What is Ctez? A crucial DeFi lego for Tezos ecosystem

Learn more about a synthetic tez backed by tez and how it answers the question, who’s is baking?

Lately, Tezos is seeing a surge in network activity largely due to the launch of some great projects such as Kolibri, Hicentnunc, Kalamint, etc while many are in line to launch in just a matter of weeks.

Tezos already has some DeFi legos or DeFi primitives to build next-generation open financial applications, such as Oracles, Stablecoin, Decentralised exchange, etc which can be used to build several kinds of DeFi applications. They are all also open-source, so you could request a new feature and as welcoming the Tezos community is, I am sure the response time is gonna be super quick.

But building DeFi on Tezos is a bit different than other PoW blockchains such as Ethereum. Tezos is a Liquid Proof of Stake blockchain so it enables two things:
1. Tez hold in your wallet is always liquid, which means no lockup periods when you delegate/stake.
2. Funds in both implicit (wallet accounts) and originated accounts (smart contracts accounts) can be delegated/staked.

While the practice of staking funds from your Tezos wallet is very popular in Tezos ecosystem (78.52% staking ratio at the time of writing), staking the funds locked in smart contracts is also becoming popular. In the case of a DEX in Dexter), a user earns LP rewards as well as staking rewards on the liquidity provided in tez.

With the increasing popularity of Tezos DeFi platforms and the entire industry in itself, we can assume that one day these platforms might be having tez worth billions of dollars locked in them. For eg.- MakerDao on Ethereum already has collateral worth billion dollars locked in it.

Now there can be a possibility that all the volume of tez locked in one or more platforms could be delegated to a small number of bakers. Let’s understand this through an example:

1. The X DeFi platform has significant (1 billion dollars +) tez locked in liquidity pools or locked as collateral.
2. The community via governance decides to delegate to only a baker which has let’s say 0% fees. That baker could be run by the X platform itself. Or that baker could be the one who upvotes the amendments which are only good for the X.
3. Now, during on-chain amendments that baker’s vote carries a good amount of value.

So now, the question may emerge every time we see a potential billion-dollar DeFi project, Who is baking?

Now to answer that question, the idea of Ctez was proposed by Arthur Breitman.

What’s Ctez?

In ELI5, Ctez is a synthetic tez, a token on Tezos, the value of which is soft-pegged to tez on 1:1 ratio.

That means, 1 Ctez always tries to be equal to 1 tez.

The benefit it carries is that now Ctez which is almost equal in value to tez can be used as collateral (in Kolibri) or as a means to provide liquidity (In dexter) and both platforms or their community don’t need to select a baker. Because there’s no need to bake Ctez as it doesn’t accrue any staking rewards.

Okay, if it doesn’t accrue any staking rewards then why would I hold it or buy it?

I will explain that in the next part of this series. Meanwhile, if you’re interested in knowing more about Ctez find it on the Tezos Agora here and on Github here.