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# Canto Unit of Account ($NOTE)$NOTE is the unit of account on Canto. $NOTE is an over-collateralized currency with a value perpetually rebalanced toward$1 through an algorithmic interest rate policy. It is:
• Over-collateralized
• Capital efficient
• Fully decentralized
• Automated
As a result, for every $NOTE in circulation, there is more than 1 USD worth of collateral held by the CLM. ### Capital efficiency Canto Lending Market achieves superior capital efficiency by allowing stablecoin collateral backing$NOTE to be lent out to other participants. For example, a DeFi participant can lend $USDC to Canto Lending Market and then borrow$NOTE. If the borrow rate for $NOTE is less than the supply rate for$USDC, that DeFi participant will be getting paid to hold $NOTE on Canto. Important: Canto Lending Market will launch with conservative parameters. Over time, the Canto DAO will be able to raise the capital efficiency of CLM to its full potential. ## Maintaining$NOTE Price Stability

Since $NOTE cannot be created, only borrowed, the Accountant contract utilizes interest rates to manage the circulating supply of$NOTE, and by proxy, its price. The interest rate on $NOTE automatically adjusts up or down every 6 hours based on a TWAP of the market price of$NOTE.
Aiming to provide a public utility, the algorithm responsible for adjusting this interest rate is designed to change the interest rate in order to promote a less volatile value as opposed to maximizing revenue.
If $NOTE is trading under$1, the interest rate is raised to strengthen the incentive for buying $NOTE on secondary markets and lending it to the CLM. If$NOTE is trading over a dollar, the interest rate is lowered to make borrowing $NOTE from the CLM and selling it on secondary markets more attractive. For launch, each interest epoch will be 6 hours and the rate will adjust by 0.25 (the adjustor coefficient) of the difference between the price of$NOTE and $1.00.$NOTE Interest Rate Formula:
Example:
• Current Interest Rate: 4%
• $NOTE average price over the last 6 hours: 1.04 $newInterestRate = max(0,(1-1.04)*0.25+4\%) = 3\%$ If$NOTE is trading above $1, the interest rate is lowered to weaken the$NOTE price. If $NOTE is trading below$1, the interest rate is raised to strengthen the $NOTE price. ## Frequently Asked Questions ### Who governs$NOTE?

The $NOTE supply is controlled by automated smart contracts, like the Accountant contract mentioned earlier, that are ultimately governed by the Canto DAO. The$NOTE token itself is a standard ERC-20 with no upgradeability or owner.

### Are there risks?

Yes! To our knowledge, no one has tried this yet, and there may be unknown problems with the design. Please limit your financial risk to Canto with only money you can afford to lose. Canto is trying many things for the first time, and risk of loss is high.