Back in 2021, during Charles Hoskinson’s closing keynote speech, It was announced that COTI will be powering Djed and since then we have been developing Djed, the overcollateralized stablecoin.
COTI’s role in powering Djed includes being in charge of aspects such as the UI of the platform djed.xyz, Business Development (which includes more than 40 partnerships) and smart contract deployment. As Djed was only a whitepaper in 2021, it was important to consider its economical design and then later implement it, which is the topic of this article.
One of the key components of Djed’s structure is its reserve ratio, which determines the proportion of ADA that is held in the reserve to collateralize and maintain the stability of DJED. Following extensive research, we have reaffirmed the conclusion that the optimal range for the reserve ratio is between 400%-800%, as initially mentioned in the Djed whitepaper.
This ratio was determined by examining the maximum monthly decrease of ADA’s price at all times, which was approximately 66% at the time of the research, which led to the conclusion that the overcollateralization of DJED by around 300%, will help to have enough reserve in case it happened again.
Though a reserve ratio of 300% has proven to be sufficient to cover such a decrease in ADA’s price, in order to keep the platform prudent and ensure stability even in more negative scenarios, it was decided to set the minimal reserve ratio at 400% to provide additional safety to DJED holders, so even in the case where ADA’s price decreases by 66.28%, there will be enough reserve in the contract, and DJED will still remain overcollateralized.
We have also examined similar protocols such as SigmaUSD, an ERGO-based stablecoin with the same stability mechanism and discovered that this stablecoin maintained its stability and kept its peg even in a situation where the reserve ratio penetrated the minimum benchmark.
Djed’s Fees Structure:
Another important aspect of the Djed protocol is its fee structure, which keeps the best interests of both SHEN and DJED holders in mind. This is why we decided on the following requirements:
- DJED minting minimum amount — 1,000 DJED.
- DJED burning minimum amount — 200 DJED.
- Mint/burn DJED fee — 1.5%.
- SHEN minting minimum amount — 1,000 SHEN.
- SHEN burning minimum amount — 500 SHEN.
- Mint/burn SHEN fee — 1.5%.
- DJED and SHEN mint/burn operational fees — 25 ADA
Please note that on Feb 28th, the minimum amounts and operational fees were lowered, to the amounts reflected above.
The values above are applied to Djed’s platform only (djed.xyz). However, users can always trade DJED and SHEN with any amount they choose on DEXs and CEXs. The platform fees increase the equity, and hence the value of SHEN. However, SHEN will also be traded on the open market, so we expect its price on the platform to be the same as its price on DEX/CEX due to arbitrage. In the future and improved versions, when extended Djed will be introduced, dynamic fees will also be applied.
All the minting and burning fees for DJED and SHEN collected on the platform will be allocated to SHEN holders and reflected in SHEN’s price, resulting in an increase in its value. The formula to calculate SHEN’s price in simple terms is Equity divided by the number of SHEN tokens in circulation. You can read more about it in the whitepaper. Aside from the minting and burning fees, we are happy to announce that:
Djed 1.1.1 will include delegation rewards for SHEN holders starting from day one!
In the past few months, we worked on enabling the reserved ADA, on the Djed smart contract, to earn delegation rewards for SHEN holders. We are happy to announce that the hard work paid off and delegation rewards for SHEN holders will be included in Djed 1.1.1!
The immediate technical setup we have devised will be temporary, until a more robust multiple-pool staking technology will be presented, planned for Djed V1.3.
Here is what you need to know, as a SHEN holder, in order to receive your delegation rewards:
The ADA that will be deposited to the reserve for minting SHEN will collide along with the collected mint/burn fees for SHEN and DJED. This ADA will be delegated to a dedicated public staking pool operated by Wave Financial, one of the most reputable stake pool operators in the Cardano network. In order to give SHEN holders the priority in participating in the pool, and to deter non-related Djed participants from joining, the pool will charge an 5% operation fee from the staking rewards, in addition to the usual one-time fee of 340 ADA in all of their public pools. This fee will be offset by additional pledged ADA added to the pool by Wave, that will yield increased rewards for SHEN holders.
The rewards received by the pool will be calculated based on a snapshot taken during each epoch. Delegation rewards will be automatically distributed to eligible SHEN holders that held SHEN during the epoch for which the rewards are distributed. The rewards from the pool will be distributed every 4th consecutive epoch (roughly every 20 days) and transferred to eligible SHEN holders directly to their wallets without any additional action on their part.
All SHEN holders get delegation rewards, regardless of whether they minted their SHEN on the platform or bought it on a DEX/CEX.
SHEN holders will be able to check the status and the amount of their rewards on djex.xyz.
The operational fee on every TX is paid in ADA. The operational fee is a mix of 100 ADA + 25% of delegation rewards, both are converted into $COTI in the market and funneled into COTI’s Treasury. We estimate this to be on average 0.5% of the mint/burn volume that goes through the platform. All of the collected operational fees will be streamlined to the COTI Treasury’s rewards, benefiting its users. In future versions, the 0.5% operational fee will be collected directly on the platform.
We are happy that we managed to put a temporary solution in place that will grow the rewards for SHEN holders. A multiple-pool staking technology will be available in future Djed versions. Asides from delegation rewards, $SHEN holders will benefit from platform fees, as well as LP rewards and Farming rewards. Staking rewards may also be offered by CEXs.
Stay tuned for more updates.
For all of our updates and t join the conversation, be sure to check out our channels:
Binance Feed: https://www.binance.com/en/feed/profile/485349084
CoinMarketCap Feed: https://coinmarketcap.com/community/profile/COTI
Technical whitepaper: https://coti.io/files/COTI-technical-whitepaper.pdf