USD-pegged algorithmic stablecoin Djed launched on the Cardano mainnet on Tuesday. The stablecoin was developed by the blockchain firm Coti and is over-collateralized by 400-800% with ADA, Cardano’s native coin, while SHEN will serve as a reserve token.

Djed to be Integrated into 40 Cardano Apps

Djed, a US dollar-pegged stablecoin, has launched on Cardano’s mainnet after a year of development by blockchain firm Coti and Cardano’s key developer Input Output. Each Djed stablecoin will be over-collateralized by 400-800% with Cardano’s native token ADA, while the SHEN token will act as a reserve coin.

The high collateralization makes Djed similar to the Ethereum-powered stablecoin dai. However, its minting and burning model is more similar to other algorithmic stablecoins.

The launch of the stablecoin aims to provide a more stable alternative to volatile cryptocurrencies. Djed will mainly be used on decentralized finance (DeFi) protocols within the Cardano ecosystem.

The new stablecoin will be integrated into 40 Cardano-based apps. Popular decentralized exchanges (DEXs), including MinSwap, Wingriders, and MuesliSwap have already announced their support for the token. Coti, a firm that developed a proprietary blockchain protocol for building loyalty networks, said in November it will roll out DjedPay – a service allowing merchants and crypto firms to accept stablecoin payments.

“Djed takes what’s great with crypto as collateral, meaning no fiat in the system, but also takes over-collaterization very seriously.”

– Shahaf Bar-Geffen, CEO of Coti, said in an earlier statement.

Overcollaterized and Algorithmic

The launch of Djed comes on the heels of a highly challenging year for Cardano and the broader crypto market. ADA token has plummeted more than 80% at one point in 2022 amid a crypto winter and a string of collapses, including the algorithmic stablecoin TerraUSD (UST) and Sam Bankman-Fried’s FTX.

But on a more positive note, Cardano’s 2023 roadmap includes several exciting updates and projects, including the launch of Djed. Like other algorithmic stablecoins, Djed is pegged to the US dollar, meaning it maintains the same value as $1.

Backed by ADA, Djed employs a smart contract to maintain its peg to the greenback. This allows users to transfer ADA to the governing smart contract and receive an equivalent amount of Djed, creating a pool of ADA tokens that backs each Djed in circulation.

The ultimate goal of this stablecoin is to become the main currency with which all transaction fees within the Cardano ecosystem will be paid. This model is expected to allow for consistent transaction costs and avoid volatile gas fees.

This article originally appeared on The Tokenist

• COTI reveals that Djed is set for mainnet launch this week.
• The long-anticipated algorithmic stablecoin is poised to drive new adoption to the Cardano network.

Djed, the flagship Cardano blockchain native overcollateralized stablecoin, is set to launch this week. COTI, the layer 1 blockchain network that jointly developed Djed with Cardano core developers IOG, unveiled new details of the launch.

COTI noted in a blog post that the ADA-backed stablecoin would deploy on the mainnet once chain index syncing is complete. The technical process took around 14 days to complete and was started last week, COTI said.

“We started the chain index syncing process. This process may take 14 days, and as we started the sync a week ago, we expect to complete it next week and be ready to launch. As of right now, this is the only technical bottleneck holding up the launch,” the post said.  

The post also highlighted the technologies that will get added to the stablecoin with post-launch updates. The L1 network developers are building a snapshot mechanism and UI for the Djed webpage, Djed.xyz. This feature will allow SHEN holders to track rewards earned from ADA staked in the Djed contract.

Similarly, the ability to cancel an order has been added. The feature will allow users to click on the refund button to cancel their transaction “as long as it has not been processed.” 

Meanwhile, Djed is also set to get listed on exchanges at launch, COTI also reveals. Centralized exchange Bitrue has announced that both DJED and SHEN—the reserve currency of the stablecoin— will get listed on its spot markets at launch. COTI notes that Djed’s decentralized exchange (DEX) partner, Wingriders, has also hinted at listing the stablecoin.

What does Djed bring to the Cardano network? 

Cardano enthusiasts have eagerly awaited the dollar-pegged stablecoin, which IOG and COTI talk up as the “first stablecoin protocol where stability claims are precisely and mathematically stated and proven.” Djed is expected to maintain stability by being 400% to 800% overcollateralized at all times.

Djed will, for one, operate as a decentralized bank with multiple use cases. COTI is already developing Djed Pay to enable users to pay vendors with the stablecoin. Other use cases include alternative banking, lending, and remittance.

The stablecoin is also expected to be integrated widely across the Cardano ecosystem. Multiple DEXs and NFT marketplaces are already working towards its integration.

Furthermore, Djed will eventually become the token in which all Cardano gas fees are paid according to plans revealed by IOG. This will allow for a uniform, predictable transaction cost rather than having volatile gas fees.

Meanwhile, amid the latest update by COTI, the price of ADA has soared in line with the broader crypto market surge. ADA is up 3.60% in the last 24 hours, trading at around $0.39 at the time of writing.

