Cardano gears up for DeFi assault and unveils new stablecoin

Cardano is near its end Hard Fork Combinator (HFC) “Alonzo” Event to Implement Smart Contract Capabilities in Main Grid. Developers, community projects, and the IOG are preparing for the milestone and potential growth of the network ecosystem.

Recently, IOG published a document describing a new stablecoin algorithm to be launched on the platform, called Djed. The project has been developed by IOG and its partners Emurgo, and Ergo blockchain, as a “stablecoin contract,” the Cardano developer stated in a official position.

This digital asset will address the most common problems with other stablecoins, such as Tether and USD Coin, such as the lack of transparency about their reserves and their liquidity. Thus, you will take advantage of a smart contract to ensure its price stability. IOG said:

Djed is a crypto-backed algorithmic stablecoin contract that acts as an autonomous bank. It works by maintaining a reserve of base currencies and minting and burning stablecoins and reserve coins.

As seen below, this Cardano-based stablecoin will operate on a stand-alone “central bank-type” contract. Therefore, it will be made up of reserves, capital and liabilities.

Source: Global Input Output

Additionally, Djed’s stability mechanism will allow the contract to sell stablecoins and use collection fees and reserve assets to maintain a target price. IOG claims that holders will benefit from this dynamic as they will be able to increase the stablecoin reserve and “bear the risk of price fluctuation.”

But Djed is not limited to being pegged to the dollar. It can work with other currencies, as long as there are oracles that provide the corresponding price index to the contract.

Cardano Stablecoin, better than the competition?

Cardano Inventor and IOG CEO Charles Hoskinson celebrated the launch of Djed’s article. Additionally, Hoskinson revealed that the Plutus team is currently working on a prototype and will likely be able to do so after HFC Alonzo.

As part of the spirit of Cardano, IOG states that the Djed properties are “proved by mathematical theorems”. This helps you achieve consistent peg to underlying assets with lower limit maintenance, resistance to spikes or sudden drops in the market, no bad debt, no bank panic.

This mechanism will support fair treatment of all users, according to the official publication. Thus, it creates more incentives for holders to keep their coins with a cap on Djed reserves that can be “diluted” to issue more. Holders will further benefit from the stablecoin capital increase_

(…) It is guaranteed that the reserve surplus per reserve currency will increase as users interact with the contract. Under these conditions, reserve coin holders are guaranteed to make a profit.

The Cardano-based stablecoin will be released in two versions: the Minimal Djed, a “simple and intuitive” stablecoin, and the Extended Djed. The latter will have more stability benefits, IOG claims and more incentives to keep the reserve ratio “at an optimal level”.

The stablecoin has already been implemented in Ethereum, such as an ERC-20 token, Binance Smart Chain, avalanche, Polygon and other ecosystems as a tesnet project.

At the time of writing, Cardano (ADA) trade winds to $ 2.30 with a rise of 8.5% on the daily chart.

Cardano ADA ADAUSDT
ADA in a rally on the daily chart. Source: ADAUSDT Business View

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