Imagined by Input Output and developed by fintech COTI, the algorithmic stablecoin DJED is set to debut later next week on the Cardano (ADA) blockchain. DJED will be pegged to the US dollar, and will be backed by both ADA and SHEN, a token available for staking that will allow for a portion of the fees collected in the stablecoin’s mint and burn processes.
DJED coming soon to Cardano
The DJED stablecoin will be the first stablecoin developed specifically for the Cardano blockchain (ADA), as it is expected to be available next week.
Conceived by Input Output, Cardano’s research firm, and developed by fintech COTI, which specialises in currency digitisation and the creation of digital payment solutions, DJED will be an algorithmic stablecoin whose over-collateralisation is expected to be maintained between 400 and 800%, according to the available documentation.
We are pleased to share another update about Djed’s progress and to inform you that the launch is scheduled for next week!
Read more: https://t.co/7kPjfGMNmk$DJED $COTI @InputOutputHK @Cardano pic.twitter.com/mHA5KVblay
– COTI (@COTInetwork) January 24, 2023
We are pleased to share another update on the progress of Djed and to inform you that the launch is scheduled for next week!
This very consistent over-collateralisation should theoretically avoid a Terra (LUNA) like scenario we saw in May 2022, which was the result of a simultaneous decline in LUNA and UST, with the 2 crypto-currencies being closely linked before their collapse.
Simply put, an algorithmic stablecoin is structured to be self-regulating in order to ensure parity with its reference asset, often the US dollar. The algorithm should allow stablecoin to be bought when the price is falling, and sold when the price is rising.
It should be noted, however, that this is not Cardano’s “official” stablecoin, as the blockchain is expected to issue its own via Emurgo in the first quarter of the year as part of the launch of its Azens product line. Dubbed USDA, it is expected to be fully backed by a US dollar reserve, unlike DJED which will be backed by ADA.
What will be the specifics of the DJED?
In order to receive DJED, Cardano users will have to send ADA to the corresponding smart contract. The DJED rate will be based on the US dollar rate, which means that 1 DJED = 1 US dollar. In contrast, to resell DJED for ADA, users will have to exchange their DJED for ADA.
According to the documentation provided by COTI, the DJED will also be backed by a second cryptocurrency, SHEN, which will act as a reserve currency. This choice is intended to counteract possible sudden fluctuations in the ADA price or to deal with possible massive DJED mints that could cause a shortage of ADA tokens in the smart contract.
SHEN holders, who will therefore participate in the DJED price security mechanism, will be rewarded via a liquidity pool system. To ensure this mechanism, SHEN holders will not be able to burn their tokens if the collateralisation ratio is below 400%.
On the contrary, if the collateralisation ratio exceeds 800%, which is considered the maximum ratio by the smart contract, the latter will make it impossible to buy SHEN until the reserve returns to a healthier ratio.
Finally, SHEN holders will be rewarded in the form of COTI tokens, which will result from the fees collected during the inherent mint and burn processes of SHEN and DJED tokens.
