Answers and Clarification to Recent Djed Community Questions
In the past few weeks, we’ve received many questions and seen some misconceptions about Djed and how it works. In this article we are going to address some of the latest questions and clarify some misconceptions about Djed.
Does Djed’s Protocol Work As Expected?
Yes, the Djed protocol is working exactly as designed. DJED aims to be overcollateralized by ADA to keep its peg and indeed it has remained continuously pegged and overcollateralized since its launch, even in dire market conditions. To have a wide over-collateralization safety margin, DJED minting is only allowed when the collateral ratio is between 400% and 800% (i.e., 4$ to 8$ worth of ADA for each 1$ worth of DJED). Burning DJED, converting 1$ of DJED to 1$ worth of ADA is still allowed!
Has DJED Ever Lost its Peg?
No, throughout several events where some stablecoins lost their peg, Djed’s protocol worked exactly as designed and never lost its peg.
Why Do Some DEXs Show DJED’s Value Over $1 USD?
Exchanges, DEXs and websites like CoinGecko and CoinMarketCap use oracles that aggregate price information from a wide range of sources. Just like with any coin, trading action on one platform can momentarily fluctuate the price information displayed by these oracles, giving the impression of a de-pegging event. Despite the information displayed on some DEXs, at any time since its launch, regardless of the reserve ratio, 1 DJED could always be redeemed for exactly USD$1 worth of ADA at djed.xyz and can still be redeemed now.
What’s the Difference Between Collateral Demands for DJED and iUSD?
Users can acquire iUSD by depositing ADA with a 120% Minimum Collateralization Ratio (MCR) to mint a Collateralized Debt Position (CDP) within Indigo. If that CDP falls below 120% MCR, the collateral ADA is liquidated and awarded to participants of their stability pool.
DJED, on the other hand, is an overcollateralized stablecoin that aims to have between 400% and 800% of ADA collateral backed against the protocol in reserve. There is no risk of ADA liquidations and incentives are provided to holders of the reserve coin, SHEN, for providing liquidity to the protocol.
It’s important to say that we value the Indigo Labs team and our stance is that it’s healthy for the Cardano ecosystem to have several stablecoins, each with its own risk profile to cater different audiences.
What are the Risks of Holding DJED?
It is extremely unlikely that DJED will ever lose its peg. The mechanism was designed to accommodate volatile downward swings of the price of ADA, which at the time hit a maximum of 66%. It was discovered through research and testing that DJED could tolerate these downturns with as little as 300% overcollateralization. Rather to be safe than sorry, we set our optimum collateral range to between 400%-800%.
Djed’s smart contracts have been audited by Tweag.
What Are the Incentives of Holding DJED?
DJED holders can provide liquidity and earn rewards on top DEXs such as Wingriders, Minswap, Muesliswap, as well as platforms such as Liqwid, Vyfinance and more.
Recent APRs:
MuesliSwap — ADA/DJED — 38.63%
Wingriders — ADA/DJED — 39.72%
Minswap — ADA/DJED — 47.76%
VyFinance — ADA/DJED — 39.8%
Liqwid — (DJED) — 43.73%
What Are the Incentives of Holding SHEN?
In return for providing ADA liquidity to the Djed protocol, SHEN holders are entitled to a share of the revenue that it generates.
Holding SHEN provides a share of the following incentives:
- SHEN holders receive all DJED and SHEN mint/burn fees (1.5%).
- APR and yield farming rewards on DEXs and platforms.
Recent APRs: - MuesliSwap — ADA/SHEN — 28.26%
- Wingriders — ADA/SHEN — 22.24%
- Minswap — ADA/SHEN — 17.68%
- VyFinance — ADA/SHEN — 17.63%
- Delegation rewards accumulated from the ADA in the reserve pool, on top of DEXs APRs (about ±4.3% annual return).
- ADA’s eventual price appreciation — SHEN’s price is correlated to ADA’s price with an upside multiplier.
What Are the Risks of Holding SHEN?
As the price of SHEN is correlated to the price of ADA, there is a risk of SHEN’s price also reducing if ADA’s price reduces. ADA’s price has dropped over the past few months. SHEN’s price is correlated to ADA and is therefore experiencing the same downturn.
During times when Djed’s reserve ratio drops below 400%, the ability to burn SHEN on djed.xyz is disabled until the collateral ratio goes above 400% again. Users can still swap SHEN on DEXs like MinSwap, Wingriders and MuesliSwap, regardless of the reserve.
Does SHEN Need More Incentives?
While we do feel that we have the right mix and values of incentives currently set for SHEN holders, constant monitoring will allow us opportunities for optimization.
Delivering incentives in any Web3 system is always a delicate balance of reward vs protocol sustainability. This is further challenged by three elements that every stablecoin aims to overcome. Decentralization, stability and capital efficiency make up the stablecoin trilemma and any unsustainable reward systems will negatively affect capital efficiency.
Why are there Occasional ‘error’ Messages on djed.xyz?
This issue is acknowledged and is being actively addressed by our and IOG teams. We are working on implementing additional protocol enhancements. Obviously our goal is to create a seamless experience for our users.
We have recently upgraded the chainindex application which delivered optimizations and performance upgrades. In addition, and to make the minting of SHEN more accessible, we’ll reduce the minimum amounts of minting SHEN. All of these changes will allow more minting of SHEN and activity in the platform in the near future.
Does COTI Collect All the Fees on the Platform?
Absolutely not! All of the DJED/SHEN mint and burn fees (1.5%) are shared amongst SHEN holders. COTI, as the company powering Djed, collects the operational fees (25 ADA+ 25% of delegation rewards) that are streamlined into the treasury, and distributed as rewards to its users. SImilarly, delegation rewards from the ADA collateral that have been staked are also shared amongst SHEN holders.
Is There Only One Price Information Source for the Protocol?
The Djed protocol uses one oracle with at least 6 external sources for redundancy and security reasons. The exchange rate can be updated on the blockchain only when the rate can be acquired from at least 3 external sources. Otherwise, no update is performed.
Djed is Here to Stay
DJED was designed as a robust and battle-ready stablecoin. It has not only proven itself resilient during times of high market volatility, but it continues to provide a safe haven for crypto holders and traders.
While other stablecoins were able to mature during different market conditions, Djed launched six months into the diremarket conditions, a period characterized by lower liquidity provision and trading volume. Djed hasn’t yet experienced the volume and demand associated with more favorable market conditions. When those present themselves, Djed’s full capabilities will be prominently showcased, alongside the Cardano DeFi ecosystem.
Djed is here to stay.
For all of our updates and to join the conversation, be sure to check out our channels:
Website: https://coti.io
Twitter: https://twitter.com/COTInetwork
Telegram: https://t.me/COTInetwork
GitHub: https://github.com/coti-io
Discord: https://discord.gg/9tq6CP6XrT
CoinMarketCap Feed: https://coinmarketcap.com/community/profile/COTI
Technical whitepaper: https://coti.io/files/COTI-technical-whitepaper.pdf
