With the impending launch of smart contracts on Cardano, attention is turning to its ecosystem and how it will evolve in comparison to competing chains.
Stablecoins, which are an essential component of any crypto ecosystem, are one such consideration. Stablecoins bridge the fiat-to-cryptocurrency gap and provide a solution to volatility.
Developers Input-Output Global (IOG) teased the Djed stablecoin earlier this week, describing it as an algorithmic token for proven price stability.
But what does it all mean?
Djed’s stability is algorithmically controlled.
In a video posted in mid-July, IOG CEO Charles Hoskinson mentioned Djed.
He stated that IOG has been experimenting with stablecoins for the past three years. This includes looking into various types such as algorithmically backed, asset-backed, and CBDCs.
However, it wasn’t until this year that senior figures decided to pool the experiments in order to create an algorithmic stablecoin for use on the Cardano network.
“Earlier this year, there was an idea to take some of the Ergo experiments and actually shoot for the fences and go for an algorithmic stablecoin that we could deploy on Cardano.”
It is referred to as a “crypto-backed algorithmic stablecoin contract that functions as an autonomous bank.” This means that a smart contract is in charge of a reserve of “base coins” and mints and burns stablecoins and reserve coins to keep the peg stable.
This procedure also involves charging fees, which are accumulated in the reserve. Holders of reserve coins accept the risk of price fluctuations while also benefiting from fees collected.
“This method of exchange provides a stable medium of exchange. Djed, on the other hand, is not limited to being pegged to the US dollar. It is compatible with other currencies as long as oracles provide the contract with the corresponding pricing index.”
Cardano’s scientific method was used in its development.
Djed is the market’s first formally verified stablecoin, in keeping with Cardano’s philosophy of formal verification and the “scientific method.”
According to IOG, its features, which include upper and lower bound maintenance, robust design in the event of market crashes, no insolvency, and no possible reserve drain, can be proven mathematically.
Furthermore, because the underlying assets are visible to the public on the blockchain, the project claims to be completely transparent. Add to that a smart contract-controlled method of automating the stabilization process, and Djed stands out from the crowd.
ADA hit a new all-time high of $2.56 in the early hours of today (GMT). This follows an incredible seven-day run in which Cardano increased by 23 percent and surpassed Binance Coin to take third place.