A little less than a year and a half ago, Cardano blockchain developers presented DJED, a stablecoin with a double reserve mechanism. If since then, the Terra affair and the explosion of the ecosystem have greatly reinforced the mistrust of users, the aim of the developers is to make the DJED a real strong point for the expensive blockchain Charles Hoskinson. Let’s see how it all works!
DJED / SHEN: An ecosystem like no other!
Presented in September 2021, on the occasion of the Cardano Summit 2021, the Djed stablecoin is dollar-backed sub-collateralized stables. The protocol works as collateral with the ADA token of the Cardano blockchain. It is developed by IOG and released to the market by fintech COTI. Like other stablecoins in the market, it is an algorithmic stablecoin.
The issuance of the token is therefore “supported” by reserves held in ADA. The DJED token is issued according to a very simple principle for the user. It will then be necessary to interact with the smart contract by sending ADA signals to an address. Alternatively, the user will then receive the correspondence in the DJED stables.
The reverse process is obviously possible and allows the user to retrieve the sent ADA signals. In such a case, the DJED signals will be burned back. Since the price of the ADA token is determined by the law of supply and demand, it may no longer be possible to convert from DJED to ADA. That’s why the ecosystem gives the second signal: the OLD.
The SHEN token is a backup base with its purpose fProvide additional reserves to ensure liquidity and proper functioning of the principal pool. With this mechanism of “double reserves” it is possible offer collateral well over 1. According to the documents, this should remain between 400 and 800%.
Unlike the DJED token, the asset SHEN is not correlated to any particular asset or basket of assets and their price may vary. Note that owners of the SHEN token do not have priority to exchange their assets for ADA. In fact, the ecosystem seeks to prioritize holders of the DJED stablecoin. The following infographic shows the differences between DJED and other stablecoins:
A game changer for the Cardano blockchain?
With the launch of this stable token, the Cardano blockchain plans to continue growing. And especially i the deFi sector (decentralized finance). A feature validated by the COTI company, which is at the heart of the project:
Djed built on the Cardano blockchain is not only stable, but also designed be the ultimate currency which will pay all Cardano network transaction fees. It makes more sense for a chain to have predictability in transaction costs, rather than having fluctuating gas fees, and Djed will do just that.
If he succeeds in proving his stability and collects the user trust of the blockchain, it is a safe bet that DJED will become a reference project on Cardano.
Good to know: The Cardano blockchain is expected to launch its own stablecoin soon: the USDA. This stablecoin should be aligned with the US dollar.
The ecosystem around the DJED and SHEN tokens intends to reward users for participating in the DJED stablecoin peg maintenance. Therefore, rewards will be distributed to the holders of the SHEN token through the liquidity pool system. It is clear that the reward of the holders will depend on the number of SHEN tokens they have. As the platform’s FAQ says:
Mining and burning fees will be charged for $DJED and its spare base in $ADA and will go into the protocol’s equity pool. Holders of the reserve coin will receive a share of this reserve as an incentive to maintain the peg ratio of $DJED.
The protocol in place provides that SHEN may be burned if the collateral ratio is less than 400%.
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