Types of Stablecoins: What Type of Stablecoin is Comdex’s Composite Money ($CMST)?
There have been lots of questions raised concerning the stablecoin of the Comdex network, especially by nonmembers of the community. The $CMST offers you safety for investment, and you can use $CMDX to get it. It is pegged to the price of the US dollars, and the US dollar coin ($USDC).
There have been questions about backing up the $CMST when it controls unstable assets, as this will make liquidations occur in market volatility. However, there are types of stablecoins, and CMST is not the usual stablecoin with stable reserves we know about.
Types of Stablecoins
We have three basic types of stablecoins as follows:
These, as the name implies, are backed by hard currencies such as the US dollars, minted by centralized third parties which have custody of your cash in the bank.
Take, for instance, you deposit one dollar with a central issuer who mints a stablecoin to represent the dollar, that issuer holds the dollar in a bank account and tracks the stablecoin’s value. The stablecoin is likewise redeemable by the same one dollar from the issuer. Examples of such fiat collateralized stablecoins include $USDC and $USDT.
However, since these fiat collateralized stablecoins are in the custody of central entities called issuers, you would have to trust them to report the status of your own reserves. This is a difficult task, as it is nearly impossible to fully trust anyone. The system hence lacks transparency, giving the issuers an upper hand at blacklisting people’s crypto wallets however they like.
These are backed by cryptocurrencies on blockchain support, having no involvement with centralized third parties. They are all mostly overcollateralized, and you can deposit your cryptocurrencies with a DeFi (decentralized finance) protocol that would issue the stablecoin as debt against them.
Every stablecoin in circulation, backed by a cryptocurrency, is also directly backed by excess collateral. This is to say that for every dollar that is issued, the value of the collateral will always be more. To regain your crypto assets, you would have to pay in stablecoins, with gas fees attached. An example of stablecoins backed by cryptocurrencies is the $DAI token.
However, most times, backing a stablecoin with volatile collateral may end badly, as overcollaterization may lead to low capital. These crypto-backed currencies depend on the running of liquidation processes, so any failure or shortage can lead to severe disruption in their 1:1 peg.
These ones get their value from incentive algorithms which permits users to adjust the stablecoin’s supply to keep the price peg on a stable value. This is achieved by issuing the stablecoin and then reducing its supply. The $UST token is an example.
However, these types of stablecoins rely on a system that keeps the supply under, making the stablecoins under-collaterized.
Features of $CMST
CMST is a crypto-collaterized stablecoin, and a decentralized one. It is also known to be over-collateralized and backed up by excess volatile crypto assets. It does not carry the risk of blacklisting, like fiat stablecoins do, and is transparent, as everything is coded and displayed on the HARBOR protocol.
Dangers are reduced by $CMST, and the stablecoin can be redeemed at a 1:1 peg price, with additional gas fees. The $CMST is also backed by the US dollar, making it a fiat-collaterized stablecoin too.
Stablecoins backed by fiat currency only make up a percentage of the collateral supporting them. Debt limits the amount of $CMST that can be minted from a single collateral asset. No $CMST will be minted when the debt limit is reached. Stablecoins backed by hard currencies act as hedges during market price increases. They offer a constant value, rather than fluctuating one.
The Stablemint module on Harbor protocol allows whitelisted market makers to mint $CMST as a 1:1 ratio peg mint against stablecoins like USDC, USDT, and DAI, so as to achieve short-term arbitrage, which is a market activity in which securities, commodities, etc, are traded in one market and sold simultaneously in another, to profit from price differences between the markets.
Unlike the $CMST tokens minted from vaults, stable-mint CMST does not top up on interest rates; it can always be redeemed for underlying stable assets 1:1 by the same market makers. A gas fee is charged for the minting and redeeming $CMST from Stablemint.
The use of cryptocurrencies as collateral for loans is expanding, and it is clear that there is a demand for a lending market in the Cosmos ecosystem. With a stable money market in place, you are able to collateralize your $ATOM, take a $CMST loan against it, and take advantage of the opportunity to repay the loan.
Comdex is building an ecosystem of solutions that work synergistically to aggregate liquidity from DeFi ecosystems and facilitate its flow into CeFi. Whether through the enterprise trade platform & the tokenization of real-world assets through access to the price fluctuation of various assets via Synthetics, as a Defi infrastructure layer, the Comdex ecosystem promises to facilitate an all-in-one hub to democratize finance.
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