Sudden rise in Canto gives some investors pause

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Some online are spec­u­lat­ing that the rise in Can­to price could be attrib­uted to a spike in the vol­ume of Note — the qua­si-sta­ble­coin issued by Can­to and pegged to USDT/USDC.

Recent­ly, some Twit­ter users have start­ed to spec­u­late that the Layer‑1 decen­tral­ized token could even­tu­al­ly face down­ward pres­sure due to its con­nec­tion to Note, cau­tion­ing investors that a col­lat­er­al­ized peg may be dif­fer­ent only seman­ti­cal­ly to the TerraUSD/UST algo­rith­mic sta­ble­coin, which col­lapsed in 2022 after its peg fell short result­ing in a run on near­ly $45 bil­lion worth of assets.

How­ev­er, mem­bers in the Can­to dis­cord com­mu­ni­ty were quick to down­grade all the FUD:

“UST was not col­lat­er­al­ized by any­thing; they have 10% col­lat­er­al­ized. Here we have 100% in sta­ble­coins. We can’t mint Note with Canto.”

What is Canto?

Can­to is a per­mis­sion­less Layer‑1 (L1) blockchain run­ning on the Ethereum Vir­tu­al Machine, which pro­vides Ten­der­mint con­sen­sus secured by val­ida­tor nodes with EVM exe­cu­tions via Cos­mos SDK. 

Canto’s busi­ness mod­el is cen­tered on what is known as Free Pub­lic Infra­struc­ture, which it likens to free park­ing on a city street, with the Can­to DEX being a zero-fee DEX for liq­uid­i­ty providers. 

The busi­ness mod­el also includes a Can­to lend­ing mar­ket (CLM), which pro­vides users funds pooled through its lend­ing com­pound v2 fork. Note com­pletes the decen­tral­ized tri­fec­ta of offer­ings by Can­to, described as a “full col­lat­er­al­ized unit of account token issued by the CLM which also serves the ecosys­tem as a USDC/USDT soft-pegged stablecoin.”

Canto’s decen­tral­ized util­i­ty exists on the Cos­mos chain, which uses a cross-chain pro­to­col called Inter-Blockchain Com­mu­ni­ca­tion (IBC) to help blockchains achieve interoperability. 

As of Jan. 26, Can­to has $42 mil­lion in USDC and USDT list­ed on its CLM lend­ing unit,  col­lat­er­al that in turn, allows users to bor­row Notes.

Total Value Locked (TVL) of USDC and USDT on Canto chain
Total Val­ue Locked (TVL) of USDC and USDT on Can­to chain

In the­o­ry, if the Note peg were to fall under $1, the solu­tion would be to print more Notes, caus­ing infla­tion­ary pres­sure on the exist­ing Note supply. 

How­ev­er, since Note is based on an inter­est rate sys­tem, the tokens can­not be cre­at­ed, only bor­rowed. The rate at which to bor­row these is auto­mat­i­cal­ly adjust­ed every 6 hours based on a time-weight­ed aver­age price (TWAP).

With Can­to price mak­ing sig­nif­i­cant gains in the last 30 days — dri­ven large­ly on the back of news that it had secured invest­ment from ven­ture cap­i­tal firm Vari­ant — the coin has surged from a low of $0.075 at the begin­ning of Jan­u­ary to $0.35 as of Jan. 26. 

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