The Cosmos Ecosystem has, over the years, been growing and developing a wide variety of products and assets to achieve its aim of decentralizing finance.
Comdex, the DeFi infrastructure layer of the Cosmos ecosystem, has also been doing a lot of work to bridge the gap between Centralized Finance and Decentralized Finance.
Lately, there has been a lot of attention on the new stablecoin designed to service the Cosmos Ecosystem - $CMST.
About Composite $CMST
Since the crypto world is full of tokens whose prices are unstable and unpredictable, it becomes difficult to store assets using those tokens. It is therefore necessary to come up with tokens that have a stable value.
There are Stablecoins like BUSD, USDT, etc, but having one that services the Cosmos ecosystem isn't a bad idea.
Composite is designed to service the Cosmos ecosystem, and to have a stable purchasing power which is pegged at $1. Composite is a fully collateralized, Inter‐Blockchain Communication Protocol (IBC) - enabled stablecoin, built to bring liquidity to Cosmos assets and power DeFi on Cosmos. The stablecoin was inspired by the model built by MakerDAO, whose DAI stablecoin is the leading decentralized USD-backed token.
How is $CMST Minted
$CMST can be minted by locking-up Cosmos ecosystem assets as collateral for $1.
Harbor, a part of the Comdex Ecosystem, is a platform that will enable users to mint $CMST stablecoin. $HARBOR is the native cosmos-based coin of the Harbor protocol.
Complementing its function as a governance token of the Harbor protocol, $HARBOR token is also intended to maintain the health of the system in case of exceeding debt in the system and be the final backstop to re-peg $CMST token in secondary markets (during catastrophic events).
How will $CMST maintain its Peg
There have been reported cases of Stablecoins losing their peg against the USD, leading to loss of assets and value. One of such cases is that of an algorithmic stablecoin, TerraUSD (UST), produced by Terraform Labs.
Comdex, aware of all these, has put measures in place to ensure that Composite maintains its peg.
Just like the long-term peg maintenance is governed by monetary policies, the short-term pegging of $CMST will be governed or driven by an arbitrage-based pegging mechanism. Some of them are outlined below:
- If $CMST > $1: Users can mint $CMST for $1 by locking up collaterals and selling the minted $CMST for a price >$1. Protocol lowers borrow interest APR as well as savings APR to ensure minted $CMST adds supply to markets. Backstop: Protocol utilizes surplus $CMST to buy and burn $HARBOR.
- If $CMST < $1: Users can buy $CMST at a price <$1 to unlock collaterals and pay back their debt cheaply. Protocol increases borrow interest APR as well as savings APR to ensure $CMST supply in markets reduces. Backstop: Protocol mints and sells $HARBOR to buy $CMST.
Let us look at some other security measures put in place.
- Token Surplus: To maintain the $CMST token, minting it must be made a priority, in order to boost the constant and surplus distribution of the crypto token. To encourage the mining of the $CMST token, you are able to gain lower interest rates when you get it via collaterals.
- Harbor Protocol: $HARBOR token is the governance token of the $CMST token’s Composite forum. To boost the circulation of $CMST, it can be used to acquire more of the stablecoin. $HARBOR is used to make decisions on future developments of the $CMST token. $HARBOR token was created through the TokenMint module of the Comdex modular chain and is a cosmosSDK-based token rather than a CW20 token so that it could be utilized by other modules like vault, locker, etc.
- Emergency Shutdown: As a part of additional solvency measures, governance can be used to trigger an emergency shutdown to block the minting of $CMST with a specific collateral asset type or a protocol-wide trigger to temporarily shut down the minting to prevent additional damage.
What happens when markets of collateral assets turn volatile?
Comdex had written an article stating that the minting of $CMST will be achieved by creating over-collateralized CDPs (typically >200% collateralization) of IBC-enabled assets. Users minting $CMST must ensure that their CDPs maintain a minimum collateralization ratio (usually 150%). Supposing a fall in the price of the collateral asset causes the balance to fall below 150%, the protocol begins liquidating the collateral asset to buy and repay $CMST debt until a ratio of 150% is achieved again. These liquidations occur through on-chain auctions of collateral assets in which users can permissionless participate. This mechanism ensures that the protocol debt remains protected against market volatility.
About Comdex
COMDEX’s synthetics protocol unlocks access to a vast set of commodity debt assets and liquidity, making the flow of capital from DeFi to CeFi seamless. Comdex develops possible solutions for the decentralization of finance (DeFi) and the democratization of commodities by handing over to investors the knowledge of a widened scope of asset classes and rewarding features.
For more information and to stay connected with Comdex, you can use the links below.
