Canto is a Layer-1 blockchain delivering core DeFi primitives as public utility protocols, or Free Public Infrastructure (FPI). Each core DeFi primitive is designed to work together as a component of a larger ecosystem of public utility that’s resistant to rent extraction at the application layer.
$NOTE is Canto’s unit of account and one of the three core DeFi primitives to be featured on Canto at launch. $NOTE is:
- Fully decentralized
- Over-collateralized
- Backed by M1 assets
- Automated
How is $NOTE issued?
$NOTE is a fully immutable ERC-20 Standard Token. On genesis, the entire supply of $NOTE in existence is minted and sent to the Canto Lending Market (CLM)’s Accountant contract. $NOTE can be borrowed from the Canto Lending Market (CLM) by users who have posted collateral including: other stablecoins, $CANTO, $ETH, $ATOM or Canto LP tokens. $NOTE can only be borrowed from CLM; no new $NOTE can be created.
Who governs $NOTE?
The $NOTE supply is controlled by automated smart contracts, like the Accountant contract mentioned earlier, that are ultimately governed by the Canto DAO. The $NOTE token itself is a standard ERC-20 with no upgradeability or owner.
M1 Assets?
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.
Important: Canto Lending Market will launch with conservative parameters. Over time, the Canto DAO will be able to raise the capital efficiency of CLM to its full potential.
How does $NOTE maintain stability?
Since $NOTE cannot be created, only borrowed, the Accountant contract utilizes interest rates to manage the circulating supply of $NOTE. 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 worth highlighting that as a protocol aiming to be 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 and lending $NOTE. If $NOTE is trading over a dollar, the interest rate is lowered to make borrowing and selling $NOTE more attractive.
For launch, each interest epoch will be 6 hours and the rate will adjust by 0.25 of the difference between the price of $NOTE and $1.00.
The Formula:
newInterestRate = max(0,(1 - price of $NOTE)*Adjuster Coefficient+ priorInterestRate)
Example:
Current Interest Rate: 4%.$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.
What makes $NOTE’s interest rate model unique?
In line with the ethos of Canto, all interest paid on $NOTE will be distributed to lenders, with no interest extracted as revenue by the lending protocol. Both the Supply and Borrow rate for $NOTE are always identical. As previously mentioned, all $NOTE is minted and sent to the Accountant smart contract at launch. In effect, you can think of the Accountant as the primary supplier of $NOTE to Canto Lending Market (CLM).
In order to avoid inflating the supply, the protocol must effectively account for the amount of interest the Accountant earns versus the amount of interest borrowers are paying. This is accomplished by having the Accountant supply or redeem liquidity when a user deposits or withdraws $NOTE. This results in there never being any $NOTE present in the cNOTE market other than during function calls, while also providing an infinite amount of NOTE to be borrowed or redeemed from the Market.
The interest paid by the market to borrow $NOTE that goes to the Accountant is eventually swept into the community treasury governed by Canto DAO. Ultimately, $NOTE earned in this way will be used by the Canto DAO to support further development of free public infrastructure and Canto Public Goods.
Is $NOTE a stablecoin?
No. For most people, stablecoin means a token that is pegged to a fiat currency. $NOTE interest rate policy is centered around $1, and our hypothesis is that the $NOTE price will be cointegrated with the dollar, but it is not pegged. The price of $NOTE can and will have its own volatility, especially in the early days of CANTO.
Are there risks?
Yes! To our knowledge, no one has tried this yet, and there may be unknown problems with the design. Please limit your financial risk to Canto with only money you can afford to lose. We are trying many things for the first time, and risk of loss is high.
When launch?
Canto is expected to launch soon. Follow Canto on Twitter or join the Canto Discord community to be the first to hear when the bridge opens. You can also find more information at canto.io.
About Canto
Canto is a Layer-1 blockchain 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. Created by a loosely organized collective of chain-native builders, Canto is a new commons powered by Free Public Infrastructure.