The first iteration of Canto is a permissionless general-purpose blockchain running the Ethereum Virtual Machine (EVM). It was built to deliver on the promise of DeFi — that through a post-traditional financial movement, new systems will be made accessible, transparent, decentralized, and free.
Canto presents the radical notion that core DeFi primitives should exist as Free Public Infrastructure (FPI). Having observed the growth of the DeFi space, three core primitives have emerged to anchor any healthy DeFi ecosystem: decentralized exchanges (DEX), lending markets, and a decentralized unit of account. Canto chooses to launch all these core DeFi primitives as public utility protocols, or Free Public Infrastructure (FPI).
- Canto DEX — a zero-fee DEX for liquidity providers
- Canto Lending Market (CLM) — a pooled lending Compound v2 fork
- $NOTE — a fully collateralized unit of account token issued by the CLM which also serves the ecosystem as a USDC/USDT soft-pegged stablecoin
Canto’s goal is to become the best execution layer for original work. Canto accomplishes this in three ways:
- Liquidity as a Free Public Good: Zero fees for Liquidity Providers (LPs). Canto makes liquidity free for protocols, arbitrageurs and traders.
- Rent Extraction Resistant: Canto aims to establish Free Public Infrastructure. Core DeFi primitives will not have sovereign governance tokens, nor the capacity to extract rent in the future.
- Minimal Viable User Capture: Where possible, Canto avoids interface-driven user ownership. Public infrastructure DEXes will have no swapping interface, so all users must trade on third-party aggregators. This will facilitate user acquisition for new protocols.
Products & Technologies
Free Public Infrastructure (FPI)
Canto realizes the vision set out by the first builders that core primitives should exist as Free Public Infrastructure (FPI). 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.
- For Canto’s decentralized exchange, the protocol cannot be upgraded and will remain ungoverned. It will run in perpetuity on Canto without ever being able to launch a token or implement additional fees over time, preventing the possibility of a predatory evolution toward rent-seeking behaviors.
- For the Canto Lending Market, governance is controlled by Canto stakers. Canto stakers have broad interests in the growth of the ecosystem and fostering the best environment for both developers and DeFi users. As such, they have no incentive to extract rent at the application layer.
- For $NOTE, the unit of account token, the interest charged to stabilize its price will be contributed toward funding public goods. The algorithm responsible for adjusting this interest rate is designed to change the interest rate in order to promote a less volatile value as opposed to maximizing revenue. All interest paid by borrowers will be distributed to lenders, with no fees extracted at the protocol layer.
By giving governance powers to the chain, Canto team expect the operation of the primitives to naturally align with the public interest, resulting in a healthy and robust ecosystem free from zero-sum games that have since come to dominate the once egalitarian system of decentralized finance.
Canto Unit of Account ($NOTE)
$NOTE is the unit of account on Canto. $NOTE is an over-collateralized currency with a value perpetually rebalanced toward $1 through an algorithmic interest rate policy. It is:
- Capital efficient
- Fully decentralized
$NOTE cannot be created — it must be borrowed from the Accountant, a smart contract that implements the algorithmic interest rate policy, via the Canto Lending Market (CLM). All interest charged by the Accountant is earmarked for funding public goods. It is held in the Community Treasury and ultimately governed by the Canto DAO.
$NOTE is a fully immutable ERC-20 token backed by collateral lent to the CLM. It can only be borrowed by users who post select collateral assets such as $USDC, $USDT, $CANTO, $ETH, $ATOM, or Canto LP tokens.
As a result, for every $NOTE in circulation, there is more than 1 USD worth of collateral held by the CLM.
Canto Lending Market achieves superior capital efficiency by allowing stablecoin collateral backing $NOTE to be lent out to other participants. For example, a DeFi participant can lend $USDC to Canto Lending Market and then borrow $NOTE. If the borrow rate for $NOTE is less than the supply rate for $USDC, that DeFi participant will be getting paid to hold $NOTE on Canto.
Maintaining $NOTE Price Stability
Since $NOTE cannot be created, only borrowed, the Accountant contract utilizes interest rates to manage the circulating supply of $NOTE, and by proxy, its price. The interest rate on $NOTE automatically adjusts up or down every 6 hours based on a TWAP of the market price of $NOTE.
Aiming to provide a public utility, the algorithm responsible for adjusting this interest rate is designed to change the interest rate in order to promote a less volatile value as opposed to maximizing revenue. If $NOTE is trading under $1, the interest rate is raised to strengthen the incentive for buying $NOTE on secondary markets and lending it to the CLM. If $NOTE is trading over a dollar, the interest rate is lowered to make borrowing $NOTE from the CLM and selling it on secondary markets more attractive.
For launch, each interest epoch will be 6 hours and the rate will adjust by 0.25 (one-quarter) of the difference between the price of $NOTE and $1.00.
The Formula: newInterestRate = max(0,(1 — price of $NOTE)*Adjuster Coefficient + priorInterestRate)
Current Interest Rate: 4%. $NOTE average price over the last 6 hours: 1.04.
New Interest Rate: 3% = max (0, (1–1.04)* 0.25 + 4%)
If $NOTE is trading above $1, the interest rate is lowered to weaken the $NOTE price. If $NOTE is trading below $1, the interest rate is raised to strengthen the $NOTE price.
Implementation of Note’s Architecture
Canto Lending Market (CLM)
For the Canto Lending Market, governance is controlled by Canto stakers. Canto stakers have broad interests in the growth of the ecosystem and fostering the best environment for both developers and DeFi users. As such, they have no incentive to extract rent at the application layer. Canto Lending Market will allow LP tokens from Canto’s native decentralized exchange to be used as collateral. This collateral will be deposited in a lending market as supply but users will not be allowed to borrow LP tokens.
Canto DEX & LP Interface
In order to prevent the possibility of a predatory evolution toward rent-seeking behaviors, Canto’s decentralized exchange protocol:
- Cannot be upgraded
- Has no official interface
- Runs in perpetuity without the ability to implement fees
At present, Canto has 5 incentivized pools:
The Canto governance page is a place where all users who have staked Canto can vote on proposals. This allows people to contribute to the blockchain and place votes on changes that will directly impact the Canto community.
When entering the governance page, a list of all completed and ongoing proposals are shown. The title of the proposal, start time, end time, and a bar representing the current votes is shown in each block. For more information on each proposal, click on the proposal and a modal will open.
In the proposal modal, people can see more in depth information about the proposal including the description, individual vote count, and thresholds for the proposal. If the vote has ended, people will not be able to vote, and the bottom of the modal will display voting has ended.
More details about voting steps can be checked here.
The distribution of CANTO (CANTO) is as follows:
- 13.00% is allocated to Contributors
- 2.00% is allocated to Settlers of Canto
- 5.00% is allocated to Future Grants
- 35.00% is allocated to Medium-Term Liquidity Mining
- 45.00% is allocated to Long-Term Liquidity Mining
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