Since the first version of the Bitcoin software was announced in 2009, there has been emergence of various cryptocurrencies serving different purposes. Some have stood the test of time, while some have plummeted into non-existence. Some cryptocurrencies have recorded a high rate of adoption because of their utility, while some still struggle to get the attention of the cryptocurrency users. However, these cryptocurrencies, with their various utilities, have not been able to meet all the needs of the different protocols and blockchains. As Decentralized Finance (DeFi) gains more adoption, there is a shift from the traditional centralized finance.
The difference between the two is that in Centralized Finance, financial activities must go through a central point or an institution, while Decentralized Finance functions without a centralized agency, where all information doesn’t have to go through a single entity.
What are Stablecoins?
To bridge currencies between the traditional system and DeFi, stablecoins have emerged. These are cryptocurrencies that have value equivalent to traditional currencies. For instance, there are popular stablecoins like USDT and USDC that are pegged 1:1 with the US Dollar. With these stablecoins, users can buy any dollar equivalent of a cryptocurrency.
Stablecoins are indispensable in DeFi as they serve a lot of functions including:
- Store of Value: Since stablecoins do not increase or decrease in value, they can be used to store wealth in the blockchain. Individuals who do not want to store their wealth in the traditional systems like banks can store their wealth in the blockchain through stablecoins.
- Means of Payment: Due to their high volatility, a lot of cryptocurrencies cannot be used in exchange for goods and services. If they fall in value, it would mean a loss to the service provider. This is why stablecoins are the best option for means of payment.
- Yield: The interest rates offered by traditional bank accounts are as low as 0.5% on cash. Investing in DeFi through stablecoins yields attractive returns.
- Exchange Between Protocols/Blockchains: Some cryptocurrencies are limited to a number of blockchains and cannot be used on others. To salvage this, users can swap their cryptocurrencies to stablecoins, move them between protocols/blockchains, and swap the stablecoins to the cryptocurrency of their choice.
However, these stablecoins are not used in the Cosmos ecosystem. The Cosmos ecosystem uses bridged stablecoins - Axelar Network USDC (axlUSDC) and Gravity Bridge USDC (gravUSDC), but these stablecoins are centralized and pose a challenge, hence, the need for a decentralized stablecoin. It has been noted that the most resilient option for the decentralization of stablecoins is the overcollateralized model.
This is the reason for the emergence of the composite $CMST stablecoin.
The $CMST Stablecoin
The $CMST stablecoin is an overcollateralized stablecoin designed for use throughout the Cosmos ecosystem. $CMST is open-source and stabilized via Cosmos SDK’s Parity Stability Module. It is backed by the Cosmos interchain assets.
$CMST is soft pegged to the US Dollar through a pegging mechanism inspired by MakerDao’s mechanism for the $DAI stablecoin.
The stablecoin can be minted on Harbor protocol. Harbor protocol is the dApp on the Comdex chain (powered by the Cosmos SDK and CosmWasm smart contracts) that enables safelisted assets to be locked in Vaults for the minting of $CMST. The protocol also has a defined minimum collateralisation ratio for each collateral type, built to take care of the problem of insolvency of the debt as it is with some DeFi protocols.
There are mechanisms in place to ensure the security and health of the system. If a collateral asset loses value, the protocol triggers liquidations. During liquidations, the protocol sells a portion of the collateral to recover $CMST to ensure that the minimum collateralization ratio is restored and the protocol remains solvent. Harbor protocol has a native utility token ($HARBOR) that can be used for recapitalisation. This is often the last line of defense for the protocol. Liquidations are triggered when collateral assets lose value, and recapitalization is triggered when collateral assets have lost enough value to liquidate vaults entirely.
$CMST can be minted in the "Mint" tab of the Harbor Protocol app by depositing safelisted assets in any of the active vaults. The safelisted assets are:
- WMATIC, and
You can also mint on the "Stable Mint" tab of the app using any of the vaults available. The assets that can be used here are stablecoins, including:
Each of the assets has three vaults (A, B, and C), and have different minting parameters including:
- Minimum collateralization ratio
- Stability fee
- Minimum borrowing amount
- Drawdown fee
- Debt ceiling, and
- Total CMST minted
You can begin to mint the $CMST stablecoin in any of the vaults!
Benefits of Minting $CMST
The minted $CMST can be used to provide liquidity on cSwap pools to earn liquidity mining rewards. CSwap is an orderbook-style interchain DEX built on the Comdex chain. Users can swap, trade, and farm in the DEX.
Users can also lend the minted stablecoin on Commodo Finance to earn lending yields. Commodo is the lending and borrowing platform of the Comdex ecosystem.
You can read about how decentralized stablecoins will power DeFi in Cosmos here.
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