Today, Canto’s native stablecoin NOTE saw a sharp decline, dropping below $0.60 before partially recovering to around $0.96.
This surge came after a series of disruptions for Canto, a Layer 1 blockchain based on Cosmos, including a significant downtime that led to a loss of Total Value Locked (TVL) after the chain was restarted.
NOTE’s depreciation can be attributed to the loss of stablecoin assets in the cross-chain bridge, which significantly reduced the liquidity backing the stablecoin. Colin Platt, a prominent figure in the crypto community, underlined the potential seriousness of the situation, suggesting that this could spell the end of NOTE.
Platt noted that while the CANTO token has seen a dramatic price drop of over 95% from its all-time high, the real concern is with stablecoins like USDT and USDC, as well as NOTE, which has been overcollateralized with Real World Assets (RWA) since 2023.
A key development in this scenario involves depositing a significant amount of USYC, a token in Canto, to borrow NOTE. However, the prolonged chain shutdown a few weeks ago and the subsequent slow recovery of Canto’s infrastructure led to TVL leakage, which in turn caused NOTE to fall sharply.
The situation is further complicated by the interest rate mechanism based on the NOTE’s price in part in USD. With the current decline, borrowing NOTE now costs over 60%. This has created a dangerous situation for a large debt position that accounts for over 25% of all TVL in Canto.
The impending liquidation of this position could have serious implications for the Canto lending market. Given that the NOTE debt is likely to be liquidated, the borrower could face significant losses and the lending market could be left with a significant amount of unsupported debt.
There are concerns that if the borrower is an insider, they could burn USYC collateral and withdraw RWA, leaving the Canto lending market in a precarious state. This could potentially entrap other users in the market and damage the reputation of Hashnote, the team associated with tokenizing RWAs on Canto.
*This is not investment advice.
