Comprehensive Guide to Canto Layer-1 Blockchain

What Is Canto?

Essentially, Canto is a generalizable layer-1 blockchain designed to support the creation of smart contracts and decentralized applications on its virtual machine infrastructure. Similar to Ethereum, it employs a proof-of-stake consensus mechanism, which contributes to its environmental sustainability credentials and energy efficiency compared to traditional proof-of-work systems.

Additionally, Canto provides public infrastructure that's free to use, embodying a core principle of accessibility. The platform was created to fulfill decentralized finance's (DeFi's) fundamental promise: making new financial systems accessible, transparent, decentralized, and free through a revolutionary financial movement. This approach aims to democratize access to financial services and eliminate traditional barriers that have historically excluded participants from global financial markets.

Origin

Canto leverages the Cosmos SDK (software development kit) as its foundational framework, which provides robust tools for blockchain development. It runs on the Tendermint consensus engine, known for its Byzantine Fault Tolerance and high performance, and uses Ethermint to deploy the Ethereum Virtual Machine (EVM). This technical architecture is what makes Canto EVM-compatible, enabling seamless integration with existing Ethereum-based tools and applications. As a result, Canto has established a native bridge between CosmWasm tokens and ERC-20 standard tokens, facilitating cross-chain interoperability and expanding the ecosystem's potential for diverse asset integration.

Team

The layer-1 altchain is the brainchild of a loosely organized collective of programmers who prioritize decentralization principles; because of this collaborative approach, not much is publicly known about many of the individual developers. However, one notable presence is that of Scott Lewis, a respected figure in the DeFi space. The co-founder of DeFi Pulse, Slingshot, Hyype, Atrium, and Code4rena also contributes to Canto, bringing extensive experience in DeFi infrastructure and community building.

The Plex team represents a key contributor to the Canto infrastructure development. These chain-native developers bring diverse expertise in high-frequency trading, mechanism design, and software development, with a particularly keen interest in advancing DeFi innovation and creating robust financial primitives.

Funding

Canto maintains its position as a free, permissionless, decentralized public infrastructure project. In order to remain true to their ideals of decentralization and community ownership, the project reportedly did not receive any initial venture capitalist funding during its genesis phase. However, the Variant fund has reported holding an undisclosed position in Canto, indicating institutional interest while maintaining the project's decentralized ethos.

Roadmap

As of recent developments, Canto does not maintain a publicly available roadmap in the traditional sense. Nevertheless, this does not mean there are no future plans or strategic direction. The core philosophy of the project revolves around the continuous development of free public goods or primitives. The fundamental idea is that essential primitives like a unit of account (e.g., a stablecoin), borrowing and lending markets, and decentralized exchanges should be native to the protocol rather than externally developed.

As the ecosystem evolves, developers will add more native primitives as needed based on community requirements and emerging use cases. Therefore, the DAO will essentially have unified governance over all primitives built as free public infrastructure. This governance structure means Canto stakers can participate in decision-making over the native decentralized exchange, borrowing and lending application, and the protocol itself, creating a truly community-driven development process.

How Does Canto Work?

Because Canto is compatible with the Ethereum Virtual Machine (EVM), developers can effortlessly migrate their existing smart contracts and decentralized applications to Canto with minimal code modifications. This compatibility also means that users can utilize familiar wallets like MetaMask to interact with the blockchain, lowering the barrier to entry for new participants. Canto also uses Geth, the battle-hardened Ethereum execution client that has proven its reliability through years of production use.

Geth serves as an Ethereum execution client, which means it manages critical functions including transaction processing, smart contract deployment, and execution. In layman's terms, Canto behaves and feels like Ethereum from a user and developer perspective. The primary subtle differences include Canto's unique gas model designed for efficiency, Canto's EVM block time of six seconds (compared to Ethereum's longer block times), and its use of Tendermint consensus for faster finality. Not to mention, it is built using the Cosmos SDK, which provides additional flexibility and interoperability features.

Canto Features

As mentioned before, the core tenets of the project specify the provision of free public infrastructure as a fundamental right. These are native technologies that come standard with the protocol, built directly into the blockchain layer rather than as external applications. Primitives are built natively to prevent problems like rent extraction, where intermediaries capture value without providing proportional benefit. In recent implementations, there are three core primitives: a DEX (Canto DEX), a borrowing and lending market, and a unit of account, each designed to serve as foundational building blocks for the ecosystem.

