Do you know about Djed stablecoin? Cardano’s founder Charles Hoskinson revealed they are building their first decentralized Over-collateralized algorithmic stablecoin, which will make defi and crypto easier and more secure, and the Coti network is the issuer of this stablecoin. recently Terra luna’s Algorithmic stablecoin UST loosed its peg from $1 during the market crash and many people loosed their life savings. Even Stablecoins are not secure nowadays. I am going to explain the full tech and algorithm behind Djed stablecoin and also tell you, is it risky or safe? Nowadays many crypto people looking for secure stablecoin after the UST attack. Djed can hope for them.
What is a stablecoin?
Stablecoin is a digital asset that shows stability in its price and it has to maintain its peg to 1 US Dollar. It’s the fiat currencies like the U.S. dollar. a stablecoin is very important for the crypto market because crypto is very volatile. We can transfer our asset’s value without the risk of price fluctuation. There are two types of stablecoin, which are centralized stablecoin and decentralized stablecoin.
Centralized stablecoin: it’s backed by the U.S. dollar they are called centralized stablecoin. Example: USDT, BUSD, USDC.
Decentralized stablecoin: It’s backed by an algorithm or decentralized assets that is called decentralized stablecoin. Example: SigmaUSD, DAI.
Why do we need decentralized stablecoin?
The decentralized stablecoin will have more and more value over time. Many current protocols depend on centralized stablecoin issuers. They have the power to freeze your assets and essentially censor you anytime. It’s a tremendous risk that’s why we need decentralized stablecoin.
What is Djed Stablecoin?
Djed is the first overcollateralized stablecoin built by Cardano and issued by the Coti network. The idea of Djed is to make DEFI and crypto accessible for anyone more easily and securely. Djed is an Egyptian word that means stability. It’s the most advanced algorithmic stablecoin which uses three-coin: Ada, Shen, and Djed.
How does Djed Stablecoin work?
Djed is the first stablecoin protocol whose stability claims have been mathematically proven, accurate, and formally verified. Djed’s management algorithm behaves like an autonomous bank, buying and selling stablecoin at prices within a set target price.
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Djed Stablecoin stability is based on 7 theories.
- Peg caps and floor maintenance
- Peg robustness in a market crash
- No bankruptcy
- No bank runs
- Monotonous increase in equity per spare coin
- No reserve drainage
- Dilution limit
Theory 1: Pay attention to the upper and lower limits. This theory shows that the price does not exceed or exceed the set price. Djed’s price never falls below $0.99 and never exceeds $1.01.
Theory 2: In the event of a market crash. It states that the pegs will be maintained even if the price of the base coin plummets, up to the limit set according to the reserve requirement ratio. With a reserve requirement of 1: 3, Djed can withstand a 66% market crash without losing pegs.
Theory 3: No Bankruptcy: The theory is that the fairness of the smart contracts that govern Djed Stablecoin will never go bankrupt or negative. If you have stablecoin, you can always get your money back if you have any bonds left.
Theory 4: No bank runs: This basically means that if the market crashes, there is no incentive for users to redeem stablecoin. Smart contracts treat all users fairly and equitably and are paid accordingly.
Theory 5: Equity per reserve coin increases monotonously. This essentially means that at a constant exchange rate, the equity or value that flows back to the Reserve Coin holder is constantly increasing, ensuring that the Reserve Coin holder will benefit.
Theory 6: Instead of running out of reserves, this theory states that the exchange rate remains constant. It is not possible for a malicious user to perform a series of actions to steal reserves from a bank / smart contract.
Theory 7: Upper limit dilution basically means that there is a “limit” on the number of reserve coin holders, and profits can be diluted by increasing the amount of reserve coins issued, and users will have reserve coins.
Let’s see how Djed’s advanced algorithms work.
The Djed has the base coin Ada and the reserve coin Shen.
Mint Djed: If you mint a Djed Stablecoin, the user must send Ada to his address to work with the smart contract. Djed then sends the contract back to the user. If Ada is worth $2 and Djed is worth $1, the user must send 0.5 Ada to the smart contract to mint a Djed. This process can be repeated and the user can send more ADA to the contract and get more Djed.
Sell Djed: If the user wants to sell Djed Stablecoin, the user must revert it to the contract. This will burn Djed and return an amount equal to $1 to Ada.
If the price of Ada is allowed to fluctuate, there may not be enough Ada in the contract to return it to the Djed holder. This is where Shen comes in. It is the reserve coins that are responsible for providing additional reserves to the pool. Shen is not tied to any particular asset and its price can fluctuate.
