Canton’s Yuval Rooz states that blockchains for smart contracts are confronting a challenge regarding value disparity.

The co-founder of the network indicates that numerous blockchains presenting financial infrastructures lack the activity necessary to validate their valuations, while stablecoins still do not possess a genuine product-market fit.

Yuval Rooz, CEO of Digital Asset and co-founder of Canton Network. (Courtesy Canton, modified by CoinDesk)

Key points:

• Yuval Rooz, CEO of Digital Asset, the organization behind the Canton blockchain, asserts that the majority of smart contract networks do not exhibit the activity and revenue needed to substantiate their multibillion-dollar valuations.
• Canton eliminates tokens with each transaction and allocates issuance to fee-generating applications, intending to connect value to usage.
• Rooz contends that stablecoins will only achieve genuine product-market fit when more than half of their usage is independent of crypto trading.

Yuval Rooz delivers a straightforward message to the smart contract domain: If one claims to be the future infrastructure of global finance, then demonstrating cash flow is essential.

“A significant amount of value has been attributed to these networks based on their projected potential,” noted Rooz, CEO of Digital Asset and co-founder of the Canton Network. “However, when assessing the actual business they are conducting, a substantial disconnect becomes apparent.”

The Canton Network is a blockchain infrastructure that prioritizes privacy and aims to link financial institutions and their tokenized assets through interoperable, permissioned applications.

“The challenge does not lie with any individual chain. Numerous smart contract networks were designed for retail speculation and token trading, rather than for regulated, institutional financial processes,” Rooz explained in an interview with CoinDesk.

“When analyzing metrics such as sustained economic throughput, recurring revenue, and real-world asset activity, there is frequently a disconnect between valuation and actual financial utilization. Constructing infrastructure for global institutions necessitates a fundamentally different design approach focused on privacy, compliance, and interoperability,” he added.

Rooz, who formerly worked at DRW and Citadel before establishing Canton, clarified that he is not opposed to cryptocurrency. He differentiated between assets such as bitcoin BTC$67,892.96, recognized by the market as a store of value or digital gold, and smart contract platforms that claim to revolutionize financial infrastructure.

“Gold and silver derive their value from market assignment,” Rooz stated. “Bitcoin constitutes an asset class. However, smart contract networks present themselves as the forthcoming financial infrastructure. If that is indeed the case, financial institutions should be utilizing them extensively.”

In his perspective, most are not.

“If your network is processing minimal amounts of value, how can the market attribute a valuation of $10 or $11 billion to you?” he questioned, referencing large-cap chains that experience limited real-world financial throughput. “Ultimately, it resembles a memecoin. It fails to address the problem it claimed it would solve.”

A speculative design flaw

Rooz posited that the disparity is partially due to token design. Many networks have imitated bitcoin’s issuance model, generating tokens to reward validators, despite the fact that bitcoin is an asset secured by miners rather than a programmable platform intended for financial applications.

“Bitcoin is an asset class, not a platform,” he remarked. “Individuals who secure the asset class receive compensation. Many have adopted that model for smart contract chains, which was an error.”

On various networks, newly minted tokens are predominantly allocated to validators, regardless of whether the chain is producing significant economic activity. When usage is low, inflation dilutes holders while minimal value accrues back to the token.

Conversely, Rooz stated that Canton’s token is designed to reflect the dollar utility of the network itself. Every transaction reduces the number of tokens, and there are no priority or front-running fees. If dollar-based usage expands, more tokens are removed from circulation.

“If you believe that the USD utility of the network will continue to rise, then more tokens will exit circulation and the price should increase,” he explained.

Canton also incorporates a “mint curve,” with new tokens issued at set intervals. However, these tokens are not solely reserved for validators. They are distributed to users and applications that generate fees within the network.

“Compensating builders should be merit-based,” Rooz asserted. “Can you attract customers? Can you generate fees? That’s the basis for your compensation.”

He cited Hyperliquid as an example of a model that resonates with investors: the trading platform produces revenue and utilizes it for token buybacks. “When buybacks occur, prices increase. That serves as a significantly more persuasive reason to hold a token,” he remarked.

In essence, value must be conveyed.

The limitations of TVL

Rooz expresses skepticism regarding total value locked (TVL) as a prominent metric.

“TVL is a very poor metric when considered in isolation,” he stated. “What truly matters is usage.”

Canton’s design focuses on configurable privacy for institutional participants, resulting in much of the network’s activity not being publicly visible. This renders traditional DeFi-style dashboards inadequate.

Due to the confidentiality of transactions, “we rely on participants to disclose information about their on-chain activities,” Rooz stated.

Nevertheless, some data points are becoming available. Broadridge, a provider of financial infrastructure, reportedly processes around $400 billion in repo transactions daily on Canton, according to Rooz. Other projects on the network manage similar volumes, he added.

The network is currently generating between $2.5 million and $3 million in daily fees, Rooz indicated, with aspirations to double that figure.

“If a company had regulations stating that any profit it generates would be utilized to repurchase stock, and performance continues to improve, the share price should rise,” Rooz mentioned. “A decentralized network should be regarded in the same manner. Examine revenue. Assess growth.”

An impending reckoning

He suggested that the broader market is beginning to adopt this perspective.

“In favorable market conditions, capital flows into memes and speculative tokens,” Rooz noted. “When the market declines, investors become significantly more discerning.”

Many altcoins that promoted themselves as smart contract platforms have suffered greatly during recent downturns, he observed. In contrast, tokens associated with revenue-generating platforms have performed better.

For Rooz, this indicates a transition toward what he describes as a more “rational economic structure.”

“Crypto has defied the laws of gravity for an extended period,” he stated. “However, ultimately, gravity prevails.”

Stablecoins and product-market fit

Even stablecoins, frequently regarded as the breakout use case for crypto, have not entirely traversed the chasm in Rooz’s assessment.

“Stablecoins have yet to achieve product-market fit,” he remarked. “You can assert that stablecoins have reached product-market fit when over 50% of their usage is not related to crypto.”

Currently, he claimed, a significant portion of stablecoin demand arises from crypto trading and on-chain speculation. Real-world payments and non-crypto financial applications constitute a small fraction of activity.

Canton’s approach is to delve deeper into traditional finance, integrating real-world assets and collateral on-chain. The network recently unveiled gold-related initiatives and has plans for additional non-crypto collateral integrations.

The objective is clear: to extend beyond crypto-native assets and into conventional financial workflows.

“If smart contract chains are indeed the next financial infrastructure, then financial firms should be employing them for financial applications,” Rooz concluded. “Increased uptake, activity, and usage; the value will follow.”

As for the future trajectory of Canton’s token price?

“If you are focused on token price, you are pursuing the wrong objective. Concentrate on utility. Emphasize building authentic financial infrastructure.”

The remainder, he implied, is governed by gravity.

Canton coin (CC) was trading around $0.1538 at the time of publication. The token has increased approximately 2% year-to-date, outperforming broader crypto markets. Its current market capitalization is roughly $6 billion.

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