How Cardano’s new stablecoin Djed will reduce gas fee for crypto transactions?

How Cardano’s new stablecoin Djed will reduce gas fee for crypto transactions

Courtesy: COTI

Cardano’s new stablecoin Djed will make it easier to run DeFi projects.

After the Alonzo update empowering Cardano to support smart contracts, a new stable coin Djed (pronounced Jed with a silent D) is arriving on the Cardano blockchain. Djed will be issued by the decentralized payment platform, COTI.

Investors in the market have strong expectations about the booming DeFi platforms and Djed can make it easier to run DeFi projects on the blockchain.

Here’s what you need to know about the Djed coin:

What is DJed?

On its website, Djed says it is “a crypto-backed algorithmic stablecoin that acts as an autonomous bank, developed by IOG and issued by COTI.

COTI is a decentralized payment platform that organizations can use to build their own digital payment solutions. COTI already acts as a payment platform for Cardano’s ADA Pay.

Djed is based on an algorithmic design that uses smart contracts to ensure price stability. Smart contract programming is also used to ensure that the stablecoin will work effectively for decentralized finance (DeFi) transactions.

How Does It Operate?

Stablecoins are pegged to a range of assets from fiat to gold or another cryptocurrency to maintain a stable value with respect to a reference. Popular stablecoins include USDT, which is pegged to fiat currencies, PAX Gold (PAXG) and Digix Gold (DGX), pegged to gold. The function of stablecoins is to offer an easy way to trade in and out of a volatile market.

Read more: Should You Invest In Stablecoins? Are They Really Stable?

Djed operates by maintaining a reserve of base coins, while minting and burning various other stable assets and reserve coins. It is designed to be used for paying transaction fees on the Cardano network. One benefit of this is to make transaction costs more predictable, so avoiding volatile and exorbitant gas fees for users.

The value of Djed is kept stable by an algorithmic design, ensuring that its value is as close as possible to $1.

According to its whitepaper,

Djed behaves like an autonomous bank that buys and sells stablecoins for a price in a range that is pegged to a target price. It is crypto-backed in the sense that the bank keeps a volatile cryptocurrency in its reserve. The reserve is used to buy stablecoins from users that want to sell them. And revenue from sales of stablecoins to users are stored in the reserve. Besides stablecoins, the bank also trades reserve coins in order to capitalize itself and maintain a reserve ratio significantly greater than one.

Also read: Staking vs Yield Farming: Best way to earn passive income from crypto?

The whitepaper further mentions that there will be two versions of Djed:

a. A minimal one, designed primarily to serve as a medium of exchange,

b. An extended one, whose smart contract uses a continuous pricing model and dynamic fees to react faster to external events, ensure an optimal level of reserves and provide even more security when performing complex operations such as those performed in DeFi protocol transactions.

How Will Djed Reduce Gas Fees?

In the crypto world, transaction fees have been an ongoing issue with the investors. As the price of cryptocurrencies rise, so do the transaction costs.

ETH holders have been critical about Ethereum for its extremely high gas fees and Djed could be a possible solution.

The stablecoin has built-in mechanisms to remove volatility as it operates by keeping a reserve of base coin while minting and burning stable and reserve coins.

Also read: Crypto Investing: 5 Altcoins I Bought During The Dips

Djed is designed to pay transaction fees on the Cardano network and to make transaction cost predictable, thereby avoiding exorbitant or volatile gas fee for users.

Coti is a long-term partner of Cardano and it is interesting to see how this synergy pans out in the near future.

Shahaf Bar-Geffen, chief executive of COTI Group, said:

‘The stablecoin ecosystem has matured tremendously over the past few years. Blockchain participants are using stablecoins to engage in everyday transactions because they allow monetary value to be exchanged in a seamless manner, regardless of the sender and recipient’s location. I believe that adding the Djed stablecoin to the Cardano blockchain will significantly improve how transactions are settled on the platform.”

IO Global chief executive Charles Hoskinson said:

‘The Djed stablecoin could be a game-changer in the crypto space, appealing to an entirely new audience at a time when the industry is already experiencing astronomical growth. Djed shares our commitment to formal verification, proving a robust method of combating price volatility of crypto markets.”

What are your thoughts on Cardano’s new stable coin, Djed? Leave your comments below –

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How Cardano’s new stablecoin Djed will reduce gas fee for crypto transactions? was originally published in The Capital on Medium, where people are continuing the conversation by highlighting and responding to this story.

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