Djed reserve ratio drops to 300% amid dumping ADA prices

On Jun 11, 2023

The reserve ratio of Djed, an algorithmic stablecoin designed for the Cardano ecosystem by Input Output Global (IOG), has fallen to 300%, real-time data on June 11 shows. The drop is amid dumping cardano (ADA) prices.

Djed reserve ratio drops to 300%

Djed is a stablecoin issued by COTI, and by default, Djed is supposed to be collateralized by between 400% and 800%, according to the issuer.

With the turbulence facing the cryptocurrency market and falling ADA prices, the collateralization ratio of Djed is now at 3X; below the ideal 4X to 8X range.

The latest update from the Djed official website showed that the stablecoin was backed with 38,108,555.96 ADA making up the base reserve. In turn, this could enable the minting of 10,175,632.28 DJED.

This reserve pool of over 38 million ADA is from ADA fees sent to the contract pools when minting Djed or SHEN, the reserve coin guaranteeing the stability of the Djed stablecoin.

However, Djed has not depegged amid this contraction and continues to track USD with ADA providing the necessary cushion.

According to trackers on June 11, each Djed is changing hands at $1.02 versus the USD, with a circulating supply of $3,340,007.

Protocol adjustments

There are more reports that users couldn’t mint Djed at $1 versus the USD from decentralized exchanges, the stablecoin is sufficiently backed, and users can redeem their Djed for other assets.

Ratio at 272% with ada in freefall what is the incentive to burn any Djed at this time? With Shen benefits being only ada staking rewards (as no Djed mints/burns = no fees for Shen holders) Who will be buying more of it? pic.twitter.com/L9xu13J9Ru
— ₳ (Dubbleu_43) (@Dubbleu_43) June 10, 2023

By default, whenever the reserve ratio falls below the 4X current level, the protocol prohibits minting new Djed. At the same time, SHEN holders can’t burn their tokens for ADA but can mint new SHEN to increase the reserve ratio. At the same time, holders of Djed can burn their tokens for ADA, boosting the reserve ratio.

Djed was launched on the Cardano mainnet in late January 2023. As an algorithmic stablecoin backed by ADA and powered by COTI, the coin was designed to be overcollateralized. Besides the 400% to 800% ADA overcollateralization, Djed is also guaranteed SHEN.

The overcollateralization was by design, and IOG, in their whitepaper, said the objective is to eliminate the need to trust a governance token as seen in other algorithmic stablecoins like MakerDAO. MakerDAO issues DAI but has a governance token, MKR, that’s the lender of the last resort.

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