Hey chads. Hopefully by now, you have read our first article and understand what csrCanto is. The ponzinomically economically inclined among you may be asking some questions…

So much CANTO that would otherwise be burned is now not being burned. Won’t this inflate the supply of CANTO?

Yes. The use of CSR in general means more and more CANTO is not being burned and is instead retained in the circulating supply. It does NOT mean though that there is necessarily more value being created*. As you know by now (hopefully); a higher token supply does NOT equal a higher market cap.

What does this mean for me as a loyal CANTO hodler?

It means the use of CSR creates more inflation for the CANTO token supply. If you are not a direct recipient of this inflation, you are effectively getting diluted. This does not reduce the absolute number of tokens you have in your wallet, however it does reduce the relative amount of tokens you have in your wallet, and your ownership of the network. Let’s walk through how this dilution could work with a simple example.

• Lets assume for this example that CANTO has a constant marketcap of 100 million.

• There are 1 billion CANTO tokens in circulation currently, which gives each of them a market value of $0.1 (supply over market cap)

• Bob holds 500 million CANTO

• Alice Holds 500 million CANTO

• Both of their holdings are worth 50m USD on paper

As you can see, in this example both Bob and Alice own 50% of the network each. One day though, Alice is feeling entrepreneurial and creates a product that creates revenue for herself via the use of CSR. After one month of success, she has earned 10 million CANTO in CSR revenue.

Alice now owns 510 million CANTO, while Bob still owns 500 miilion, and the circulating supply is 1.01 billion.

Since the marketcap is constant at 100 million, Alice now has 50.495 USD worth of CANTO, while Bob has been diluted due to inflation and now his holdings are worth 49.505m USD.

This is an oversimplified example of what happens to your CANTO holdings if others wrap, and you do not. Since the CSR revenue generated from csrCANTO usage is given to the holders, this is essentially like inflation that is only going to the csrCANTO holders, and not the CANTO holders - diluting them just like Alice diluted Bob.

How do you avoid this? Wrap to csrCANTO. The thing is, since not every single CANTO holder will wrap, you will probably end up earning value at their expense.

To turbocharge this, we only enable EOAs (individuals’ wallets) to be eligible for the CSR rewards. This is to prevent smart contracts that hold vast amounts of csrCANTO getting CSR rewards and leaving us, the holders, with much less. We have the ability to manually whitelist the smart contracts of partner protocols and their treasuries to be eligible for CSR rewards though. If you are interested in this, please reach out.

TLDR: If you hold CANTO its in your interest to wrap to csrCANTO to gain more and more value within the ecosystem at the expense of those who do not.

What if everyone wraps to csrCANTO? Wont that just cancel out the edge I get from the csrCANTO rewards?

If everyone wraps to csrCANTO, then it becomes the de-facto ERC-20 version of CANTO instead of wCANTO. In this scenario, it is the default token used for mints, liquidity pools, yield products, etc etc.

Also in this scenario, all of the aforementioned smart contracts are using csrCanto because it is the most adopted and most liquid and not necessarily because of the CSR rewards. These are not contracts we will whitelist. Therefore, the CSR that even they are generating from their csrCANTO holdings, goes to you: the holder. Therefore, you are still gaining value at the expense of all these smart contracts and your edge is maintained.

Note: Questions have been upgraded simply for accessibility purposes. If there are other aspects you feel I have not mentioned here or glossed over please feel free to engage me via any of our channels (my telegram | my twitter | project twitter | discord)

Footnotes and final rambles

csrCANTO introduces very interesting dynamics to the Canto ecosystem. As you now know, it is a dominant strategy to wrap to csrCANTO. As we know though, narratives and memes are much bigger drivers of value and adoption in this space than fundamentals and rationality. Regardless, this will be a fascinating experiment to see play out.

I hope that this has explained clearly what the economic implications for the distribution of value to CANTO and csrCANTO holders works, and how it changes now. Happy wrapping, degens.

*It could actually mean more value is being created because it could allow developers to charge zero fees for users, because they can just keep the CSR instead) which would create more value for the users, which could attract more users, which in turn would subsequently create more net value for the ecosystem. However, this is a tangent we will not go down in this article.