What Is Canto & Why is it Making Waves in the DeFi World? - Ratings & Analysis
What is Canto?
Canto is a Layer1 blockchain built specifically for DeFi. It's based on Cosmos, uses Cosmos' Tendermint consensus mechanism and is EVM compatible. Canto is dedicated to providing free DeFi infrastructure services to users and is designed to serve users as a Free Public Infrastructure.
The Canto infrastructure consists of 3 main components.
- Canto DEX
- Canto Lending Market (CLM)
Canto DEX is an AMM DEX developed by the Canto team, where a x+y=k formula is used for stablecoin pairs that require concentrated liquidity and a x*y=k formula is used for assets that require unlimited liquidity. In addition, Canto DEX is designed to have no transaction fees and is permanently non-upgradable. Liquidity providers can only receive the Canto native asset $CANTO incentive bonus and cannot earn transaction fees from it.
Canto Lending Market (CLM)
CLM is a lending market forked from Compound v2, with governance in the hands of $CANTO stakers. LP tokens obtained by providing liquidity to Canto DEX can be used as collateral to deposit in the CLM and borrow other assets. However, LP tokens themselves cannot be lent out.
$NOTE is an over-collateralized "stablecoin" within the Canto ecosystem, which can only be obtained by borrowing from CLM. The currently backed collateral assets of $NOTE are $USDC and $USDT. $NOTE's price is controlled by a smart contract, and its interest rate is adjusted periodically according to an algorithm that keeps its price stable at around $1. Therefore, it can be said that the price of $NOTE is cointegrated with the US dollar, but not pegged. $NOTE serves the Canto ecosystem mainly as a stable currency with a "soft peg" to the US dollar.
What Is TokenInsight's Rating for Canto?
TokenInsight has rated Canto's current performance with a BB and a positive outlook. It ranks medium on the list of public chain and smart contract platform projects. Similar projects with a BB rating include Kava, Oasis Network, and others.
The breakdown of the rating results is scored as follows.
- Underlying Technology & Security 59.55%
- Roadmap & Progress 62%
- Token Economics 61%
- Token Performance 57.73%
- Ecosystem Development 57.25%
- Team, Partners & Investors 62.67%
Team, Partners & Investors (62.67%)
Decentralization is one of the key features of Canto, and this is evident in the team behind Canto, which operates anonymously and describes itself as a "loosely organized blockchain builders". Members of the team are called "contributors" and are responsible for overseeing the daily operations of the Canto network and running the Canto community.
Most of Canto's contributors are from other Crypto-related projects that have joined together to help run Canto, and statistically, most of Canto's core contributors are from DeFi Pulse and Slingshot.
In addition, Canto has not raised any primary market financing and has not established a foundation.
Underlying Technology & Security (59.55%)
Canto has publicly released the code for its project on GitHub, including technical documentation for mainnet, genesis block, smart contracts, and more.
As of February 2023, Canto has publicly disclosed 4 rounds of code audits. All 4 audits were completed by Code4rena, most recently in July 2022. The audits included code related to the main infrastructure such as $NOTE and CLM, as well as code for Gravity Bridge, a Cosmos ecosystem cross-chain bridge. According to the report, most of the security issues identified in the audit have been fixed by the Canto team.
As of February 2023, Canto has not experienced any security crisis events.
Token Economics (61%)
$CANTO is a native asset of Canto and is primarily used for security, Gas and governance. The total initial supply of $CANTO is 1 billion. Of this amount, the initial circulating supply is 150 million.
According to Canto, 80% of $CANTO initial supply will be distributed to liquidity providers for Canto DEX through the medium/long term liquidity mining incentives. 2% will be distributed to early adopters participating in the testnet. 13% of the initial supply will be distributed to early contributors. In addition, there's no early token sales for $CANTO and the token vesting plan is not yet announced.
To maintain network security over time, $CANTO is designed to be issued with limited inflation. The annual inflation of $CANTO decreases over time and is distributed to the stakers through staking rewards.
