The Cardano ecosystem will have an algorithmic stablecoin DJED in Q1 2023. DJED is a formally verified crypto-backed pegged algorithmic stablecoin. The stablecoin design is publicly available and mathematically verified. Anyone who is capable can take a look and point out design flaws. The protocol has been implemented by COTI and a security audit will be performed before the project is launched on the Cardano mainnet. People are afraid to use algorithmic stablecoins because of the negative experience with TerraUSD (UST). This is understandable. On the other hand, it is important to note that the Terra project algorithm was different from Djed. Let’s take a look at the basic differences between the two projects.
- The authors of the Terra algorithm were confident that arbitrage could handle all market turbulence. It was possible for the system to go into insolvency.
- Djed is overcollateralized stablecoin, has a reserve coin SHEN, and the algorithm is able to stop minting and burning tokens when necessary.
- DJED is over-collateralized from 3X up to 8X. It decreases the risk of being unpegged.
- If the price of ADA decreases, the total supply of ADA will never increase as it happened with LUNA.
- DJED can be seen as a utility that will increase the market capitalization of Cardano.
This article was prepared by Cardanians with support from Cexplorer.
Read the article: DJED is not TerraUSD | Cardano Explorer
One thing I am confused about with Djed: I think I have read somewhere that Coti won’t have implemented staking for the first version of Djed? Is that correct? Because that is a huge miss and will make holding Shen less valuable if holders don’t get the staking rewards.
Yep, correct staking the reserve is only planned for Version 1.3, sometime late 2023 or 2024.
Not that easy to do, since you would want to separate the reserve to not oversaturate pools.
Maybe not easy, but essential. It amounts to 4% lost yield down the drain. I think this factor will limit Djed adoption. It goes to show why Charles has been harping on about wanting multi-pool staking delegation for some time.
Small correction: Reserve ratio is set to be between 400% and 800%. Depending on your definition of “over-collateralised” that is either 4× to 8× (if you also count the liabilities needed for DJED holders) or 3× to 7× (if you only count the surplus over the liabilities). … like 200 USD are 200% of 100 USD and also 100% more than 100 USD depending on how you formulate it.
Also: This does not guarantee that the reserve ratio really stays between these values. If ADA falls or rises steeply, it may go out of that range. It just forbids actions that make it worse if it happens. Below 400% burning SHEN and minting DJED is forbidden, above 800% minting SHEN is forbidden.