Canto: DeFi as a Public Good

Over the years, many L1s, such as Luna, Avalanche, and Solana, rose to the challenge of being the next Ethereum killer. While Ethereum served as a formidable testing ground for all things permissionless, it did run into some considerable flaws. Most importantly, Ethereum’s transaction fees can be unpredictable depending on network usage, to the point where it becomes economically unfeasible to transact. While on-chain activity has died down considerably, this issue has not directly been solved. Further, Ethereum’s throughput is lackluster, where it can take upwards of one minute to process a single transaction. L2s provide an as-needed solution for both high fee markets and poor transaction throughput. However, these alternatives have not necessarily attracted a sticky user base to rival Ethereum’s $53B TVL.

DeFi protocols, such as Aave, Maker, and Uniswap, created key decentralized infrastructure for the new frontier of finance. Lenders and exchanges provide services to willing market participants. In exchange for these services, the protocols charge fees to both liquidity providers and traders. Further, the abstraction of governance from the core L1 token (ETH) into other governance tokens (AAVE, MKR, or UNI) creates a rent-extractive approach in providing key primitives to DeFi. This led to a competitive game, where Uniswap competes with SushiSwap, or Aave competes with Compound, or Maker competes with Frax. The obvious solution was to incentivize via inflationary governance tokens, where the main use case, other than governance, is to simply sell the token.

What are all these projects after? More liquidity leads to more fees, which leads to more revenue that is minimally shared (if at all) with governance token holders. For example, Uniswap can charge a .05% fee that translates as revenue to feed its protocol treasury. These fees do not flow through to UNI holders at all. There is no issue with this model, as this loosely mimics how the broader Web 2 economy works, except without the dividends. Valuations of Uniswap and other DeFi primitives likely bake in a “maybe one day we will get a share of fees, but we also don’t want to be a security” coefficient. However, Canto, an EVM L1 that utilizes Tendermint consensus, seeks to challenge this economy. Canto’s vision is to create a non-rent-extractive, decentralized settlement layer that serves as free public infrastructure, one that breaks DeFi from the corporate model that it sought to challenge in the first place. Further, Canto’s blockchain enables high throughput and low-fee transactions with a fairly decentralized and diverse holder base.  

Canto Launch Sequence

Canto bootstrapped its existence in a substantially different way than its predecessors. Unlike Ethereum, there was no token sale. There is no official foundation. There is no vesting. There are no venture backers. If a large player wants to exercise control over Canto, they must do it how anybody else would - buying tokens on the open market. To onboard an initial user base and kickstart the decentralized machine, Canto airdropped 2% of supply to “Settlers of Canto,” who participated in testnet. 13% of the CANTO supply was set apart for initial contributors who helped launch the network. The rest of the supply is set aside for liquidity mining rewards and public goods grants.

Canto’s core tenets include providing liquidity as a free public good - there are no fees for liquidity providers or traders. There are only network-specific gas fees required to execute transactions. Canto’s core DeFi primitives, such as its lending market and DEX market, do not have separate governance tokens. They are governed by those who govern the network itself, CANTO holders. This could potentially lead to a unified ecosystem where all protocol development and governance occurs strictly to further the mission.

The Technicals