Everything You Need To Know About Tectonic
Decentralized finance (DeFi) has become one of the biggest things in cryptocurrency. The decentralization inherent to cryptocurrency allows for users to avoid many of the pitfalls common with centralized.
Sadly, a lot of pitfalls have opened up in DeFi. That’s besides the point, though.
This article will focus on one DeFi platform – Tectonic. It’s very similar to the Compound protocol on Ethereum, but Tectonic is on Cronos. With this in mind, this article will cover everything you need to know about Tectonic. It’s on Cronos, which is a relatively small blockchain that most people are probably not too familiar with.
What is Tectonic?
As mentioned earlier, Tectonic is a DeFi protocol on the Cronos blockchain. It’s a very similar protocol to Curve. In fact, we would call it a Curve fork on Cronos that is how similar the two projects are in practice.
There are a few key features that Tectonic provides to users of the protocol. These features include the following:
- Allow holders to earn an income by depositing assets onto the Tectonic protocol.
- This is a passive way to earn income for holders. No active management of it is required.
- Crypto traders have the ability to short cryptocurrencies or yield farm.
- The ability to borrow stablecoins in order to invest in other crypto projects.
- Borrowing cryptocurrency can be done by putting up cryptocurrency as collateral, which is useful for those that want to access their crypto without selling it.
Depositing on Tectonic
The first way to earn income on Tectonic is by depositing assets onto Tectonic. This is probably the simplest way to earn money on Tectonic.
Basically, if you deposit cryptocurrency onto Tectonic, then you receive a synthetic version of that cryptocurrency. The synthetic is named tToken (ie.tETH, tCRO, tUSDC, etc.). These tokens allow the depositor to withdraw their deposits at any time. More importantly, the value of these tokens will increase.
The whitepaper says the value will “continually increase,” which might be a poor choice of words. Does that mean the value of these synthetic tokens will never decrease?
Borrowing on Tectonic
Another key feature of Tectonic is borrowing funds from Tectonic. This is also a relatively simple concept to understand.
A user can borrow funds by putting up deposited cryptocurrency as collateral. The collateralization factor varies depending on the asset. Riskier assets have a lower collateralization factor (ie. put $100 of collateral to borrow $20) while safer, more stable assets have a higher collateralization factor (ie. put $100 of collateral to borrow $80). A higher factor means that borrowers can borrow a higher percentage of their total collateral. For instance, if the collateralization factor is 80%, then a borrower can borrow $80 with $100 of collateral.
Of course, if the value of the collateral falls or the value of the borrowed asset rises, then the borrower will be liquidated until the collateralization factor is above the percentage set by Tectonic.
So, who would take out loans like this?
People that want to leverage their portfolio of cryptocurrency without selling any of their existing portfolio. It’s a great way to leverage existing crypto assets to potentially make more money.
The Purpose of $TONIC
TONIC is the governance token of the protocol. Holders will eventually be able to stake TONIC tokens to earn a share of the fees that the Tectonic protocol collects on all loans.
When was Tectonic Launched?
Tectonic was launched in November 2021. From what we can tell, it was launched by a team of anonymous developers.
That’s always a red flag for us as investors. This is especially true of projects that have anonymous founders.
The Problems with Tectonic
There are some problems with Tectonic. Really, there are a lot of problems with this project and it’s not a project that we consider particularly promising. This section will briefly explain all the problems with the project.
The first issue we have with Tectonic is that it has anonymous founders. As mentioned previously, this is a major red flag for a DeFi protocol.
It’s important to note that the project Tectonic cloned, Compound.finance, has a fully doxxed founder.
Just think, why would the founder of a DeFi protocol feel the need to keep themselves anonymous?
It’s a very strange and suspicious decision and one that almost always ends up turning out horribly for investors.
It’s on Cronos
The other problem we have with Tectonic is that it’s on Cronos. Crypto.com is a very shaky company – they spent way too much on advertising and user rewards in 2021 and 2022.
The market downturn combined with Crypto.com’s massive spending led to a budget shortfall that allegedly forced them to lay off around 2,000 of their employees in October 2022.
That’s around 40% of their total employees.
There’s a solid chance that they do not recover from this, which could prove disastrous for their blockchain and all the projects on it.
There’s a reason no serious developer launches any projects on Cronos.
$TONIC Is Inflationary
The final problem we have with Tectonic is that the token is inflationary. The rewards just keep increasing while the actual value provided does not increase.
This means that more tokens must be minted to pay out the rewards, which just leads to inflation.
Is $TONIC a Good Investment?
Note: This is not financial advice. Do your own research and reach your own conclusions before making an investment decision.
TONIC is an interesting story. The price of the token spiked almost immediately after launch before flatlining for about six months. It’d have the occasional jump in price, but it stayed relatively flat on the price chart.
This changed in the past few days due to some good publicity about Tectonic from Crypto.com, the announcement of Isolated Lending Pools, and partnering with Veno Finance.
Sadly, this does not change the fact that the tokenomics on TONIC are complete garbage. They could have the best product in the world, but they are not going to be able to outrun inflationary tokenomics.
We would not invest in Tectonic for the following reasons:
- Anonymous founders.
- It’s on Cronos.
- It has inflationary tokenomics.
Again, you should look into the project before making an investment decision.
That covers it for all you need to know about Tectonic. This project has some big problems that we really can’t get over. Further compounding things is that it’s on the Cronos blockchain, which is owned by Crypto.com.
Crypto.com has been having some financial turmoil due to the downturn in cryptocurrency. We cannot really get behind an already questionable project on their blockchain due to the uncertainty with the company running Cronos.