DJED, Cardano's Latest Algorithmic Stablecoin

Stay Tuned with MEXC Global

Recently, Cardano announced that DJED, an algorithmic stablecoin, would be released in 2023. Terra's collapse took place in May of this year, and the crypto community has been alarmed by it ever since. The TerraUSD (UST) project caused large losses for investors, and its creator Do Kwon is still on the run.

Cardano's New Algorithmic Stablecoin, Djed (Source: ZenLedger) ​

According to a CoinTelegraph article, the project's developers, DJED, plan to have Cardano support and have their currency pegged to the US dollar (ADA). Don't you understand how ADA and the stablecoin are related? Additionally, it will use another token as its reserve token. It is significant to note that the project will be overcollateralized and will have proof-of-reserves on chain.

Despite the new project's seeming positive points, some cryptocurrency enthusiasts are concerned about it and have connected it to the failure of Terra stablecoin UST earlier this year. A member of the neighborhood tweeted:

This individual and I both agree that algorithmic stablecoins have been shown to be unstable. The crypto community has already paid a high price for the Terra catastrophe. Others in the community stated that they would still choose to use USD Coin or Tether.

How come? Unlike collateralized stablecoins, where each coin is fully backed by collateral, algorithmic stablecoins maintain the value by using a range of market operations that frequently experience significant change. Which one do you think is safer? Additionally, algorithmic stablecoins have complex collateral structures and mechanisms that "don't have the same utlity value as full-reserve, regulated dollar assets," 

Final Reflections

In my opinion, fully collateralized stablecoins are less prone to manipulation by people or groups than algorithmic stablecoins. Last but not least, conduct your own research before investing!