Introducing Composite: A collateralized stablecoin for IBC, built on ComDex

CosmosCosmos
$7.15
‑2.79%
blog.comdex.one1m ago

Introducing Composite: A collateralized stablecoin for IBC

From its very inception, Comdex has aimed to have a vibrant ecosystem of solutions bringing DeFi to the Cosmos ecosystem and ultimately bridging the gap between CeFi and DeFi. A key component to any thriving DeFi ecosystem is the presence of a robust, decentralized, and censorship-resistant stablecoin.

The Cosmos ecosystem has seen tremendous growth in the past year with the emergence of a large ecosystem of solutions and assets. Assets and their owners seek liquidity, which is one of the primary functions of DeFi markets. Despite its growth, the ecosystem is yet to see the full-fledged emergence of DeFi. Composite, a fully collateralized, IBC-enabled stablecoin, is built to bring liquidity to Cosmos assets and power DeFi on Cosmos.

Composite $CMST

Composite is a stablecoin designed to be a stable representation of purchasing power and is therefore soft pegged to $1; however, as the global macro landscape develops, that may be subject to change in the future.

Inspired mainly by the robust and reliable model built by MakerDao, $CMST can be minted permissionless-ly as a debt against over-collateralized CDPs. Users can mint $CMST by locking-up Cosmos ecosystem assets as collateral for $1.

$HARBOR, the governance token for $CMST, will serve as a backstop to the $CMST peg through a mint/burn-based mechanism.

How will $CMST maintain its peg?

As with fiat money, the decentralized money supply is ultimately governed by monetary policies, the primary protocol tool for long-term peg maintenance. However, the short-term pegging of $CMST will primarily be driven by an arbitrage based pegging mechanism 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 mints $CMST to buy-and-burn $HARBOR If $CMST < $1: Users can buy $CMST at a price <$1 to unlock collaterals and pay fees 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-and-burn $CMST

As all minted $CMST exists as a debt against locked collateral assets and thus accrues a variable interest APR (stability fee), which serves as a primary monetary policy tool for the protocol to control $CMST issuance. A protocol savings pool allows users to deposit minted $CMST to earn a variable interest APR, which would come from surplus earnings from stability fees. The counter-balancing effects of the borrow APR and deposit APR will govern the long-term supply of $CMST on markets.

An additional stability measure built into the protocol is a stable-mint that allows 1:1 swapping of newly minted $CMST against bridged stablecoins like $DAI, $USDC, and $USDT at a fee. This measure ensures that short-term pegging can be achieved through clear arbitrage for market participants.

What happens when markets of collateral assets turn volatile?

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%). Suppose a fall in the price of the collateral asset causes the balance to fall below 150%. In that case, 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.

Additionally, Composite, built on the Comdex chain, can accept a wide range of Cosmos ecosystem assets as collateral. Leveraging IBC can ensure that all protocol $CMST debt is backed by a wide range of collateral assets, thereby limiting the impact of volatility in isolated markets on the overall protocol debt. This diversification of collateral assets is achieved through placing debt ceilings on the amount a particular collateral type is accepted. The debt ceiling ensures that damage from events of mass liquidations of a collateral asset can be limited to protect protocol solvency.

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.

$HARBOR

$HARBOR will serve as the governance token for managing policies on the protocol. The goal of the protocol governance will be to ensure that $CMST maintains its peg while sustainably accumulating interest APR from $CMST creation. The protocol earns revenues from interest apr fees, CDP fees, and liquidation fees, the surplus from which will be used to buy-and-burn $HARBOR.

When $CMST trades above peg for prolonged periods, the protocol mints $CMST to buy-and-burn $HARBOR. When below peg, the protocol mints $HARBOR to buy-and-burn $CMST. This model ensures that $HARBOR holders accrue value from growing $CMST adoption but conversely absorb volatility.

Being built on the Comdex chain allows for the $HARBOR token to be utilized fully towards aligning governance incentives and pegging while leveraging the security and architecture of the Comdex chain. $CMDX will accrue value through on-chain network gas fees and a portion of protocol revenue used to buy and burn $CMDX. $CMDX holders will also be able to mint $CMST by collateralizing $CMDX and earn incentives from providing liquidity on dexes.

Plans beyond the Cosmos ecosystem

The cosmos ecosystem has recently seen a growth in building activity towards developing cross-chain bridges to bring assets from foreign ecosystems to IBC. We plan to work closely with these teams to integrate with bridged assets to tap into TVL from ecosystems outside of Cosmos.

Additionally, Comdex intends to integrate $CMST into the payment settlements layer on the enterprise trading app for adoption in commodities trade settlements. The platform has already processed over $160M in on-chain trade workflows, which would be significantly bolstered with the addition of instant payments. The enterprise trading app also utilizes Comdex’s asset tokenization module, which enables the creation of NFTs to represent real-world assets. As adoption of these real-world asset NFTs within the ecosystem grows, we intend to allow the minting of $CMST by collateralizing these NFTs to create liquidity for CeFi participants.

Comdex also intends to work closely with existing DeFi protocols to integrate yield-bearing derivatives as collateral as liquidity for such assets continues to mature.

A fundamental mission towards expanding in this way is to continuously diversify the collateral base that backs $CMST to protect it against market volatility.

Join us:

Twitter | Telegram