New Algorithms For A Stablecoin Will Be Released By Cardano In 2023

New algorithms for a stablecoin will be released by Cardano in 2023

Why in News?

The proof-of-stake blockchain platform Cardano released an “over-collateralized algorithmic stablecoin” in collaboration with COTI, a Layer 1 protocol that uses DAG. Different assets will secure the stablecoin in the form of cryptocurrency held in reserve, the project stated in a statement supplied to Cointelegraph.

According to the press announcement, Djed will launch the blockchain system in January 2023, subject to the completion of a comprehensive audit and other rigorous stress tests.

The creators claim that Djed will be endorsed by Cardano ($ADA) and will use the cryptocurrency $SHEN as its reserves coin. It will also be linked to the US dollar. With the help of a few carefully chosen companies, including Decentralized Exchanges (DEXs), the algorithmic stablecoin will be incorporated.

DEXs will pay users for utilizing Djed to provide liquidity. In addition, the developers intend to provide $ADA availability to both the Djed permissioned blockchain gradually and slowly to grow at a healthy and sustainable rate.

What is DJED?

As the network’s native coin, ADA, serves as the backing for DJED, Cardano’s attempt to develop a price-stable digital asset.

Users will receive DJED for the same amount in exchange for paying ADA to a specific Cardano intelligent contract address. For example, the sender will obtain $1 worth of ADA by returning 1 DJED to the smart contract.

Theoretically, this approach may fail if significant downside volatility in ADA occurs, rendering the backing of the DJED tokens in circulation insufficient. As a result, in addition to ADA, the smart contract will also contain SHEN as a reserve currency to cover ADA price volatility, maintain price stability, and assure a liquidity rate of 400–800%.

Djed stablecoin features

Djed ($DJED) is a Schemes, COTI-powered over-collateralized algorithmic stablecoin. It will have a USD peg and ADA. Shen will serve as its reserve currency.

To ensure that there will be enough $ADA in the pool, the algorithm for $DJED is premised on a secured debt ratio for $DJED and $SHEN, which is between 400% and 800%.

Cardano continues to exercise caution as the debut approaches

Cardano has told investors that they have been extremely cautious in how they approach the introduction of its stablecoin following the Terra LUNA meltdown that followed the de-pegging of their native algorithmic stablecoin Terra USD (UST).

Before the stablecoin’s launch on the mainnet, they had to make sure a complete audit and rigorous stress testing were accomplished.

Cardano has also stated that it will give the Djed innovative contract ADA liquidity modestly and steadily. Therefore, Cardano will be able to develop the stablecoin slowly due to this.

Djed will be incorporated to enable further use cases after it is introduced with a few prominent Cardano partners.

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