Shahaf Bar-GeffenCOTI CEO said Djed is an overcollateralized stablecoin and not an algorithmic stablecoin.
In COTI’s first update for 2023, Bar-Geffen takes the opportunity to clarify that the soon-to-be-launched Djed stablecoin will be called an overcollateralized stablecoin, despite its working algorithmic design. I got
How does Jed work?
Algorithmic stablecoins use automated or possibly incentivized methods to achieve price stability.
If the price is above the peg price, tokens will be issued to increase circulation and lower the price. Pricing below the peg price requires tokens to be burned to reduce circulation.
Jed Backed by Cardano’s ADA token. In other words, a user who wants a stablecoin will send her ADA to her smart-her contract and receive minted Djed in return. These transactions build value and holdings in the Djed pool.
In contrast, selling Djed requires the user to send the stablecoin back to the smart contract. The smart contract will burn the tokens and return the ADA equivalent on a $1:$1 basis.
To address the example of ADA price volatility and the possibility of insufficient ADA in smart contracts paying Djed sellers, COTI has incorporated a Shen reserve coin to act as liquidity to maintain the peg ratio. rice field.
Overcollateralized Stablecoins Have Advantages, Says Bar-Geffen
Despite popular belief that the difference between overcollateralized and algorithmic stablecoins is a matter of semantics, Bar-Geffen believes it is important to classify Djed as the former. increase.
COTI’s CEO said Djed clearly uses algorithms, but using algorithms to maintain price stability is not necessarily a reason to classify as such.
In listing the differences between overcollateralized and algorithmic stablecoins, Bar-Geffen said Djed uses external collateral with ADA that is not connected to the protocol. In contrast, algorithmic stablecoins use internal collateral.
Four times the amount of ADA overcollateralises Jed at a minimum. In contrast, algorithmic stablecoins tend to be partially collateralized. Similarly, Djed can always be redeemed for ADA, but algorithmic stablecoin redemption may “depend on the value of the governance token”.
“Jed’s stability hinges on excess collateral, not trust in governance tokens.”
In summary, Bar-Geffen said Djed does not suffer from the centralization and regulatory risks of fiat-backed stablecoins. Similarly, Djed has an advantage over algorithmic models and governance in that he does not have to trust the price of the token.