• Cardano and COTI have been partnering for over a year to develop DJED, a stablecoin.
• DJED would be deployed on the mainnet for investors once the chain index syncing is complete.
• The concept of over-collateralization would be used to ensure that DJED remains stable despite not being pegged to a fiat currency.
What Is DJED?
Cardano and COTI have teamed up to create a new-age stablecoin called DJED. It will allow users to transact with two of the fastest blockchains on earth and provide an innovative solution to tackle market volatility in cryptocurrency prices. Once the chain index syncing is complete (a 14-day process), it will be launched on the mainnet for investors.
How Would DJED Work?
DJED tokens can be bought by investors using ADA, while SHEN token serves as its reserve token. To make sure that its value is stabilized, even without being pegged to a fiat currency, an overcollateralization mechanism with 400-800% ratio has been set up. This means that for every one token of DJED, there must be four to eight tokens worth of SHEN as collateral.
Is It Safe To Invest In DJED?
Stablecoins have received negative attention since Terra Luna’s crash due to their unstable nature. However, this does not apply in case of DJED as it uses an overcollateralization technique which ensures stability even without being pegged against any fiat currencies like USD or Yen. Also, Cardano has shown great recovery after FTX crash, suggesting that investing in it could prove beneficial in the long run.
Why Is Overcollateralization Necessary?
Overcollateralization provides stability by utilizing collateral which is higher than the asset itself. Therefore, even if its reserve token (SHEN) fluctuates in price due to market changes, due to its high over-collateralization ratio (400-800%), it will still remain relatively stable compared other assets available in the crypto market today.