Can $HARBOR Token Be Used as Collateral to Mint $CMST?
The $HARBOR token is the governance token of the Harbor Protocol, used for making joint community decisions on the platform. It also plays the role of restructuring the protocol’s mixture of equity and debt collateralized by users.
But what is the Harbor Protocol?
It is a decentralized application designed for minting Composite stablecoins ($CMST), which can be used across blockchains in the Cosmos ecosystem.
With the Harbor Protocol developed by the Comdex network, you can turn whitelisted assets into collaterals as a means of minting the $CMST stablecoin, which is pegged to the US Dollar as a debt backed up by these assets. As a $CMST holder, you have access to rewards in form of interest rates, when you lock your holdings in the Locker module of the protocol.
Now, the question is “can the $HARBOR token be used to collateralize debt for $CMST holding?” But before we dive into that, let us see a bit more about some key/vital features of the $HARBOR token, before taking a look at collateralization and how it relates to the $HARBOR token.
Via governance, the Harbor Protocol maintains adequacy in its financial stability, and the $CMST stablecoin is stabilized as well, maintaining its dollar price peg.
As a $HARBOR hodler, you can lock your holdings up in voting vaults to secure your right to decision-making within the protocol, and you can increase your voting power according to the duration in which you have locked your tokens.
With this upper hand, you can vote with others, to place new types of collaterals in the Harbor Protocol’s whitelist. You can also vote to make reforms in the minting mechanisms for the $CMST stablecoin.
Decision-making is a determining factor in the management of policies concerning incentives and other monetary systems within the protocol.
Another way the $HARBOR token establishes the stability of the $CMST stablecoin and the Harbor Protocol is by playing the role of recapitalization. To prevent debts within the protocol from being liquidated, over-collateralization is needed for restructuring.
When the market volatility is highly increased, debt collaterals may begin to lose their value, causing under-collateralization, even when debts have been liquidated, leading to more liquidations; which is why over-collateralization is needed.
Minting and selling $HARBOR is a way to overcollateralize debts and prevent liquidations within the Harbor Protocol.
So, Can $HARBOR Mint $CMST?
Though the Harbor Protocol’s governance token is used to overcollateralize debts, it cannot be used to mint $CMST, which is an overcollateralized stablecoin that can be minted by members of the Cosmos ecosystem.
This is a security measure carefully taken by the protocol’s development team, to make sure the solvency of the protocol is stabilized, and to ensure the $HARBOR token remains competent and operative.
The $HARBOR token’s over-collateralization function, via this security measure, extends overall debt use cases not affected by liquidation, which is the first step taken to solve any future excess volatility of a decentralized exchange market.
Recapitalization, one of the $HARBOR token’s functions, is the final security measure taken to keep the Harbor Protocol safe, and this is what happens when collaterals lose so much value that they can be liquidated along with the vaults they occupy, anytime soon.
Now, here is the reason why $HARBOR not being able to mint $CMST is a security measure.
First, knowing that the $CMST stablecoin is overcollateralized, and would drain the value of the $HARBOR token, the development team took note that the $HARBOR token being used as collateral for $CMST would seriously hinder its capability to recapitalize (when it is needed) the protocol.
Secondly, by minting the $HARBOR token on a massive scale to act as a liquidation substitute for undercollateralized debts, its value would drop below too much, and adding $CMST to the list of debt substitutions would worsen the case.
What Can Be Used, if not $HARBOR?
Stability and drawdown fees, as well as stablemint fees and liquidation penalties, can be used in the surplus module of the Harbor Protocol, to mint the $CMST stablecoin.
The fees and penalties are the four primary sources from which revenue is generated within the protocol. Stability fees, based on governance joint decision, are gotten from minted $CMST, after being paid when you want to close your stablecoin vault (to probably create a new one, or probably not).
As for drawdown fees, you pay them when you want to create a brand new $CMST vault. Liquidation fees are penalties you get charged when your vaults are liquidated due to excess under-collateralization.
Stablemint fees are just little charges for minting $CMST with the Stablemint mechanism.
When the above transactions are carried out, the proceeds are moved to the protocol’s surplus module, which has a planned setting.
When the total value of $CMST stablecoins in the module rises above the limit, the surplus would be used to fund $HARBOR debt auctions and given as additional rewards to veHARBOR reward token holders.
But if vice versa, the surplus $CMST would be used to recapitalize the protocol in times of excess volatility, liquidations, and under-collateralization.
In summary, the $HARBOR token cannot be used to mint the over-collateralized $CMST stablecoin but can be bought by it.
Comdex is a decentralized network, featuring various plug-and-play customizable core modules for delivering leading dApps within the Cosmos ecosystem. The network serves as the infrastructure layer of this ecosystem, using its inter-blockchain system to allow the building of interoperable solutions mainstream. Comdex provides users with these solutions, and lots of unique features you would like to utilize.