As the world moves towards a more digital economy, the need for stable cryptocurrencies has become increasingly apparent. With traditional cryptocurrencies experiencing significant price volatility, it becomes difficult for businesses to adopt them as a unit of exchange in their day-to-day operations. This is where stablecoins come in, they are cryptocurrencies that are pegged to a more stable asset, such as a fiat currency or a commodity, and aim to eliminate price volatility.
Enter Djed, a stablecoin that uses formal verification to ensure its stability and eliminate price volatility. Djed is part of Cardano’s vision of “Realfi” and provides a transparent and secure alternative to other stablecoins in the industry. Unlike other stablecoins that lack transparency and have questions about the liquidity of their reserves, Djed is mathematically verifiable and operates in a transparent manner on the blockchain. This means that anyone can verify the protocol’s behavior and how it maintains its stability.
Djed works by keeping a reserve of base coins and minting and burning stablecoins and reserve coins. A smart contract is in charge of maintaining the peg to a stable asset, such as the US dollar, by buying and selling stablecoins and using the reserve. This stablecoin operates as a decentralized bank and provides several benefits to users, including:
- Peg upper and lower bound maintenance: The price of Djed will not go above or below a set price, for example, if the price of a Djed pegged to the US dollar rises to $1.01, the smart contract will automatically sell to maintain the stable price of $1.00.
- Robust peg during market crashes: The peg is maintained even during market crashes, up to a set limit that depends on the reserve ratio.
- No insolvency: Djed operates without a bank, so there is no risk of insolvency.
- No centralized banking institution: In case the peg is lost, users are not incentivized to race to a bank. Instead, the smart contract fairly pays out users who want to trade back to their base coin.
- Monotonically increasing equity per reserve coin: Under certain conditions, reserve coins are guaranteed to increase, allowing holders to profit.
- No reserve draining: It is impossible for bad actors to steal reserve coins from the smart contract under certain conditions.
- Bounded dilution: The profit of reserve coin holders is limited and can be diluted due to the issuance of new reserve coins.
Coti and Its Role in Djed
In September, Charles Hoskinson and Coti CEO Shahaf Bar-Geffen announced at the Cardano summit that Coti would be the official Djed issuer. Coti will write all Djed contracts and run the front end, interacting with funds, enterprises, or anyone who wants to mint reserve coins and stablecoins. Coti will collect fees for this service, both for minting and burning stable and reserve coins.
Djed is not only a stablecoin, but it is also designed to be the main coin for the Cardano network to pay all its fees. As Djed is stable, it makes more sense to pay gas fees with it instead of a volatile asset. Shahaf believes that adding the Djed stablecoin to the Cardano blockchain will significantly improve transaction settlement on the platform. Coti predicts that Djed’s accumulated fees will be sustainable as Cardano’s market cap continues to grow.
Formal verification for Djed has been proven on an automated theorem prover called Isabelle. This platform allows users to prove mathematical theorems in formal languages, and Djed has been implemented in the ERGO blockchain.
In conclusion, the integration of Djed as a stablecoin into the Cardano blockchain represents a significant step forward in the crypto industry. With its use of formal verification, it offers unparalleled stability and transparency compared to other stablecoins. The algorithmic design ensures that the price remains pegged to a stable asset, and eliminates the need for a centralized banking institution.
Coti, as the official Djed issuer, will play a critical role in the success of the stablecoin. With its team’s focus on stablecoins and their predicted growth in the market, Djed is poised to become a staple in everyday transactions and fee payments on the Cardano platform.
It’s exciting to see the advancements being made in the stablecoin market and how they are helping to drive mass adoption of cryptocurrency. The future of finance is rapidly evolving, and with innovations like Djed, it’s becoming clearer that decentralized, transparent, and secure transactions are the way forward.