So what is the incentive for users to mint and keep Shen?
There are charges related to Djed & Shen casting and firing, which are collected and sent to the Ada Pool. Shen holders will receive some of these fees and a positive price increase from the growing Ada pool.
Djed’s collateral rate ranges from 400% to 800%. Djed can be over-collateralized (up to 8x), greatly reducing the risk of djed not being bound. This means that for every 1 Djed of Mentha, there are 4-8 Shen in the spare pool.
If the ratio drops below 400%, users will not be able to mint Djed and Shen owners will not be able to burn Shen. If the ratio exceeds 800%, you will not be able to Mint Shen. Therefore, if the market crashes, there is Djed’s peg security that guarantees Djed’s stability.
What makes DJED different from UST? | Djed vs UST
When we Compare Djed vs UST Both are algorithmic stablecoins, only DJED is over-collateralized, and unlike UST, which tends to run on bank runs and run out of collateral, it burns and casts coins. You can avoid the spiral of death by blocking. When it comes to UST, users can redeem LUNA for UST at any time. Therefore, UST may be out of collateral. Each circulating UST reduced the circulation of LUNA. DJED is over-collateralized (up to 8x), reducing the risk of peg loss.
This means that for each Djed Stablecoin minting, there is a $3 to $7 ADA in the reserve pool, and the DJED contract has enough money to generate $1 worth of DJED coin collateral and buyback, Bond maintenance, and still reserve money. No base token ADA will mint when DJED will burn. Even if the price of ADA goes down, the total supply of ADA doesn’t increase like LUNA, which helps to further avoid the death spiral seen in the case of UST.
These safeguards theoretically guarantee that the death spiral can be mitigated in the event of a Black Swan event, as we saw in UST. This makes djed different from other stablecoins. Djed is probably the best-designed stablecoin I’ve ever seen. This is all about Djed vs UST. Also here is a PDF file for more detailed information.
Will Djed survive during the market crash?
The short answer is yes. Recently, when the market was crashing and UST loosed its peg, the Djed stablecoin was able to maintain its peg to $1 during the market crash on the Testnet. Which Terra luna’s stablecoin UST doesn’t. which gives us more confidence about Djed stablecoin.
What is the role of COTI in Djed stablecoin?
Coti‘s most interesting service is the stablecoin factory. The factory allows customers to issue their own stablecoin in the trust chain and pay mint and redemption fees to the COTI’s Treasury.
Djed aims to be the ultimate stablecoin by paying the entire Cardano network transaction fee. Coti network becomes a direct beneficiary of this by collecting the burning and minting fee.
Is Djed stablecoin Decentralized?
There is a lot of misinformation spreading around the Coti network, which is that Coti has only one node, but that’s not true. The Coti network has more than 28 mainnet nodes, and soon more nodes will be ready to be added to the mainnet. Also, you can check here: Coti Mainnet nodes Statics.
Is Djed stablecoin Risky or safe?
In crypto, everything is risky. The Luna UST crash affected the overall crypto industry and the regulators are strictly looking into it. We don’t know how they will react, but one thing we can say mathematically is that Djed is the most advanced decentralized algorithmic stablecoin we have so far. It is built by Cardano’s researchers, mathematicians, and developers. They have many years of experience in this field.
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Djed stablecoin where to buy?
You can buy Mint Djed stablecoin from Djed’s official site for the Testnet. Currently, it’s available on the Testnet network and soon it will be available on the Mainnet. You can visit their site if you want to use Djed on the Testnet.
Which stablecoin is most secure?
I don’t believe any stablecoins right now after Luna’s stablecoin UST attack. But one method that I am following is if I have planned to trade in a particular week I will convert it to USDT or BUSD. if I know I will not trade for the next few weeks, then I will convert it to USD. This is the safest method you can use to secure your capital. There are 3 low-risk stablecoins where you can diversify your capital – BUSD, USDC, and Pax Dollar.
Finally, stablecoin DJED finally provides a good example of this. DJED is an algorithmic stablecoin created by the developers of Cardano and the COTI network. In the algorithmic design of DJED, smart contracts will maintain price stability and focus on transactions of decentralized finances. With a mathematically verifiable protocol, It eliminates price fluctuations, and no banking requirements, and works as expected. These characteristics make it a highly marketable Stablecoin with the potential to grow over time with many users and investors.