πŸ“Collateralized RWAs

COMING SOON

Real World Assets (RWAs) Intro

Real World Assets, or "RWAs", are assets that have a physical or TradFi existence but are tokenized and transitioned online for utilization within the DeFi sphere.

The procedure necessitates the selection of an appropriate asset, which could include:

  • Real estate

  • Precious metals such as gold

  • Government bonds such as treasury bills

  • Commodities

  • Many other types of tangible and intangible assets

Bringing RWAs on-chain enable numerous previously not possible benefits for the crypto space. One of these benefits include the ability to use RWAs as collateral and enhance capital effiency.

RWAs in the Canto Ecosystem

Canto is a permissionless general-purpose blockchain running the Ethereum Virtual Machine (EVM). It was 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.

One of the exciting narratives in Canto is called Neofinance. According to the Canto Foundation:

Neofinance envisions a new era of financial efficiencies, unlocked at scale, by deploying offchain assets on protocol rails. The Canto neofinance ecosystem consists of several primitives designed to enable transparent, competitive financial terms.

Cadence as the flagship perpetuals protocol on Canto and a prime use case for Canto's RWAs and cNOTE is ready to capture significant liquidity as a result.

cNOTE Overview

While Tether (USDT issuer) and Circle (USDC issuer) have captured the majority of TVL and volume, they suffer from the following issues:

  • Lack of transparency regarding the mix of assets serving as collateral

  • Regulatory risks and scrutiny around a single centralized custodian

  • The centralized entity gets all the yield through rehypothecation, none given back to the holder

Both of these stablecoins have faced de-pegs on multiple occasions (e.g., Silicon Valley Bank collapse). Furthermore, there is limited legal recourse for users if an offshore custodian acts in bad faith or gets compromised.

What the ecosystem needs is a stablecoin that is compliant with US regulations, gives users back the yeild, and backed transparently by the safest collateral on the planet.

To address the risks that single-custodian stablecoin issuers pose, the Canto Network is modifying NOTE, its existing over-collateralized stablecoin, to be backed by on-chain treasury bills (T-Bills) issued by KYC-compliant custodians such as Hashnote (backed by Cumberland) and FortunaFi.

With this, cNOTE serves as the collateralized NOTE and is a receipt token from supplying NOTE into the lending market. cNOTE tackles the biggest pain points for stablecoin holders today by creating a safe, compliant, and efficient store of value.

So how will cNOTE gain massive liquidity & adoption?

cNOTE is the primary productive asset in the Canto Neofinance ecosystem, since holders earn a supply APR on the underlying NOTE supplied to the Canto Lending Market

Canto’s NeoFinance framework enables KYC’ed users to purchase treasuries with higher yields than their borrow rate, which can be amplified through leverage. On the other hand non-KYC'ed users can earn yield by suppling NOTE.

Here is a flow for a KYC'ed user:

  1. Buy Treasury Bills with USDC

  2. Supply Treasury Bills as collateral to borrow NOTE

  3. Lend NOTE to get cNOTE

  4. Sell cNOTE for USDC

  5. Repeat process for additional leverage

Non-KYC traders (labeled β€œon-chain yield seekers”) can access this yield by buying NOTE using USDT/USDC and supplying it to the Canto Lending Market (CLM). This enables users to earn a very high yield grounded on real world value through a flywheel effect that causes TVL of both Canto and Cadence to soar.

With all of these advantages, Cadence hypothesizes that holders of traditional stable coins, like USDC and USDT, will sell their stables for cNOTE so they can earn ~5% (why hold USDC when you can hold cNOTE and get up to a 5% yield?) and, as the best place to utilize your cNOTE, Cadence Protocol is uniquely positioned to capture the opportunity.

Future Outlook

The potential of RWAs on Cadence extends far beyond US treasuries - the US fixed income market size is $42T, with high yield debt comprising around $2T. Corporate and municipal bonds, SMB financing, auto loans, stock shares, real estate, and trade receivables may all be possible one day to be onboarded as collateral sources on Cadence in the future.

Last updated