What Is Commodo Finance?Understanding Its Mechanisms
Commodo Finance, an innovative product of the Comdex network, is a digital crypto protocol operating with the Lend module, for loans carried out in Cosmos’s ecosystem.
The foundation of the Commodo Bank is being built upon the Comdex-1 blockchain. The mainnet of this platform is just around the corner, and will serve many functions needed by the Comdex network and the Cosmos ecosystem as a whole.
Objectives
Like any other Comdex project, Commodo Finance has its own goals and objectives. These, amongst others, include:
✓ Security,
✓ Liquidity,
✓ Passive yields,
✓ Need for speed,
✓ Collateralization,
✓ Bridging of assets,
✓ Asset tokenization,
✓ Borrowing & lending,
✓ Unique user interface,
✓ Easy user experience,
Merits
Commodo Finance offers a lot of benefits for its users, from security to transparency, and counting.
Being a user, you can lend your assets and gain passive yields from doing so. You can likewise borrow to keep your collateral intact, with adaptable rates of interest, which depends on your usage rate for the assets.
Some of the advantages of Commodo are as follows:
- Rewards for providing liquidity,
- Minimal transaction costs,
- Minimized risks and attack vectors,
- Opportunities during high volatility,
- Speedy transaction processes,
- Interoperability between chains,
- Regulations of transactions,
- Concentrated liquidity,
- Instant settlements at auctions,
- Earning & paying off interest rates without negotiating, etc.
Problems & Solutions
The loaning systems currently battle with problems such as the insecurities of shared pools and fragmentation of liquidity, but Commodo Finance supplies solutions to these repetitive problems, via what are known as money markets, isolated, having two bridged commodities (representing the $CMST stablecoin and $ATOM currency).
$ATOM, the Cosmos ecosystem’s primary token being used as a bridged commodity for the isolated money market solution will provide utility to the token, for the benefits of the ecosystem.
This market solution will be crafted through the following ways:
- Governance via whitelisted assets,
- Liquidity from pooled assets with $CMST or $ATOM.
Commodo limits the pairing of the bridged assets, resulting in single lending pair per token, so as to deepen and congeal the liquidity, rather than dissolve and scatter it across pools.
Security is a surety, granted via the entrustment of transactions through the same bridge assets (the $CMST or the $ATOM) only.
cPools
This is the Commodo definition of money markets. Here, you can give out your asset — as a lender — to any Commodo pool and earn yields as a reward. You can likewise borrow with adjustable interest rates that depend on the demand and supply of the money market.
Every cPool has their own asset and a transit asset, both of which are left for you to use as collateral for loans or not. Using them as such is based on a set ratio limit.
You can borrow commodities on any of the cPools available, with your collateral asset used to borrow transit assets that are then poured into the borrowing asset’s pool, as collateral as well. $CMST and $ATOM are transit assets that bridge the Commodo cPools, and they are paired with every asset in the cPools.
You can put $OSMO token into the OSMO/ATOM/CMST cPool to get either $ATOM or $CMST as a loan, and deposit $ATOM or $CMST to borrow $OSMO too.
Closure
When your collateral is no longer enough to cover your pending heavy loans, that is a threat for closure. Commodo checks this by checking if your borrowing health (your collateral value and liquidation threshold, divided by the borrowed asset value) falls down to 1 or lower.
If your collateral value declines, the value of your borrowed asset recedes, or you are not able to raise the borrowing health past 1, your debt position will be placed on auction, to get the loan paid from it. You will also suffer a loss (liquidation penalty), which depends on your collateral asset.
Loan Interests
As mentioned earlier, the interest rates in the Commodo protocol are changeable, as they depend on the demand and supply of assets in the pools.
You earn interest rates by lending assets to the Commodo cPools, and you also have to pay an interest rate to borrow assets from the money markets, which use algorithmic interest rate models to reduce the risk of closure and maintain a good demand and supply system across the pools.
Loan interest rates for each cPool rise on a linear scale, to reflect pool usage till the set usage limit for that pool is reached. As a result of reaching the limit, the rates rise more steeper, so that all new users would chip in their assets at a higher rate, and this would discourage them borrowing until a new usage limit is set.
About Comdex
The Comdex chain now serves as a DeFi infrastructure layer for the Cosmos ecosystem. Essentially this means that Comdex provides a variety of interoperable plug & play modules for projects to use to create their own DeFi platforms providing utility to the Cosmos community as well as DeFi users worldwide
Democratization of finance is likewise the core principle of this network, and they are key to aiding the promotion of the digitization of physical commodities, especially for user profiting.
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