Canto: Reinventing DeFi with a new stability mechanism

Over the past few years, we’ve seen the DeFi space evolve, from the launch of DAI at the end of '17, to the explosive growth of DeFi projects in '21. With the rise of Cosmos and the concept of “application chains”, more and more underlying public chains optimized for specific fields have begun to emerge.

Canto is an L1 DeFi public chain built on top of the Cosmos SDK. Driven by developer organization Plex, the project aims to drive innovation in DeFi and bring more accessibility, transparency, and freedom to traditional finance by providing a range of free public infrastructure.

Main components: DEX + CLM + NOTE

Over the course of several years of DeFi’s development, three core components have gradually formed in its ecosystem: DEXs, lending marketplaces, and decentralized units of account. Now, regardless of the type of DeFi component they belong to, many projects have made the same decision: issue governance tokens to earn user fees. Canto, on the other hand, proposes a radical concept that even if these core DeFi components exist as free public infrastructure in the DeFi ecosystem, to facilitate the development of other DeFi “apps”.

Canto’s native DEX is built on the trading logic of the DeFi protocol Solidly, and does not charge LP fees for “stable + volatile” trading pairs. The DEX itself cannot be upgraded and will remain ungoverned and will run permanently on Canto without launching tokens or charging additional fees to prevent predatory rent-seeking practices.

Canto’s lending marketplace, CLM, borrows from Compound’s LP Token logic and is governed by CANTO Token stakers. The main goal of Canto stakers is to create the best DeFi environment for developers and users, so they don’t get interest from the application layer. All interest paid by the borrower is fully distributed to the lender and Canto does not withdraw any fees.

NOTE is Canto’s native stablecoin, and similar to DAI, NOTE also uses algorithmic interest rates to achieve price stability. The interest fee collected to stabilize the price of NOTE will be used to fund other public infrastructure within the ecosystem.

NOTE: NEW STABILIZATION MECHANISM

NOTE is Canto’s native stablecoin and uses the ERC-20 standard and an over-collateralized endorsement mechanism. UNLIKE STABLECOINS IN THE TRADITIONAL SENSE, WHERE A NEW SET OF STABILITY MECHANISMS IS INTRODUCED, NOTE’S INTEREST RATE ALGORITHM IS CENTERED ON $1, WITH THE PRICE COINTEGRATING WITH IT, BUT NOT FULLY PEGGED. AS A RESULT, THE PRICE OF NOTE WILL HAVE ITS OWN VOLATILITY.

All circulating NOTE will be minted at one time at creation and sent to the Canto Lending Market (CLM) contract address. Users can borrow NOTE from CLM by providing USDC, native Token CANTO, ETH, or LP Token, among others.

Since the supply of NOTE is fixed at the launch of Canto and can only be borrowed through CLM to circulate in the market, the CLM contract takes advantage of the interest rate adjustment to manage the circulating supply of NOTE. IF THE MARKET PRICE OF A NOTE IS LESS THAN $1, THE ALGORITHM RAISES THE INTEREST RATE TO INCREASE THE INCENTIVE TO BUY AND LEND THE NOTE, AND IF THE PRICE EXCEEDS $1, IT LOWERS THE INTEREST RATE TO MAKE SELLING AND BORROWING THE NOTE MORE ATTRACTIVE. NOTE’S INTEREST RATE ADJUSTMENT CYCLE IS 6 HOURS, WITH A THRESHOLD OF 25% OF THE DIFFERENCE BETWEEN INSTANT NOTE AND $1.

At genesis, all NOTE is sent to the Accountant smart contract, which can be considered the primary supplier of NOTE. To avoid over-increasing the supply, CLM allows the Accountant smart contract to provide or redeem liquidity when a user deposits or withdraws NOTE, thus accurately calculating the difference between the amount of interest earned by the protocol and the amount paid by the borrower. The interest income from the protocol will be transferred to the community treasury, which will be managed by Canto DAO.

Cross-EVM governance

We know that many DeFi projects have already been deployed on Ethereum or other EVMs, and in order for the Canto network to have governance over the dApps that have been deployed to the EVM, the team has built a custom module called “GovShuttle” that allows dApps on the EVM to read and implement governance proposals from the Cosmos SDK.

Canto stakers can create and vote on governance proposals on the SDK, and the proposal and results will be transmitted to the Canto network’s storage contract “Port” on the EVM, which will propagate the proposal to the DApps deployed on the EVM. The dApp uses the proposal ID as a parameter to retrieve the corresponding data of the proposal.

In this way, allowing a DeFi application on an EVM to theoretically become a public infrastructure governed by the Canto network, the only thing the team needs to do is connect the application’s governance interface to the Canto network without any additional modifications.

Start a plan with a team

At present, there is no information about the project team and financing on Canto’s official website. Plex is a significant contributor community to the project, which is made up of a group of developers with high-frequency trading experience, mechanism design, and software development backgrounds dedicated to exploring and growing DeFi careers.

The Canto team prepared a release schedule for mainnet launch. The testnet will be opened for users on July 16th, and the mainnet will be activated on the 18th, including GovShuttle, Bridging cross-chain pages, native DEX, CLM, and NOTE-related smart contracts. Liquidity mining will be launched on July 20, when Canto will launch 5 liquidity pools, including USDC/NOTE, NOTE/CANTO, and CANTO/ETH.

At present, the mainnet testing phase has ended, and the interactive content of this stage is mainly for early detection of liquidity mining.

Go to CLM’s Lending interface and connect your wallet, click “Add Token” to get a certain number of test tokens. Take USDC as an example, use the obtained USDC as collateral and lend NOTE in CLM. BECAUSE NOTE IS OVERCOLLATERALIZED, THE TOTAL AMOUNT LENT MUST BE LESS THAN THE COLLATERAL VALUE.

NEXT, HEAD OVER TO THE DEX PAGE AND CONNECT YOUR WALLET, SELECT THE USDC/NOTE TRADING PAIR AND PROVIDE LIQUIDITY TO IT. After receiving LP Tokens, users can provide them to CLM as collateral for looping operations and earn CANTO rewards at the same time.

Go back to the CLM Lending interface, turn on the switch to use NOTE/USDC LP Token as collateral, and select the corresponding amount to pledge.