By Nathan Reiff
4 min read
In early 2023, Canto tokens surged, climbing from just over $0.07 on Jan. 1 to over $0.46—a rally of over 700%—a month later. But what is Canto and what is behind its astronomical spike? Below, we take a closer look at this emerging blockchain and token that launched in August 2022.
Canto is a permissionless, layer-1 blockchain that runs the Ethereum Virtual Machine. It is part of the Cosmos network of blockchains, apps, and services and it offers a native stablecoin called NOTE. Canto’s developers say that the ecosystem was “built to deliver on the promise of DeFi,” which it aims to do by centering itself as a choice execution layer for original development work and by offering unique incentives for the development of DeFi protocols. It was built through a grassroots effort by a community of DeFi proponents including Slingshot Crypto co-founder Scott Lewis.
With the goal of being a key blockchain within the DeFi movement, Canto’s primary stated goals include:
One of the primary goals of Canto is to provide the tools utilized by DeFi proponents—decentralized exchanges, a stablecoin, and a lending protocol, among others—as free public utilities. It secures its network using Tendermint Core as a lower-energy substitute for a proof-of-work algorithm like the one used by Bitcoin.
Canto goes beyond many decentralized platforms by working to get rid of a host of centralizing features common among its peers. For example, it has no official foundation, unlike Bitcoin, Ethereum, and many other layer-1 blockchains. Similarly, Canto did not offer a presale, and it does not allow holders to vest. Canto’s developers have also typically shunned venture capital backing in the project. Perhaps most importantly, Canto’s core primitives of decentralized exchanges and units of account, as well as lending markets, do not use governance tokens to extract rent from future users.
If it does not use a traditional governance mechanism, who controls the future development of Canto? The Canto decentralized exchange is designed to be ungoverned and will not implement any additional fees or launch a token. Stakers are responsible for governing and growing the lending market and to incentivize future developer work. And the algorithm behind NOTE provides that it can self-adjust its interest rate in order to minimize volatility.
Canto grew rapidly early in 2023 after news broke that crypto venture fund Variant had invested in a position of unknown size in Canto.
Between December 2022 and late January 2023, the number of Canto users more than doubled. Canto’s total value locked (TVL) also more than doubled, from $66 million to $138 million, over a similar timeframe and alongside a rapid increase in trading activity. In the process, it joined the top-four layer-1 blockchains in the Cosmos ecosystem.
Canto’s growth during this period was fueled by an uptick in trading volume on its decentralized exchange as well as an increase in assets sent from bridges with Ethereum. But some investors have criticized the system for what they describe as a high inflation rate, as the circulating supply of the Canto utility token more than doubled in just a few months after launch. Others pointed to a possible link between rising Canto values and a coincident spike in the volume of NOTE.
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