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Cardano's Djed Compared to Terra's UST by Community: Details

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Mon, 16/05/2022 - 10:45
Cardano's Djed Compared to Terra's UST by Community: Details
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Cardano (ADA) enthusiast and developer who goes by @nazarcapital on Twitter explained how the additional asset SHEN can prevent DJED from being de-pegged even in hard times.

Why is ADA-SHEN-DJED design better than LUNA-UST?

As per the explanation shared by @nazarcapital, the "death spiral" scenario when the sell-off of Terra (LUNA) amplified the collapse of TerraUSD (UST) made it impossible to Restore the UST peg.

With the majority of investors making their exit, UST's crash to near-zero levels was bound to happen.

Cardano's stablecoin, Djed (DJED), which is currently in testnet, is backed by ADA, the core native asset of the Cardano (ADA) protocol. As such, it would be vulnerable to the same "death spiral" issues.

However, to ensure its stability, an additional coin, SHEN, was integrated into its design. If there is not enough ADA to pay out to DJED holders, SHEN bonuses will come to the rescue.

SHEN asset is also protected from inflation: When the reserve ratio hits 800%, SHEN minting stops.

DJED keeps its peg amid volatility: test results

The mentioned design was already stress-tested by COTI Network and Input Output Global; even during periods of market volatility and ADA sell-offs, it kept a 1:1 peg to the USD equivalent.

Related
Terra UST Declines 88% in 5 Weeks as LUNA Foundation Liquidates Entire $BTC Holdings

As covered by U.Today previously, the reconsideration of APR in Anchor Protocol (ANC) triggered the collapse of TerraUSD (UST) and Terra (LUNA) assets.

Djed (DJED), the first-ever algorithmically backed stablecoin on Cardano (ADA), is set to address the major bottlenecks of the stablecoins scene.

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