DJED & SHEN: Weathering the Storms of Market Volatility While Creating New Opportunities

Published in

COTI

3 min readJun 14, 2023

* The following should not be seen as financial advice but as a description of the DJED protocol’s behavior during recent market events.

Despite their relative rarity, the crypto industry is very familiar with the term “black swan event”. It describes a sudden and unexpected change that has a wide-reaching impact on the market.

The broader crypto landscape has recently experienced one of these black swan events and DJED was once again battle-tested against extreme volatility. Throughout the entire event, DJED’s protocol worked exactly as designed.

Through the market volatility — DJED kept its peg.

The drop in ADA price means that the collateral ratio moved below 400%, temporarily preventing further minting of DJED, as designed.

What Happens When DJED’s Reserve Ratio Drops Below 400%?

One of the core design principles of DJED is its overcollateralization. Using SHEN as its reserve token, DJED aims to keep a reserve ratio of between 400–800%.

When that collateralization drops below 400%, users can still burn DJED in return for ADA, regardless of the reserve ratio. However, the minting of DJED is paused until the reserve ratio returns to above 400%. In parallel, the burning of SHEN is paused when the reserve ratio drops below 400%.

What Does That Mean for SHEN Holders?

SHEN and ADA are very correlated. When the price of ADA drops or rises, so does the price of SHEN. Recent events have created new opportunities for current and future SHEN holders to benefit. These include:

Low Cost Minting

SHEN is currently at its lowest price since inception. If minting from djed.xyz, users can mint SHEN at a cost of 1.015 ADA each, including fees, at the time of writing.

2. Increased Share of Fees & Delegation Rewards

There was a lot of activity on the protocol during recent market events. A total of 2M SHEN was minted, and 225K SHEN was burned. Additionally, 172K DJED was minted, while 255K DJED was burned.

These transactions generated approximately 54K ADA in fees. Fees generated during this period are shared amongst a smaller pool of SHEN holders. Additionally, with more ADA in the smart contract, delegation rewards for SHEN holders will increase.