Cardano and COTI have been partnering for over a year towards the development of DJED, a new-age stable coin that will power transactions and innovations for two of the fastest blockchains on earth. As per COTI, DJED would be deployed on the mainnet for the investors once the chain index syncing is complete (a 14-day process).
Stablecoins, ever since the Terra Luna crash, have got a reputation for bad assets, which an investor should steer clear off. However, the idea of stablecoins has been one of the most innovative ones in the crypto space as it sought to solve the volatility issue which has plagued the crypto industry since its inception. By pegging an asset to an inherently stable one (like the US Dollar), the value of the other was also stabilized.
Terra (USDT) was not a stable coin in the true sense, as it was pegged to Luna. The volatility in LUNA’s price directly impacted the USDT, making it unstable just like its reserve coin (LUNA). DJED, on the other hand, could be one of the most innovative stablecoins in the market in the coming days due to its various features.
Cardano, a blockchain which strives to promote innovative projects, has shown a great recovery ever since the FTX crash, which had pushed ADA (Cardano’s currency) below the $0.30 mark.
How Would DJED Work?
DJED would be available to the investors once the mainnet is live (by 1st February). Investors would be able to purchase DJED and SHEN through ADA. The SHEN token would be used as a reserve token for the stablecoin.
Despite the reserve token not being pegged to a fiat currency like the USD or a Yen, the stablecoin would still be able to tackle market volatility and remain stable using the mechanism called over-collateralization.
Overcollateralization of DJED
Overcollateralization is a technique of providing stability to a currency by using collateral which is higher in value than the asset itself. DJED, unlike other stablecoins that use fiat currencies, is using an exogenous crypto asset. DJED has an over-collateralization ratio of 400-800%. This means that for every DJED, the team will have to maintain SHEN worth 4-8 times its value.
Holding and Profiting from SHEN
Investors can purchase SHEN to keep the DJED stable. Investing in a reserve coin could be a lucrative deal for the investor as he would be able to receive ADA tokens every time DJED or SHEN are minted or burnt. They will also be able to earn a share of transaction fees.
SHEN holders will be able to track and win rewards from the ADA staking pools on DJED’s smart contacts. SHEN could also be traded as a normal cryptocurrency helping the investors earn profits in short-term as well as long-term price surges.
SHEN, by being used as a reserve coin, would be connected to the ADA token. Therefore, SHEN would directly impact (positively) the success of Cardano’s new and successful projects.
How can Over-collateralization Benefit DEDJ?
Overcollateralization, as already mentioned, refers to a situation where the collateralized amount is greater than the loan borrowed against it. Usually, in the banking sector, banks ask for expensive assets (relatively) as collateral to decrease the risk of default that they might face in the future.
Likewise, in the crypto industry, a stablecoin is assured of stability by using greater collateral. In times of volatility, despite the volatility in the price of the reserve coin, the stability could be maintained if the over-collateralization ratio is within the prescribed range. An over-collateralization as big as DEDJ’s would easily be able to protect the stablecoin.
New CEX and DEX listings
DJED will soon be integrated with over 40 decentralized apps (Dapps) of the Cardano ecosystem, which will give the stablecoin the right publicity and a ready market. Upon launch on the mainnet. The DJED stablecoin, along with SHEN, is scheduled to be listed on Bitrue (a centralized exchange) as well as on the Cardano-based WingRiders (a decentralized exchange) upon their launch on the mainnet.
Being backed by the 8th largest cryptocurrency in the market, DEDJ has a good chance of making it to the top leagues within a short period of time. The developers seem to have learnt from the mistakes that led to the TerraUSD crash.
Ensuring the stability of the DEDJ using over-collateralization of SHEN and incentivizing SHEN investors through multiple rewards could help the coin also solve the stability issue. However, despite having a sound mechanism, the creators of DJED will have to work hard to win back the trust of the investors who lost a great deal in the Luna crash.
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