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Cardano Users to Explore Djed Stablecoin Trial on EVM Sidechain: Details

Sat, 06/04/2022 - 17:00
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Tomiwabold Olajide
Milkomeda team said it was going to make testnet version of Djed available
Cardano Users to Explore Djed Stablecoin Trial on EVM Sidechain: Details
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Per a recent announcement by the Milkomeda team, Cardano users might soon be able to test Djed stablecoin on the Milkomeda testnet. The team said it was going to make available a testnet version of Djed on Milkomeda testnet, thus allowing users to explore the algorithmic stablecoin. Milkomeda is an Ethereum Virtual Machine (EVM)-compatible sidechain, letting developers achieve cross-chain interoperability between Cardano and Ethereum.

The Milkomeda Foundation announced the release of C1, an Ethereum Virtual Machine-compatible sidechain that is directly connected to the Cardano blockchain, in late March. This allows assets to be transferred between the two blockchains, allowing popular Ethereum-based decentralized apps (dApps) to be run on top of Cardano using wrapped smart contract technology.

Djed stablecoin

Djed, a crypto-backed algorithmic stablecoin that operates as an autonomous bank, was launched on testnet on May 4. Djed is an over-collateralized algorithmic stablecoin developed by Cardano's IOG and issued by COTI. It employs SHEN as a reserve coin and is backed by ADA.

To ensure that there is enough ADA in the pool, Djed's algorithm uses a collateral ratio of 400-800% for Djed and SHEN. This indicates that there is $3-7 worth of ADA in the reserve pool for every 1 Djed minted. The 400-800% ratio is thought to provide a sufficient buffer to absorb ADA's volatility.

The reserve coin, SHEN, compensates for ADA price swings by covering deficits and ensuring the collateralization rate. Users must interact with a smart contract by sending ADA to its address to mint the Djed stablecoin. The Djed will then be returned to the user via the smart contract.

In a blog post, the COTI team describes how Djed differs from UST: "Although DJED and UST are both algorithmic stablecoins, only DJED is over-collateralized (up to 8X), which reduces its chance of getting depegged, while averting a death spiral by blocking coin burning and minting."

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About the author

Tomiwabold is a cryptocurrency analyst and an experienced technical analyst. He pays close attention to cryptocurrency research, conducting comprehensive price analysis and exchanging predictions of estimated market trends. Tomiwabold earned his degree at the University of Lagos.