Canto DEX

In order to prevent rent-seeking behavior (e.g., maximal extractable value — MEV), Canto DEX is built native to the blockchain layer itself. Rent-seeking occurs when an entity seeks to gain wealth or acquire funds without making any reciprocal contribution to the ecosystem. Canto DEX prevents rent-seeking through several architectural decisions:

• It has no official interface, preventing any single entity from controlling access
• It is not upgradeable, ensuring immutability and predictability
• It cannot implement fees that would extract value from users

However, users can become liquidity providers on the DEX and earn rewards through trading fees distributed to the liquidity pools. Canto DEX supports two types of liquidity pools: full-range liquidity pools and concentrated liquidity pools, each offering different capital efficiency trade-offs. In recent implementations, there are five incentivized liquidity pools that receive additional rewards:

• USDC/NOTE (Concentrated liquidity pool)
• USDT/NOTE (Concentrated liquidity pool)
• NOTE/CANTO (Full range liquidity)
• CANTO/ETH (Full range liquidity)
• CANTO/ATOM (Full range liquidity)

Canto Lending Market

You can consider CLM the functional equivalent of Ethereum's Aave or Compound protocols, providing similar lending and borrowing capabilities. CLM accepts LP tokens as collateral from Canto's native decentralized exchange, creating capital efficiency by allowing liquidity providers to leverage their positions. Users can deposit this collateral as supply in CLM but cannot borrow the LP tokens themselves, maintaining system stability. As mentioned, stakers participating in the Canto DAO oversee the governance of CLM, making decisions about risk parameters and supported assets.

CLM is based on Compound V2's proven architecture, with several key differences that align with Canto's philosophy. Firstly, there is no CLM lending token, unlike Compound's COMP, which eliminates potential governance token speculation. Secondly, CLM's governance is handled by Canto's DAO, as opposed to Compound's DAO, which exclusively governs the decentralized application alone, creating more integrated protocol-level governance.

NOTE

For any robust financial market, you need a reliable unit of account. A unit of account is a standardized numerical monetary unit used to calculate the market value of goods, services, and other transactions — essentially serving as a measure of value. You use a dollar to price goods and services in traditional finance the same way you use NOTE in the Canto ecosystem.

NOTE is the native unit of account. It is an over-collateralized token with an interest rate policy centered around maintaining a $1 USD peg. NOTE is not created through minting; instead, you must borrow it from the Accountant, a smart contract that implements the algorithmic interest rate policy, through the Canto Lending Market. This design ensures that NOTE maintains its value through market mechanisms. A portion of the interest rate generated goes to the community treasury to fund public goods, creating a sustainable funding mechanism for ecosystem development.

Canto's Strengths and Opportunities

Canto has ambitious aspirations for transforming decentralized finance. Although we often discuss in web3 how aspects of cryptocurrency are fairer than traditional finance, ultimately, wealth concentration remains a persistent challenge. As a result, power and influence always consolidate based on capital holdings. Canto is attempting to remedy this fundamental issue through its unique approach to public infrastructure.

Free public infrastructure represents a promising attempt to solve this problem by removing rent-seeking intermediaries and ensuring equal access to financial primitives. However, in recent blockchain developments, rent-seeking (e.g., MEV) remains an inescapable aspect of blockchain architecture, and primitives alone cannot completely solve it. If that were possible with current technology, there would be little need to use rollups as an alternative to Ethereum's base layer.

To continue the analysis, proof-of-stake is an excellent choice of Sybil resistance mechanism if you want to build blockchains with faster transaction finality and more advanced features like child chains. Conversely, PoS removes the computational barrier that proof-of-work has to prevent Sybil attacks, potentially making the network more vulnerable to certain attack vectors. This makes it theoretically easier to execute a 51% attack if sufficient stake can be accumulated. As a matter of fact, a significant portion of Canto's stake is held by a relatively small number of addresses, which represents a centralization risk that the community continues to monitor.

Lastly, although the project developers do not classify NOTE as a stablecoin in the traditional sense, it does share similarities with one, including associated risks. NOTE is both algorithmic and over-collateralized, combining two approaches to maintaining its peg. In recent implementations, the primary collateral assets are USDC and USDT. If the price of USDC and USDT de-pegs from the US dollar, it creates a contagion risk that could affect NOTE's stability and the broader Canto ecosystem.

Pros

• Native DEX, lending market, a unit of account, and bridge infrastructure
• EVM compatible, enabling easy migration of existing dApps
• Proof-of-stake consensus for energy efficiency
• Active testnet for development and experimentation

Cons

• Stake concentration among a small number of addresses
• Contagion risk of NOTE due to collateral dependencies
• Lack of diverse client implementations

CANTO Token

We've already discussed the uses and mechanics of NOTE. Although it is native to the protocol, it is not the native token to the blockchain itself. Canto has two native cryptocurrencies serving different purposes: the NOTE token and the CANTO token. NOTE is an ERC-20 token minted through smart contracts and borrowed into existence, while CANTO is minted through the token base (a.k.a., the block reward) as validators produce new blocks.

Tokenomics

The initial total supply of CANTO is one billion tokens at genesis, establishing a clear supply cap. There are 150 million tokens in the initial circulating supply, representing 15% of the total supply at launch. This is contrary to NOTE, which has no maximum supply and can expand based on borrowing demand.

