Cardano’s New Algorithmic Stablecoin: DJED

Recently, Cardano announced that it is looking to release an algorithmic stablecoin (DJED) in 2023. The crypto community shows concerns about it, since Terra’s collapse happened in May this year. The TerraUSD (UST) project caused investors great losses and its founder Do Kwon is still on a run.

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

According to a report from CoinTelegraph, the developers of the project – DJED will be pegged to the United States dollar and backed by Cardano (ADA). The correlation between ADA and the stablecoin, doesn’t it sound familiar to you? Besides that, it will use another token as its reserve token. It is worth mentioning that the project will be overcollateralized and will have proof-of-reserves on chain.

Although the highlights of the new project are impressive, some crypto community members are concerned about it, and compared it with the collapse of Terra stablecoin UST earlier this year. One of the community members on Twitter said:

I thought we already figured this out, algorithmic stable coins, not the best option. Have we already forgotten the Terra Luna debacle? Or are we looking for more Black Swans?

I do agree with this member, algorithmic stablecoins are proven that they are not stable! The Terra failure is already a pricey lesson for the crypto community. Other community members mentioned that they would still prefer to use Tether (USDT) or USD Coin (USDC).

Why is that? Algorithmic stablecoins keeps the value stable by using a variety of market operations that have regularly seen significant fluctuation, unlike collateralized stablecoins where each coin is fully backed by collateral. Which one sounds safer to you? Moreover, USDC issuer Circle mentioned that algorithmic stablecoins have complex collateral structure and mechanism, which “don’t have the same utility value as full-reserve, regulated dollar assets”.

Closing Thoughts

In my opinion, algorithmic stablecoins have its risks and could be manipulated by people or companies easier than coins that are entirely backed by collateral. Lastly, don’t forget to do your own research before you invest! Stay tuned in cryptocurrency by checking out our daily industry news on MEXC Global!

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Amber Peng
Amber (Qianqian) Peng is a crypto content writer, occasionally a crypto trader. She holds a B.A. degree in Economics from Miami University. She is a big fan of Bitcoin and has interests in macroeconomics.