# 6.4 Collateral-based Asset Transmutation (CAT)

CAT turns a Kanon into a composable DeFi asset, usually with a stablecoin such as USDC. Let’s take the same example used in the previous section.

**Step 5:** The same holder with 4 child-Kanons decides to stake 2 of the four child-Kanons into the NFT-to-DEFI box.

**Step 6:** At the time of staking, the prevalent collateral ratio is 33.33% and a single SNS can be swapped into 1.5 USDC on Raydium or Serum DEX. So, 2 child-Kanons with the combined market value of 20 SNS can be collateralized into the vault and the protocol mints the same user with 10 USDC. Here is the calculation:

                               *10 USDC = 20 SNS \* 1.5 USDC/SNS \* 33.33%*

**Step 7:** The NFT-to-DEFI protocol will charge the holder a 0.15% monthly service charge for the 2 child-Kanons collateralized. If the market price of the Kanon falls 66% or more, the holder must add SNS into the protocol to make sure the total collateral ratio based on the value of Kanon and the balance of SNS added stays at 33% or below; otherwise, the protocol will liquidate the collateral and keep it.

**Step 8:** The holder swaps 10 USDC into a 0.01 [Raging Bull Alpha index coin](https://formation.fi/) that earns 1,289% APY. She decides to go for it for 30 days.

**Step 9:** The holder returns to retrieve her original 2 child-Kanons by putting 10 USDC plus paying the monthly service fee of 0.15% of the market value of 2 child-Kanons in SNS. The holder basically doubled her initial stake of 10 USDC into 20 USDC in a month so her net earnings were 10 USDC from the original 2 child-Kanons.


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