It was recently announced that the stablecoin DJED will be launched on the Cardano Mainnet in January 2023. With the current state of the market, this new launch could prove to bring some positive sentiment to the community. But if you are wondering what is Djed and how will it work, don’t worry because in this article we have covered everything you need to know.
What is a Stablecoin?
Before we even begin to talk about Djed, it is important to understand what exactly a stablecoin really is. In simple words, a stablecoin is exactly what its name suggests, a crypto coin that can stabilise its own price while also being pegged to another asset value.
Usually, the value of a stablecoin is linked to a fiat currency, but it can also be done to assets like gold and other cryptocurrencies. One of the methods by which this coin can stabilise its price is through an Algorithmic Mechanism.
This is done through a combination of reserved and collateral tokens and the regulations of the smart contract
What is Djed and How does it work?
According to the official blog by COTI: Djed: Frequently Asked Questions, “$DJED is an over-collateralized algorithmic stablecoin that is backed by $ADA and uses $SHEN as a reserve coin.” Minting of $DJED can be done by interacting with the smart contract and sending $ADA to that particular address.
Let’s look at a simplified example to better understand this. Let’s say hypothetically, the ADA token is valued at $2 and the DJED token is at $1. So in order to mint 1 DJED, the user would have to send 0.5 ADA to the smart contract to receive the 1 DJED back. This process can then be repeated to mint more DJED.
The extra reserves for the pool are ensured by the SHEN coin. SHEN in this scenario acts as a reserve coin and is not pegged to any specific asset.
The SHEN token basically provides for the smart contract enough ADA to make up for its fluctuation, ensure a stability of price, and make it a point that the collateralization rate is guaranteed.
As long as the reserve ratio is in the range of 400%-800%, the minting of DJED and SHEN tokens will be permitted.
If the ratio falls out of this range, certain mint/burn procedures will not be allowed to take place.
What is COTI platform?
COTI is a crypto program that is credited with allowing payment with ADA. COTI is considered to be the first enterprise-grade fintech platform that helps projects with payment solutions and digitizing currencies. COTI is also the issuer of the Djed stablecoin.
COTI Founders Samuel Falkon and David Assaraf launched the company in 2017. They both have a combined experience of many years in different fields like finance, sales, trade, payments and marketing.
Shahaf Bar-Geffen was then bright on as CEO, who gave the company a fresh turn. He, at the official Cardano summit, stated this regarding the Djed project:
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.
Fees attached to Djed
The mint and burn fees for the DJED and SHEN tokens will be charged in $ADA and will be a part of the equity pool. A great part is that to incentivise users, a part of this equity pool will be distributed to the SHEN holders too. The operating fees which also will be paid in ADA, are going to be taken from the initial deposit and cooperating prices. According to the network, these fees will be then changed to “$COTI and streamlined into the COTI Treasury to be distributed as rewards to COTI users”.
The fee structure will be as follows:
- DJED mint & burn fee: 1.5%
- DJED operational fee: 0.5%
- SHEN mint fee: 0.2%
- SHEN burn fee: 0.5%
What can the Djed token be used for?
Much like any other stablecoin $DJED also has a wide array of uses and functionalities. It can be used for payments and lending as well as a form of salary to employees. The Djed token also finds an application in the alternative banking sector and gives the user complete control of their funds. Being a stablecoin, it does get a one-up over the other cryptos since over time its value and price remain mostly stable.
Frequently Asked Questions:
What are the other two kinds of stablecoins?
There are three types of stablecoins namely:
- Fiat-Collateralized Stablecoins.
- Crypto-Collateralized Stablecoins.
- Algorithmic Stablecoins. The $DJED is an algorithmic stablecoin.
If the reserve ratio drops below 400%, what will be the effect?
In a circumstance where the reserve ratio becomes lower than 400%, the mining of $Djed will come to a halt and the burning of $Shen won’t take place. You will only be allowed to $Djed to redeem it for $ADA or mint $Shen.
What happens if the reserve ratio goes beyond 800%?
In such a scenario minting of any new $Shen will stop and the Burning of the token will be allowed and encouraged.
When released, where will $DJED be listed?
When it is officially launched, the token will be available for listing on both DEXes as well as Centralized exchanges.
