• What can we expect from Cardano’s ‘djed’ step toward decentralization?

  • Cardano made headlines over the weekend as a number of developments occurred during the Cardano Summit 2021. However, it could be argued that one of them received the most attention. Cardano’s development company, IOHK, has announced that the network’s stablecoin will be issued by the COTI platform.

    Djed, the network’s newest piece in its efforts to make Cardano an independent ecosystem, has the potential to be a stablecoin prodigy or a failure.

    So, what exactly is Djed?

    Djed is Cardano’s answer to USDT and USDC, i.e. a stablecoin backed by algorithms rather than fiat or cryptocurrency. Djed is the first “formally verified” stablecoin, according to IOHK. It’s called that because it’s the only stablecoin whose properties appear to be proven by mathematical theorem.

    To ensure price stability, Djed employs a smart contract at its core. It works by keeping a reserve of base coins and minting and burning stable assets and reserve coins.

    Its primary function is to pay transaction fees in order to make costs more predictable. Fees are a major issue for both investors and developers, as is well known throughout the crypto-space.

    A transaction on top blockchains like Ethereum currently costs around $2.6, on average. Depending on the time and use, the same can cost up to $24 or even $40.

    Djed is working on it theoretically right now, but we’ll have to wait and see how it pans out.

    Surprisingly, not much progress has been made for COTI’s token since the announcement that it will be issuing Djed. While it did hit a new all-time high a few days ago, rising by 91 percent in 48 hours, it had quickly plateaued on the charts at the time of publication.

    However, why not USDT or USDC?

    That had to be the first thing that came to mind. While there are numerous factors at work here, we’ll focus on the most basic.

    While other networks rely on successful coins such as USDT and USDC, Cardano is pursuing complete decentralization. Similarly, an algorithm-backed stablecoin would make sense to reduce reliance on any centralized system.

    Remember, DAI is the only other algorithm-backed stablecoin. It is well-known for its stability, but its governance has been criticized. Because the foundation team controls the top 50 wallets, they have more than 50% voting power.

    Because of this lack of absolute decentralization, Single collateral DAI (SAI) was replaced with Multi-collateral DAI (MCD). As a result, multiple volatile assets were added to the list of collaterals.

    Simply put, Cardano has a lot to prove with Djed, and only time will tell how things pan out.

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