Cardano Set to Launch Dollar-Backed Stablecoin in 2023
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With the upcoming debut of its algorithmic stablecoin, the Cardano Foundation is adding to its ecosystem.
A Haven From Price Volatility
In an official announcement shared earlier this week, Djed, a new dollar-backed stablecoin, is set to launch in early January 2023. Djed is an algorithmic stablecoin that Cardano Foundation created in partnership with COTI, a layer-1 blockchain protocol that operates using the Directed Acyclic Graph (DAG).
— Djed Stablecoin (@DjedStablecoin) November 21, 2022
Djed, an overcollateralized algorithmic stablecoin, will be backed by excess collateral in the form of cryptocurrencies stored in reserve. Besides being pegged to the dollar, the asset will also be backed by ADA and will use SHEN, a new digital asset, as its reserve coin.
Initially, the plan will be to release Djed into circulation via a group of selected partners and decentralized exchanges (DEXs), who will offer rewards to users who purchase the asset and use it to provide liquidity. The Cardano Foundation and COTI will focus on slow and sustainable development, adopting a gradual approach toward providing ADA liquidity to the Djed smart contract.
Djed is set to go live on Cardano’s mainnet in January 2023, pending a security audit and additional testing.
Speaking at the Cardano Summit in Lausanne, Switzerland, Shahaf Bar-Geffen, the chief executive of COTI, explained that they understand the challenges of operating an algorithmic stablecoin especially considering the events of the market this year.
Nevertheless, they intend for Djed to be a stable haven from price volatility, especially for companies and investors in the Cardano network. They believe that Djed can be a decentralized stablecoin with proven reserves and a reliable use case.
Can Djed Really Fly?
Bar-Geffen is not wrong. With the market currently being volatile, many have seen stablecoins as the primary source of protection from volatility. However, they have also yet to be free from scrutiny this year.
UST, an algorithmic, dollar-backed stablecoin built by the Terra ecosystem, was seen by many as a star in the crypto space until it suddenly lost its peg against the greenback and plunged in value in less than a week. As an algorithmic stablecoin that used Terra’s primary LUNA token to maintain parity with the Dollar, UST’s crash led to a cascade effect that eventually took LUNA down and the entire market.
Both crypto assets remain in the doldrums right now, and while there is a community of investors and developers working behind the scenes to revive them, the chances of this happening are incredibly slim.
The TRON Foundation also made a foray into stablecoins this year, launching its dollar-backed USDD token. However, despite being an over-collateralized stablecoin, the digital asset lost its peg against the dollar earlier this month when whales dumped over 11 million tokens in favor of more established stablecoins like USDT and USDC.
What happened on on-chain?
After that, $USDD started to depeg.
— Lookonchain (@lookonchain) November 10, 2022
USDD slipped as low as $0.96 the next day, and while it eventually recovered, such a scare wouldn’t have been good for the market. TRON founder Justin Sun speculated that the problem could have been due to a selloff from Alameda Research, which was trying to cash out of its USDD holdings after the company ran into a liquidity crisis.
However, given USDD’s over-collateralized nature, this shouldn’t have happened.
I think probably Alemeda just sold their USDD to cover the liquidity of ftx exchange. The pool currently is back with a healthy rate. 😎 pic.twitter.com/oSIzUNqE0Z
— H.E. Justin Sun🌞🇬🇩🇩🇲🔥 (@justinsuntron) November 9, 2022
Even the older, more established stablecoins have been under heavy scrutiny. USDT, the largest stablecoin on the market, has seen its reserves called into question as more industry players flock to its alternatives.
By issuing a stablecoin of its own, the Cardano Foundation should understand that it is entering uncharted waters.