What is the Djed Stablecoin?

What is the Djed Stablecoin?

Djed is a groundbreaking stablecoin that is produced by COTI, in collaboration with Cardano, that has a huge list of use-cases.

Djed is different to the stablecoins you have become accustomed to in the past.

What is a Stablecoin?

Stablecoins are digital tokens designed to have a fixed value by pegging them to a fiat currency or physical asset (e.g Gold). 

In practice, US dollars are the most common physical asset used for backing their value. Stablecoins were born out of the need for a crypto asset immune to volatility.

Unlike bitcoin and its sibling altcoins characterised by price upsurges and crashes, stablecoins maintain a fixed price irrespective of crypto market sentiments. 

What are the Different Types of Stablecoin?

The four main types of stablecoin are as follows:

• Fiat collateralised. Backed by fiat currencies like the US dollar. (e.g. USDT or USDC)
• Commodity-collateralised stablecoins. These are supported by commodities like gold or silver. (e.g. PAX Gold)
• Crypto-collateralised stablecoins. Use other cryptocurrencies as collateral. (e.g. DAI and Djed)
• Non-collateralised stablecoins. These are not supported by any external assets but are run by algorithms that monitor supply and demand. (e.g. Djed)

Where does Djed Get its Name?

The Djed stablecoin gets its name from an ancient Egyptian symbol. The “Djed” symbol represented stability and prosperity, as well as also serving as a symbolic representation of the god Osiris.

Following this, Djed becomes the perfect name for a coin that is based around stability, and this is precisely why Cardano decided to name their first native stablecoin after this age-old symbol. 

What is Djed?

The Djed stablecoin is the first stablecoin issued on the Cardano blockchain, and unlike most other stablecoins, Djed actually differs quite drastically from the norm and does a few different things that make it stand out from the rest. 

The Djed Stablecoin is an algorithmic protocol that is pegged to a target price ($1USD). It maintains this peg by having a reserve token (Shen) that can be bought or sold to maintain the pegged value of Djed.

Djed is collateralised with a reserve of ADA (in the same way that USDC is backed by reserves of the $USD)

A result of this is that Djed can be viewed as both collateralised and non-collateralised (ADA is the collateral reserve but it is also pegged by an algorithm)

In layman’s terms, this means that Djed is a stablecoin that is tied to an external digital asset (Shen) to help provide stability whilst also being backed by ADA (the collateral).

This may sound a little complicated at first, however, it just means that the Djed stablecoin is going to have superior stability when compared to other stablecoins. 

What is a Reserve Coin?

In short, reserve coins are tokens that maintain the algorithmic peg of their partner stablecoin. 

As users trade (swap) the reserve coin, they help provide the liquidity required to maintain its stablecoin partner’s peg ratio.

Reserve coin holders get a share of the transaction fees generated by the stablecoin.

What is the Djed Reserve Coin?

Djed’s reserve coin is called “Shen”; named after another ancient Egyptian symbol, this time the symbol represents both royalty and symmetry, with connections to infinity, eternity and protection.

A perfect name for a coin that ensures Djed’s stability!

Example 1:

If the value of Djed climbs above its peg of $1USD (e.g. $1.02), the algorithm uses Djed to buy Shen, which results in Djed returning to its $1USD peg.

Example 2:

If the value of Djed falls below its $1USD peg, (e.g. $0.99), the algorithm buys Djed from the open market with Shen to raise the Djed price back up to the peg value of $1USD

Final Thoughts

When talking about the mechanics behind how the Djed coin works in a paper, COTI said: 

“This is the first stablecoin protocol where stability claims are precisely and mathematically stated and proven. Claims and their proofs are usually verified by using two different techniques: bounded model checking, to exhaustively search for counter-examples to the claims; and interactive theorem proving, to build rigorous formal proofs using a proof assistant with automated theorem proving features.”

The COTI team have truly gone above and beyond to back up their claims, and it seems as they have come up with one of the most iron-clad algorithms out of any other stablecoin.