Coti’s CEO, Shahaf Bar-Geffen announced the launch date of Cardano’s new algorithm stablecoin. The news came out in a Summit held on Monday, 21st November. According to official sites, the token will go live in January 2023 after a successful audit. The token is an overcollateralized stablecoin is backed by excess collateral in the form of digital assets held in a reserve.
The Terra Luna’s stablecoin, UST, failure was due to the undercollateralized assets, and to avoid such failure, the Cardano comes with overcollateralized stablecoin. Following are the details about Cardano and Coti’s stablecoin, DJED.
What is DJED?
The Cardano’s network native cryptocurrency is called ADA and this DJED stablecoin will be backed by it. But how?
- When a user sends an ADA to a given smart contract chain, they will receive DJED in return.
- If you send $1 dollar worth of ADA, you will receive DJED worth $1.
“Djed takes what’s great with crypto as collateral, meaning no fiat in the system, but also takes over-collateralization very seriously,” said Coti’s CEO Shahaf Bar-Geffen
But what if the ADA collapses? The answer is that the DJED will collapse too if ADA collapses because of the backing system. However, the company has an alternative for this. If ADA collapses, it will be backed by a reserve currency called SHEN, to cover ADA’S price fluctuations. The currency is included in the same smart contract. This system ensures price stability and guarantees a collateralization rate of 400-800%.
Additionally, the SHEN is not price-pegged, it is open to volatility. Nevertheless, once the smart contract reaches its maximum it will stop everyone from minting new SHEN tokens to prevent in dilution of holders.
To add more flavor to the project, the DJED will be integrated into 40 apps in the Cardano ecosystem and a new project of DjedPay will be introduced to help merchants and other crypto players to accept Djed payments.
Why is it needed?
Bar-Geffen emphasized the importance of launching Djed, noting COTI and Input Output Global’s (IOG) collaborative efforts contributed to making the stablecoin a success.
“Recent market events have proven again that we need a safe haven from volatility, and Djed will serve as this safe haven in the Cardano network. Not only do we need a stablecoin, but we need one that is decentralized, and has on-chain proof of reserves,” said Bar-Geffen
How do you know that your funds are safe?
After FTX and Terra Luna crashed, it was need of time for several blockchains to share Proof of Reserve in order to get back investors’ and users’ trust. Top cryptocurrency exchanges like Binance and Bitstamp announced sharing their Proof of reserves in order to have customers’ trust. Many other exchanges like Grayscale refused to share the proof of reserve because of security concerns.
Bar-Gaffen’s emphasis on sharing proof of reserve shows the market sentiments. If stablecoins want to survive they have to provide adequate reserves to satisfy token redemptions at all times. These warry and distrust sentiments got uprising when UST and Luna tokens crashed in May 2022.
USDT, USDC, and BUSD are the top three stablecoins and they all are backed by cash and US Treasury bills. The information was public by these three stablecoins.
The UST crash has taken billions of dollars from the market and people lose many assets alongside trust in stablecoins. However, Cardano’s stablecoin may prove to be something better and more promising than many other stablecoins. On paper, it looks more promising because of its overcollateralized system. This could be the next big thing in the crypto market.