Here's a brief overview where you'll see the most important aspects of this stablecoin coming soon to the Cardano network.
In Short
DJED, the first stablecoin for Cardano, is just around the corner.
It will be an "over-collateralized" stablecoin.
Its operation has its base on ADA, DJED, and SHEN.
SHEN is the token that brings additional properties to support DJED
Decentralized exchanges are now ready to start trading DJED
The Cardano ecosystem is getting closer and closer to receiving its first official stablecoin, a coin known as DJED developed by the IOG (IOHK) and the COTI teams, which aims to expand the range of options available to those operating within the Blockchain.
Given that there are still many doubts about DJED, its proposal, its operation, and the mechanisms that will allow it to maintain parity with its reference fiat currency, below we present a summary with everything you need to know about this new stablecoin that arrives in the Cardano ecosystem.
What is DJED?
Other publications mention that DJED is a stablecoin that runs on the Cardano network. It will have parity with the US dollar. Although its operation is somewhat similar to other algorithmic currencies, specific differences make it more of an "over-collateralized" cryptocurrency.
Developers announced the proposal for creating this cryptocurrency at the end of September 2021, an initiative mainly designed to provide more options within Cardano's decentralized finance ecosystem. In this regard, its founding Djed White Paper reads:
"DJED is an algorithmic stablecoin protocol that acts as an independent bank buying and selling stablecoins for a price in a range linked to a target price. It is cryptocurrency-backed because the bank holds a volatile cryptocurrency in its reserve. The system uses the reserve to buy stable coins from users who want to sell them. And the proceeds from the sales of stablecoins to users are stored in reserve. In addition to stablecoins, the bank trades reserve coins to capitalize itself and maintain a reserve ratio significantly higher than one."
An overcollateralized stablecoin
In terms of its mechanisms that guarantee parity with the US dollar, DJED centers its operation on an over-collateralization model, which, although it has Cardano's native ADA token as the backbone for exchanges, also incorporates another asset known as SHEN that has additional properties to maintain the stability of the project.
Simply put, DJED works as follows:
Its main collateralization cryptocurrency is ADA: Users can exchange DJED for ADA based on the associated exchange rate, for which there will be a Smart Contract from which swaps occur in both directions.
Since the price of ADA can fluctuate based on market conditions, the SHEN token is introduced, which will serve as a second reserve asset and set a guaranteed rate on DJED of 400% - 800%.
The parity of DJED with USD is over-collateralized, eliminating the need for a governance token, as seen in algorithmic models. The platform is fully decentralized, community-driven, completely open source, and has mechanisms for minting and burning DJED and SHEN.
The dynamics between ADA, DJED, and SHEN would guarantee the over-collateralization of the project, which goes even further than the simple algorithmic functioning under which some market exponents operate while ensuring complete decentralization as opposed to those stablecoins that work with fiat reserve systems.
Additionally, the DJED project will include periodic reserve testing of its assets, ensuring complete transparency in issuing, minting, and burning the associated tokens.
The role of SHEN
The interesting point for DJED comes from SHEN, the third component of the project that makes the difference and guarantees the stability of the project. It is a token whose value fluctuates according to the free market, but its owners can receive rewards for ADA for DJED and vice versa. The team explained its functioning as a reserve currency on its official COTI blog.
By buying and selling SHEN, users can maintain DJED's peg to USD while earning a share of the transaction fees in the reserve pool. Since the reserve currency is a tradable asset, users can also benefit from short- and medium-term price fluctuations as an additional incentive.
As SHEN will allow its owners to derive dividends from the exchange between ADA and DJED, developers designed the token so that its Smart Contract limits the possibility for someone to accumulate new tokens once they reach a maximum threshold. This detail will ensure fair distribution among existing holders.
And among the associated benefits for SHEN users, the COTI team notes:
SHEN holders receive all DJED and SHEN minting/burning fees.
They will soon introduce a proxy reward system for SHEN users.
The SHEN price will also correlate with the price of ADA, boosted by an upward multiplier.
And in addition to the above, confirmed Cardano-based decentralized exchanges will also open Yield Farming groups to generate rewards through SHEN.
DeFi services for DJED
Given the high expectations among Cardano developers, enthusiasts, and users, several platforms within the network's Decentralized Finance (DeFi) ecosystem have already confirmed that they have the necessary mechanisms to support DJED and SHEN.
There is already feedback from at least two DEX platforms on Cardano, MuesliSwap, and MinSwap that they are ready for the stablecoin launch and will offer these coins as part of the liquidity pools on their services. In addition to the above, COTI's developers have announced that they expect DJED to be available in more than 40 Cardano-based dApps by its launch.
Alongside the development of the stablecoin, COTI has also been working on a DjedPay, a payments application using the stablecoin, which would allow users to transfer tokens to merchants and businesses.