Canto Investment Thesis
Simplicity, inclusivity, and sustainability make Canto the highest upside Layer 1 blockchain
What’s special about Canto?
Low fee transactions based on the Cosmos SDK, a fork of the Ethermint/Evmos code stack. The EVM on Cosmos bull thesis has been discussed at length, but it allows protocols coded in Solidity (Ethereum, Polygon, Fantom, Avalanche C-Chain) to easily deploy on Canto.
Canto has built a simple to use, vertically integrated DeFi stack where the DEX, money market, governance, and staking protocols are all under one roof. The code stack comes from battle tested protocols like Solidly and Compound
Egalitarian ethos where everyone can access DeFi through Free Public Infrastructure. This reduces the ‘rent seeking’ nature of current AMMs and money markets across DeFi.
Canto teams are only incentivized by the own token allocations, which ensures long term alignment. Also, there are no VC token allocations or unlocks that can be dumped on market buyers.
The Contract Secured Revenue mechanism is sticky for bringing in good builders and keeping them there. It can also be a catalyst for community building and long term capital growth.
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Players
Canto Team, although they don’t want to take the credit due to their excessive humility. I’ll let them share this and what they do individually.
Plex - Ex-quantitative traders and software developers that built the initial MVPs for Canto’s Free Public Infrastructure and the GovShuttle module. They are currently working on Contract Secured Revenue and maintaining the Canto dApps. They’ve been very helpful in the Canto Discord fixing bugs and helping new users onboard.
B-Harvest run many different Cosmos validators and were the original developers of Gravity DEX and Crescent DEX. They will be incredible contributors and instrumental to making connections across the Cosmos landscape.
Neobase are building infrastructure monitoring and analytics dashboards, which are sorely needed. They recently deployed a validator monitoring platform that looks very slick: https://cosmos-explorers.neobase.one/canto
Novel Mechanisms
$NOTE. The native unit of account for Canto. The below thread describes it, but it’s best understood using known DeFi primitives. NOTE can be interpreted as DAI behind a Compound Finance front end. Every NOTE is overcollateralized.
Let's talk about $NOTE, the non-pegged currency and unit of account in the @CantoPublic ecosystem. @Ace_da_Book did a deep dive to dispel FUD, describe the mechanism, and prognosticate on the implications and potential of the new currency.
$NOTE is Canto’s unit of account. https://t.co/BsXathHXeY
Canto Public @CantoPublicContract Secured Revenue creates a positive feedback loop that rewards builders who develop useful protocols. Accruing the transaction fees to a NFT is a very interesting mechanism because it allows for flexibility. The NFT could be collateral for a loan, transferred, or fractionalized for various use cases.
Deep on-chain liquidity through an aggressive Liquidity Mining program enables swaps in size for new investors, and also provides willing capital for new DeFi protocols to launch.
Catalysts
Synapse bridge and incentives are coming. a NOTE/NUSD pool will be established with SYN rewards.
Hackathons - The first of which is ongoing will create a strong builder community and enable cross-protocol and cross-chain collaboration. There are also prizes, paid in CANTO, for the best projects
Forteswap is being built by a reputable and well known builder, foobar, and should be a fun liquidity sink since it’s based on a the Solidly/Velodrome code.
Alto NFT marketplace, which is a Zora fork.
Liquid Staking was revealed as part of B-Harvest, and should create better capital efficiency. Currently, 90m CANTO are staked (32% of circulating supply), while most Cosmos appchains have 60+%.
Additional Collaterals in Canto Lend. Currently, only stablecoins are collateral now due to early protocol risks around volatility and ensuring NOTE stability. It’s extremely likely capital efficiency improves with all LP and cryptoassets becoming collateral.
Risks
Chainlink doesn’t exist in the Cosmos ecosystem, which prevents existing DeFi blue chips from easily deploying on the chain.
Business Development. The Canto ecosystem is very ‘opt in’ and aside from the Hackathon, there aren’t paid hunters going out to meet builders or court existing projects. A case study on how CSR rewards successful builders could be a powerful sales tool. Additionally, recruiters or referrers could be incentivized through a portion or fractionalized CSR NFT.
Lack of on-chain activity. It’s no secret many Canto blocks are empty as the DeFi activity is limited to liquidity mining, staking, and a couple NFT projects. It’s hard to grow a new chain in a bear, a challenge all ecosystems are experiencing.
Staking centralization. The top validators control the majority of delegations from stakers, which can cause problems with governance and security. As the chain grows, there should be a focus on split delegations or incentivized staking that encourages decentralization.
Slingshot front end for Canto Dex is a single point of failure and not foolproof. A redundant, Canto native dex could be a good option when Slingshot experienced technical issues.
Public comms. The understated nature of the Canto team and community can be a detriment to creating awareness and reaching new users or builders. Canto could benefit from a public figurehead to preach the ethos of the chain and attract project builders on popular podcasts or Twitter spaces.
Comps
Evmos - While my original bull thesis for EVM on Cosmos was with Evmos, the Nomad bridge hack, error riddled Rektdrop, and multiple chain halts have stunted growth. There are approximately 139m circulating EVMOS when you account for the 175m unclaimed EVMOS from the Rektdrop event ($209m circ market cap), but only $1.8m TVL, an insane 116 Mcap/TVL ratio.
Berachain has been rumored to raise money at a mid-9 figure valuation. Assuming they can achieve $100m in liquidity from day one (somewhere between 2-5:1 MCap/TVL ratio), this shows how undervalued Canto is based on a simple Mcap/TVL ratio at:
280,000,000 X $.09983 = $27.9m Mcap
$62.5m TVL
0.447 Mcap/TVL
Based on the simplest of comps, a 2X seems obvious even in a bear market. During easier conditions, they sky’s the limit for Canto (think Fantom or Polygon explosive growth in the previous cycle). The IBC component makes Canto much more interesting too.
Valuation
Bridge volume is still rising in a bear market as liquidity miners and investors bring tokens in from Ethereum (chart excludes the ~$1.6m ATOM through IBC)
TVL has leveled off. Nearly $40m of liquidity left as stablecoin mercenary farming exited after the first 30 days of $CANTO liquidity mining.
Source defillama.com Price chart shows a bottom is forming as mercenary capital leaves and believers have stuck around during the bear market.
Source dexscreener.com Market Cap currently sits at $27.9m, which is extremely undervalued for a L1. I see CANTO returning multiples over the coming months and years with the potential for a top 50 market cap project during the next bull market.
Disclaimer:
I hold a position in CANTO and run a Canto validator with the Four Moons team. If you found this article useful, please share and my team welcomes any CANTO staking delegations https://staking.canto.io/
Follow the Canto Twitter list.
None of this investment advice.