The $CANTO issuance plan is shown below.
- $CANTO inflation will be made in 30-day cycles
- In the 1st cycle, approximately 16 million $CANTOs will be minted at an annual rate of 19.84%
- In the following cycles, the inflation volume will be reduced by 35% each cycle until it tends to zero
Token Performance (57.73%)
The price and trading volume of $CANTO has recently seen a surge due to the release of Canto's Contract Secured Revenue (CSR) distribution model last month.
What is Contract Secured Revenue (CSR)?
Contract Secured Revenue (CSR) is a fee distribution model to help developers earn revenue from Canto's infrastructure. Since infrastructure is free, CSR allows developers to take a percentage (initially 20%) of network gas fees as revenue while generating NFTs for revenue accrual and withdrawal. NFTs themselves can be traded and combined in the DApp, supporting use cases such as trading, investment, collateral lending, etc.
On February 8, 2023, $CANTO's 24h spot trading volume reached approximately $76 million, a recent peak in volume that was nearly 100 times higher than 30 days earlier and even surpassed Aptos.
Ecosystem Development (57.25%)
Canto's TVL has exploded as well following the release of the Contract Secured Revenue (CSR). According to DeFiLlama, its TVL rose from $100M at the beginning of January to a high of $203M (2023-02-08). It currently ranks 15th among all public chain projects.
Canto's rise is also significant in terms of on-chain activity. After CSR release, Canto saw a significant increase in both transaction volume and total fees, with transaction volume rising from 7,249 on January 23 to a high of 119,012.
Popular Canto-Eco Projects
- Gravity Bridge
Gravity Bridge is a cross-chain bridge in Cosmos ecosystem, used to connect Ethereum and Cosmos for cross-chain asset transfer. Gravity Bridge uses Cosmos' IBC, so it currently supports a lot other blockchains in Cosmos ecosystem, in addition to Canto.
- Synapse Protocol
Synapse Protocol is a multi-chain cross-chain protocol using liquidity swaps, deployed to Canto in September 2022. It currently supports 18 blockchains and 19 assets. According to Synapse, on February 2, Synapse reached $5 million in single-day trading volume on Canto, making it the second largest cross-chain bridge protocol on Canto after Gravity Bridge.
CantoSwap is the native DEX on Canto and currently supports 12 assets including $CANTO and $NOTE. CantoSwap is second only to Canto DEX and Canto Lending in terms of TVL share in Canto ecosystem, accounting for 0.59% of the total TVL.
Slingshot is a multi-chain DEX aggregator. It currently supports 6 blockchains including Canto and over 10,000 tokens. In addition to spot trading, Slingshot also supports NFT transactions.
- Y2R Finance
Y2R Finance is a DeFi yield optimizer that amplifies LP returns through automated yield strategies. Y2R Finance's service currently supports 4 liquidity pools including $CANTO and $NOTE.
- Alto Market
Alto Market is one of the main NFT marketplace within the Canto ecosystem and does not charge any fees. Currently there are about 200 NFTs available on Alto. In addition to NFT trading, Alto also supports NFT minting. As of February 9, 2023, the top NFT collection on the Alto Market is Canto Longnecks (CLNFT) with a floor price of $4,200 CANTO and trading volume of nearly $4 million CANTO.
Overall, Canto's CSR revenue distribution model has solved the drawbacks of its free service and provided developers with a stable income. At the same time, it has inspired more developers to join. They are bringing more and richer applications to Canto while further increasing the use cases of $CANTO. The increase in coin price and trading volume will attract more users to Canto, thus creating a positive cycle.
But on the other hand, while projects in the ecosystem grow rapidly, many details tend to be overlooked. Therefore, Canto may need to further optimize the user experience and improve the combinability between applications to achieve long-term stable growth. In addition, although Canto's TVL is currently growing rapidly, it is concentrated in its two native DApps, and other DApps still need further development.
Based on the above information, TokenInsight has assigned Canto a BB rating with a positive outlook.