Question about Shen price 🤯

Hi - I have been dealing with Djed for quite a while now. I’ve read the white paper but I don’t understand it, I’ll be honest.
My question is, what determines the price of Shen? Shen can also be traded on external exchanges. That is, should the price rise there and exceed the collateralisation of 800%, does the smart contract recognise this through Oracles and then prevent further minti :exploding_head:ng? Or am I fundamentally wrong with my thoughts? :exploding_head:

Here is my understanding:

The value of each Shen token is equal to the excess equity in the Djed contract divided by the number of Shen tokens in circulation.

Say at some point in time we have the following numbers:

  • Ada price $1 US
  • 100 Djed in circulation
  • 500 Ada in the contract
  • 400 Shen in circulation

The excess equity in the contract is 400 Ada for 400 Shen outstanding. Therefore:

  • Shen/Ada pair will trade at 1
  • Shen/Djed pair will trade at $1

Now if the price of Ada suddenly drops to $0.5 US and no one interacts with the contract to get more shen or redeem any Djed:

Excess equity in the contract would then be 300 Ada since it will take 200 Ada to satisfy the 100 Djed in circulation if redeemed. Therefore:

  • Shen/Ada pair will trade at 300/400 Ada = 0.75
  • Shen/Djed pair will trade at $0.375 (since Ada is now trading at $0.5 US so Shen = 0.75 * 0.5 = 0.375)

On the other hand, if the price of Ada suddenly spikes to $2 US and no one interacts with the contract.

Excess equity in the contract is now 450 Ada since it will take 50 Ada to satisfy the 100 Djed outstanding. Therefore:

  • Shen/Ada will trade at 450/400 Ada = 1.125
  • Shen/Djed pair will trade at $2.25 (since Ada is now trading at $2 US so Shen = 2 * 1.125 = 2.25)

Note: In each of these scenarios, there would be no reason for Djed to lose its $1 US peg since the Djed contract would remain over collateralised.

It is important to also note that Shen holders are only able to redeem their Shen for Ada when the contract collateral is above its minimum target value of 400%. So for the scenarios above, some Shen holders would only be able to redeem in the second scenario.

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