see that 29 contributors received 12.88% of the total supply and this unlocked! Such a token distribution is very weak and cannot be reversed. It is a shame for a project that is committed to decentralization.
Nevertheless, Canto has many interesting approaches!
The most exciting aspect of this will be the development of the in-house stablecoin $NOTE. With its current parameters, it could be an important driver for Canto’s development – especially considering that the Cosmos ecosystem lacks crypto collateralized stablecoins. The fact that all profits from $NOTE borrowing go to the community pool and thus indirectly to the $CANTO staker makes it even more exciting. Using $NOTE outside of the CANTO chain would be a gamechanger and could make $CANTO one of the most productive assets.
This article does not provide financial advice. Always do your own due diligence.
References:
https://canto.mirror.xyz/6UtxzGXsyCt6onAZjqwinAlQXhmq41Ow9o5SvPRkNKo
https://canto.mirror.xyz/kSrSQcHROw41HlS0M3YU_Yj1ljRarGXChrKbE0Z7BJc
https://canto.mirror.xyz/DmiUSBdAED7ouIwvDZptFAM1XzpDNEKCF-GBuMDwWa8
https://canto.mirror.xyz/STFv6-ZnOrsR6pJ7_JyFPt5JuhBXGQ3_lHNVEZAgUW8
https://canto.mirror.xyz/QjMcVxG65ScvuK0uMQ9W7I0gyo77jrEUIKibxWz0ebI