CANTO Uses

The uses of CANTO are similar to other blockchains' native cryptocurrency use cases, serving multiple essential functions. You can use it to pay for gas fees on the blockchain, covering the computational costs of transactions and smart contract execution. Additionally, you can also stake CANTO with validators, delegating your tokens to secure the network. This staking mechanism allows you to participate in governance decisions, earn additional tokens through staking rewards, all while securing the network through economic incentives.

Distribution

The initial circulating supply of CANTO tokens is distributed according to the following allocation:

• 130,000,000 CANTO (13%) allocated for initial contributors who built the foundation
• 20,000,000 CANTO (2%) distributed to those who participated in the launch of the testnet

The remaining total supply of CANTO is contingent upon DAO proposals and distributed according to community governance decisions:

• 450,000,000 CANTO (45%) reserved for long-term liquidity mining, distributed over the next 5-10 years
• 350,000,000 CANTO (35%) allocated for medium-term liquidity mining, distributed over the upcoming months and years
• 50,000,000 CANTO (5%) designated for future public goods grants

CANTO Wallet

There are many resources native to the Canto ecosystem; however, there is no official CANTO wallet developed by the core team. Despite this fact, Canto's EVM-compatibility means that many existing wallets work seamlessly with the blockchain. In the same way you can adapt your MetaMask wallet to networks like Arbitrum or Optimism, you can configure your wallet to connect with Canto by adding the network parameters.

For hardware wallets prioritizing security, both Ledger and Trezor's offerings are solid and secure choices that support Canto through their Ethereum compatibility.

Where to Buy CANTO?

Despite being a relatively newer project in the blockchain space, there are multiple venues to acquire CANTO tokens. If you are looking for a decentralized exchange option, then you can use Slingshot, a DEX aggregator platform that sources liquidity from multiple decentralized exchanges to provide optimal pricing. There are also several mainstream centralized exchanges where you can purchase CANTO, providing fiat on-ramps and trading pairs. These include various top-tier trading platforms that have listed the token.

Can Canto Last?

On the surface, Canto appears as a typical layer-1 altchain among many competitors. However, the project benefits significantly from its predecessors and represents the culmination of years of blockchain innovation-propelling composability. Thanks to Ethereum and Cosmos, deploying blockchains like Canto with interchangeable components to suit specific user needs has become much more accessible than in earlier blockchain generations.

The altchain is experimental in how it approaches DeFi services, particularly in its commitment to free public infrastructure. This experimental approach is apparent when analyzing the zero fee schedule for liquidity providers of Canto DEX, which challenges traditional DEX business models. In contrast, the NOTE token does present relative risks, as it serves as the linchpin to the free public infrastructure model. And while Canto demonstrates innovation in its approach to public goods, it falls somewhat short on technical innovation compared to cutting-edge blockchain research. It's clear that the project has generated significant interest and trading volume. But its long-term sustainability and ability to maintain relevance in a competitive landscape is yet to be proven through extended market cycles.

FAQ

What is Canto? How does it differ from other DeFi public chains?

Canto is an EVM-compatible, DeFi-focused blockchain built on Cosmos using Tendermint consensus. Unlike other DeFi chains, it prioritizes native financial primitives and composable DeFi infrastructure, offering lower fees and faster transactions for decentralized finance applications.

How to use DeFi applications on Canto network? What wallet and tokens do I need?

Connect your MetaMask wallet to Canto using the network's RPC details. You'll need ETH for gas fees to interact with DeFi protocols and applications on the network.

What is the purpose of CANTO, Canto's native token? How to obtain and trade it?

CANTO serves as the native utility token for governance, network fees, and staking on the Canto platform. Acquire CANTO through cryptocurrency exchanges or decentralized protocols. Trade it on DEXs and supported crypto platforms for liquidity and transaction purposes.

What are Canto's main ecosystem projects and applications?

Canto's main ecosystem includes Canto DEX, CLM lending protocol, Y2R yield farming, Forteswap, and CantoSwap. Canto DEX leads with TVL of 1.13 billion, serving as the primary DeFi hub.

How secure and decentralized is the Canto network?

Canto is a decentralized Layer 1 blockchain with high security through its FPI mechanism. The network requires a minimum 21-day holding period for validators, enhancing security. It features strong decentralization with no single control point.

What are the risks of investing in Canto? What is the future outlook?

Canto faces market volatility and competition risks. However, as a DeFi-focused altchain with growing ecosystem development, it shows strong potential for long-term growth driven by increasing adoption and innovation in decentralized finance applications.

How to bridge assets from other blockchains to Canto network?

You can bridge assets to Canto from Ethereum, Cosmos Hub, or Gravity Bridge. After bridging, transfer your assets to Canto EVM to start using DApps and DeFi protocols on the network.