Djed is the first crypto-powered algorithmic stablecoin on the Cardano network and is developed by IOG and powered by COTI.

What is DJed?

As expected at Cardano Submit 2021, through Cardano, COTI announced that they will be launching the Djed stablecoin. Djed is the first stablecoin, scheduled to be released on the Cardano (ADA) blockchain in June. According to Shahaf Bar-Geffen, Djed’s launch will benefit from Cardano’s Vasil hard fork update. According to this information, if all the tests are successful, users will be able to use Djed in July.

And unlike most other stablecoins, Djed has its own distinctive features. First, Djed stablecoin is an algorithmic stablecoin protocol that acts like a “self-regulatory bank” that buys and sells stablecoins for a price range that is pegged to the target price (1 USD). .

It is crypto-backed in the sense that this self-regulatory bank keeps a volatile cryptocurrency in its reserves. The reserve is used to buy stablecoins from users who want to sell them. And the revenue from selling stablecoins to users is stored in the reserve. Besides stablecoins, banks also trade reserves to raise capital on their own and maintain a significantly larger reserve ratio.

What is Reserve Coin?

In the simplest terms, Reserve coins are coins used to maintain the peg (peg) of stablecoins. When users trade (swap) reserves, they help provide the liquidity needed to maintain the pegged rate of stablecoins. In return, holders of the reserve coins will receive a portion of the transaction fees generated by the stablecoin.

What is Djed Reserve coin?

Djed’s reserve coin is called “Shen”. And according to the concept of the reserve coin that BeInCrypto just shared above, Shen will help maintain the peg rate of the Djed stablecoin. To better understand the Shen reserve, let’s take a look at some of the cases below.

Case 1: If the value of Djed goes above its closing level of 1 USD, 1.02 USD for example, then the algorithm will use Djed to buy Shen. This led to a decrease in the supply of Djed and caused the price to return to the original $1 lock.

Scenario 2: If the value of Djed falls below the lock level of 1 USD, say 0.99 USD, the algorithm will use Shen to buy Djed from the open market, thereby increasing the price of Djed and causing it to return to the closing value. is 1 USD.

Here are some points to note about Shen

Shen will only be available to whitelisted buyers; or COTI calls them qualified investors. KYC will probably be needed. Shen will be tradable by its holders. Trading Shen coins will help keep the price of Djed stable by providing enough liquidity for the stablecoin ecosystem. Shen coin holders will receive a portion of its trading pool.

The Shen coin itself will be volatile, i.e. it will not be pegged to the dollar or any other cryptocurrency. Instead, it will provide stability to the price of Djed. This model is like Terra’s LUNA keeping the UST price stable.

Unlike UST, Djed is mortgaged at rates up to 400% – 800%. This means that in order to mint Djed, at least 400% of collateral needs to be provided.

To mint Djed or Shen, users will need to provide ADA as collateral. The exchange between ADA, Djed & Shen will be controlled by a smart contract. User will provide ADA to smart contract to buy (receive) Djed. Similarly, they will send Djed tokens to the smart contract, which will be burned in exchange for ADA. In the event that there is not enough ADA in the smart contract to pay all Djed sellers, Shen coins will be minted and sold to ADA to provide stability. As long as the ADA reserve ratio is below the required level, Shen holders will not be able to exchange their Shen coins for ADA. Djed holders will be given priority in this situation.

Offers for Shen coin holders

As BeInCrypto mentioned above, in exchange for the obligation to maintain Djed’s stability, Shen holders will be rewarded. Fees are charged each time a Djed or Shen mint/burn is deposited into the ADA fund. Shen holders will receive a share of the capital contribution. Naturally, as this pool grows, Shen’s price will increase in value thereby benefiting its holders.

Other transaction fees will be charged in ADA, then converted to COTI and deposited into COTI treasury for distribution to users.

Conclusion

Djed was one of the first stablecoins on the Cardano network. With the entire stablecoin market capitalization as recorded by BeInCrypto at the time of writing reaching $162 billion, it seems like a fertile ground for pioneers like Djed.

However, Djed’s model is somewhat similar to Terra’s UST and surely none of us can forget the demise of Terra, which is closely related to the coins in this ecosystem. UST – LUNA.

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