Cardano was in the news over the weekend after a host of developments made headlines during the Cardano Summit in 2021. However, it can be argued that one of them made the most of the headlines. IOHK, the company behind the development of Cardano, has announced that the network’s stablecoin will be issued by the COTI platform.

As the latest piece in the network’s efforts to make Cardano an independent ecosystem, Djed could either become a stablecoin prodigy or a failure.

So what is DJed?

Djed is Cardano’s answer to USDT and USDC, which is a stablecoin, but it is supported by algorithms and not by fiat or cryptocurrency. IOHK describes Djed as the first “formally verified” stablecoin. It calls it that because it is the only stablecoin whose properties are apparently proven by a mathematical theorem.

Djed uses a smart contract in its midst to ensure price stabilization. It essentially works by maintaining a reserve of base coins while stable assets and reserve coins are minted and burned.

The primary function is to pay transaction fees to make costs more predictable. As is known across the crypto space, fees are an important issue for investors and developers alike.

Top blockchains like Ethereum currently cost around $ 2.6 on average for a transaction. The same can go as high as $ 24 or even $ 40 depending on the time and usage.

Ethereum gas fees | Source: Etherescan

Djed is currently tackling this theoretically, but we’ll have to wait and see how it actually works.

Surprisingly, since the Notice that COTI will issue Djed hasn’t improved much for COTI’s tokens. While it hit a new all-time high a few days ago, rising 91% in 48 hours, it soon hit a plateau in the charts at the time of going to press.

But why not USDT or USDC?

That must have been the first question on your mind. While there are many factors, we’ll break it down to the simplest point.

While other networks rely on successful coins such as USDT and USDC, Cardano is on the way to absolute decentralization. For this reason, an algorithm-based stablecoin would make sense in order to minimize the dependence on a centralized system.

Remember, we also have DAI – the only other algorithm-based stablecoin. It is known for its stability but has also been criticized for its governance. Since the foundation team owns the top 50 wallets, they also have more than 50% voting rights.

This lack of absolute decentralization also led to Single Collateral DAI (SAI) being replaced by Multi-Collateral DAI (MCD). This also resulted in several volatile assets being added to the collateral list.

Simply put, Cardano has a lot to prove with Djed and time will tell how it turns out.

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