Why Can $HARBOR Token Not Be Used as Collateral to Mint $CMST?

4 min readNov 5, 2022

The $HARBOR token is the governance token of Harbor Protocol, a decentralized application established by the Comdex network for the leveraging of Composite’s ($CMST) stablecoin.

The $HARBOR is used for cases such as joining the rest of the community to make decisions concerning activities and the governance laws of the platform. The token also helps in equity distribution, tokenomics restructuring, and the prevention of the heaping of collaterized debt accumulated by members.

What is $CMST?

Talking about governance, the Harbor Protocol is governed by the community members of the Comdex network, which is known to be the foundation layer of the Cosmos ecosystem of blockchains. Within the Harbor Protocol, a list of assets, known as whitelisted assets, can be turned into collateral debt assets, to mint your $CMST stablecoins.

$CMST is pegged to the US dollar, to ensure its stability. It is used as debt for these collaterals. When you own the Composite stablecoin, you are entitled to rewarding interest rates, if you lock it in lockup vaults in the protocol.

Stabilizing $CMST

The $HARBOR token cannot be used to mint the stablecoin, but can be used to stabilize it. With community governance, liquidation, and pool reconstruction, the $CMST stablecoin can maintain its peg to the US dollar.

Locking your $HARBOR tokens up in the Harbor Protocol’s voting vaults entitles you to participate in the community’s decision-making proposals. Your voting power increases with the length of time in which you have locked your $HARBOR in the voting vaults.

The higher the power, the higher the upper hand. Voting may come when such things as proposals for whitelisting new assets arise, or when it is time to restructure the mint mechanisms for $CMST, and other situations.

While joint community decision-making is vital in keeping the monetary value of the network, as incentives and other monetary policies are controlled by the community, recapitalization is another factor that maintains the monetary value of the network.

The $HARBOR token is in charge of this field. The token establishes the stability of $CMST, which in turn stabilizes the protocol. When your debts accumulate past a certain given limit, your lockup vault would be terminated and collaterals liquidated.

In a bid to reduce the rate at which debts are liquidated, restructuring all the vault pools via overcollateralization is necessary. As volatility in the market rises, debt collaterals may start losing their value, thereby causing them to be under-collateralized.

This leads to liquidation. In this effect, $HARBOR can be minted and sold to bring about overcollaterization and the prevention of liquidation in the protocol.

Not Minting $CMST

Not using $HARBOR token to mint the $CMST stablecoin is a strategic security measure taken by the Harbor Protocol, to stabilize solvency and maintain the operability of the $HARBOR token, which can be used to collateralize debts not affected by liquidation (to prevent future volatility that leads to liquidation).

The process of collateralizing volatile debt assets, known as recapitalization, is the last go-to when vault pools in the protocol are approaching a state of liquidation, when debt collaterals accrue so much debt that the protocol’s strength could be ruined and therefore have to be liquidated to prevent such disaster befalling the protocol.

If $CMST is minted by the $HARBOR token, the overcollaterized stablecoin would drain off the collateralization energy of the token, causing its function of recapitalization to be reduced to its barest minimum, thereby hindering and consequently destroying the usability of the $HARBOR token.

Minting the token on a large scale to substitute for nearly-liquidated assets already makes its value struggle from time to time, so adding an overcollaterized stablecoin to the situation would then ruin the $HARBOR token’s value. In the actual fact, $HARBOR can only be bought with $CMST, not used to mint the latter.

Minting $CMST

Although the governance token of the Harbor Protocol cannot be used to mint Composite’s stablecoin, other channels are available. When these channels are passed, the payoffs move into Surplus Module of the protocol, regulated by governance.

As the total sum of $CMST in this module lifts past the ceiling, the surplus is given out to reward eligible veHARBOR reward token owners, and to support debt auctions for the $HARBOR token. Surplus $CMST could also be used to perform recapitalization.

The channels by which the Surplus Module is maintained, and $CMST is minted, include:

Drawdowns

Paid when you wish to create any new $CMST lockup vault.

Stability Fees

Paid when you want to close a current $CMST lockup vault.

Stablemint Fees

Paid when minting $CMST through the Stablemint mechanism.

Liquidation Penalties

Paid when your debt collaterals are liquidated, simply because they have been under-collateralized, past a given period of time.

About Comdex

As a decentralized infrastructure layer of the Cosmos ecosystem, Comdex makes use of its network of financial solutions, giving these to their investors, along with major know-hows about classes of assets as well as other beneficial projects.

To gain more further information about the network, follow Comdex via the following:

Website: https://comdex.one/home

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