Cardano Up 60% in Past Month as it Unveils New DeFi Stablecoin

August 21, 2021, 10:30 AM AEST (updated September 04, 2021)

The price of Cardano (ADA) continues to soar as the company makes strides. The ‘Alonzo’ hard fork set for release next month, along with the unveiling of its new stablecoin Djed, is keeping Cardano on everybody’s lips.

ADA’s new stablecoin, Djed, is the first coin to eliminate price volatility using formal verification, thereby overcoming one of the biggest barriers to crypto mass adoption.

What Djed Is All About

In the crypto market, volatility is a major concern and stablecoins aim to minimise this. Stablecoins are cryptocurrencies pegged to commodities, other cryptocurrencies, stocks and fiat currencies that include mechanisms to allow low price deviation from their target price. With the aid of their built-in mechanism they can remove volatility, making them excellent to exchange or store value.

Some stablecoins, such as Tether and USD Coin, lack transparency about their reserve and liquidity, thereby compromising price stability.

In an effort to resolve some of the issues surrounding stablecoins, IOG has partnered with Emurgo, and the Ergo blockchain, to work on a stablecoin contract called Djed. Emurgo is one of the three founding partners of Cardano and Ergo employs UTXO-based accounting, like Cardano.

Djed is based on an algorithmic design, which means it uses smart contracts to secure price stabilisation. Thus the coin will be useful for DeFi operations.

How It Works

Source: Input/Output Global

Djed will work by using an autonomous “central bank line” contract, consisting of the reserve, equity and liabilities. To further ensure stability, Djed will allow the contract to sell stablecoins and use the charging fees and reserve assets to maintain a target price.

IOG, the developers of Djed, assert that their stability mechanism will benefit holders of the coin as it will enable them to “boost the reserve with funds while assuming the risk of price fluctuation”.  

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

Input/Output blog

Charles Hoskinson, CEO of IOG and inventor of Cardano, shared his enthusiasm for Djed, citing that the coin’s properties are “proven by mathematical theorems”.

The mathematical theorems will help Djed to maintain a constant peg to the central assets with lower bound maintenance, no insolvency, no bank runs, and robustness during market crashes.  

Djed will launch in two versions: Minimal and Extended Djed. Minimal Djed will be as “simple, intuitive and straightforward as possible, without compromising stability”. Extended Djed will have more incentives to keep the reserve ratio “at an optimal level”, and will have more stability benefits.

Imminent Hard Fork Pushes Cardano Up 60% in Past Month 

The ‘Alonzo’ hard fork, set for release on September 12, is generating much excitement among traders and investors. ADA is currently trading at US$2.52, reaching all-time highs, and is up 17.32 percent in the past 24 hours. Cardano is the third-largest cryptocurrency by market cap.

The release will enable smart-contract functionality on the Cardano network and will allow ADA to add more applications such as DeFi platforms that will allow for automated trading and lending of cryptocurrency. This move addresses one of ADA’s biggest shortfalls and will put it in a better space to challenge Ethereum.

By Jana Serfontein, Crypto News Australia Guest Author

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