In updating Djed’s progress, COTI gave “next week” as the scheduled launch date for the Cardano-based stablecoin.

During a recent video presentation, COTI CEO Shahaf Bar-Geffen said the final rollout is expected sometime in January. In the talk, Bar-Geffen took the opportunity to distinguish Djed as an overcollateralized stablecoin rather than an algorithmic stablecoin.

The critical difference is that the former uses external collateral, such as the ADA token in Djed’s case, which is unconnected to the stablecoin protocol. By contrast, the latter uses internal collateral, such as how Terra LUNA backed the UST stablecoin pre-collapse.

More recently, he drummed up support for the coming Djed launch while teasing “more exciting news in the coming days.”

Djed is readying to launch

Accompanying the launch, COTI stated that Bitrue will list Djed and the Shen reserve coin.

Although ADA provides the external collateral, Shen is used as liquidity to maintain the peg price in cases of ADA price fluctuation and the potential for insufficient ADA to pay Djed sellers wishing to cash out.

Meanwhile, decentralized exchanged Wingriders hinted that it may also list Djed in a recent tweet.

With “next week” fast approaching, the COTI team said the only hold-up is completing the chain index syncing process, which takes 14 days but was started last week.

In the meantime, to maximize benefits for Shen holders, ADA staking rewards (from the ADA deposited in the smart contract) will be distributed to depositors based on an upcoming snapshot system that incorporates a UI to track payouts.

“We are developing a snapshot mechanism and UI that will be added to djed.xyz, where $SHEN holders will be able to track these extra rewards.”

What about dollar-backed stablecoins?

A recent post from Emurgo made the case for dollar-backed stablecoins on Cardano.

Emurgo said a dollar-backed stablecoin inspires confidence and acts as a strong anchor during extreme downside volatility. Additionally, such stablecoins provide more stability and are a better store of value — especially when it comes to facilitating trading, thus encouraging a lending and borrowing economy.

Emurgo added that dollar-back stablecoins are tried and tested while algorithmic stablecoins post-UST continue to struggle with uncertainty.

Several dollar-backed Cardano-based stablecoins have launched or are in the process of launching, including synthetic dollar offering iUSD which launched in November 2022, and Cardano’s first dollar-backed stablecoin USDA is set to release in “early 2023.”

Synthetic dollar refers to backing by other dollar collateralized stablecoins, which in the case of iUSD are USDC, TUSD, and USDT.

Shahaf Bar-Geffen, the CEO of COTI, said Djed is an overcollateralized stablecoin and not an algorithmic stablecoin.

During COTI’s first update of 2023, Bar-Geffen took the opportunity to make clear that the soon-to-be-launched Djed stablecoin is to be referred to as an overcollateralized stablecoin, despite it operating on an algorithmic design.

How does Djed work?

Algorithmic stablecoins use an automated or sometimes incentivized method to achieve price stability.

In instances of the price being above the peg price, tokens are minted to increase circulation and reduce the price. While pricing below the peg price requires burning tokens to reduce circulation.

Djed is backed by Cardano’s ADA token, meaning users wanting the stablecoin send ADA to the smart contract and receive minted Djed in return. These transactions build up the value and holdings in the Djed pool.

By contrast, selling Djed requires users to send the stablecoin back to the smart contract, which then burns the token and returns the amount of ADA equivalent on a $1:$1 basis.

To accommodate instances of ADA price fluctuation and the possibility of insufficient ADA in the smart contract to pay Djed sellers, COTI has incorporated the Shen reserve coin, which acts as liquidity to maintain the peg ratio.

Overcollateralized stablecoins have advantages, says Bar-Geffen

Despite a general belief that differences between overcollateralized and algorithmic stablecoins are a matter of semantics, Bar-Geffen thinks it is crucial to categorize Djed as the former.

The COTI CEO said Djed obviously uses an algorithm, but using an algorithm to maintain price stability is not necessarily a reason to categorize it as such.

In listing the differences between overcollateralized and algorithmic stablecoins, Bar-Geffen said Djed uses external collateral in ADA, which is unconnected to the protocol. In comparison, algorithmic stablecoins use internal collateral.

Four times the amount of ADA overcollateralizes Djed at a minimum. In contrast, algorithmic stablecoins tend to be partially collateralized. Likewise, Djed is always redeemable for ADA, while algorithmic stablecoin redemption sometimes “depends on the value of the governance token.”

“Djed’s stability depends on overcollateralization and not on the trust in the governance token.”

Summing up, Bar-Geffen said Djed does not suffer the centralization and regulatory risk of fiat-backed stablecoins. Similarly, Djed is advantageous over algorithmic models in that no trust in the algorithmic model or governance token price is required.

The Djed 1.1.1 public testnet has been running since Dec. 6, 2022, with user feedback helping devs fine-tune the product. The final rollout is expected sometime in January.