With the upcoming launch of smart contracts on Cardano, thoughts are turning to its ecosystem and how it will perform against competing chains.

One such consideration is stablecoins, which are an essential part of any crypto ecosystem. Stablecoins bridge the gap with fiat and offer a solution to volatility.

Earlier this week, developers Input-Output Global (IOG) teased the Djed stablecoin, which they call an algorithmic token for proven price stability.

But what does it all mean?

Djed is controlled algorithmically to be stable

IOG CEO Charles Hoskinson spoke about Djed in a video he posted in mid-July.

He said IOG had been experimenting with the concept of stablecoins for the past three years. This includes examining different types, such as algorithmic backed, asset backed, and CBDCs.

But it wasn’t until this year that high-ranking figures decided to put the experiments together to develop an algorithmic stablecoin for use on the Cardano network.

“Earlier this year the idea came up to take some of the experiments that were being done on Ergo and actually shoot the fences and use an algorithmic stablecoin that we could put on Cardano.”

It is described as a “crypto-based algorithmic stablecoin contract that functions as an autonomous bank”. This means that a smart contract controls a reserve of “base coins” and mints and burns stablecoins and reserve coins to keep the peg stable.

This process also includes the collection of fees that are incurred in the reserve. Holders of reserve coins assume the risk of price fluctuations, but also benefit from the fees charged.

‚ÄúThis approach offers a stable exchange. But Djed isn’t limited to being pegged to the dollar. It can work with other currencies as long as there are oracles that provide the contract with the appropriate price index. “

Developed according to Cardano’s scientific method

In keeping with Cardano’s philosophy of formal verification and the “scientific method”, Djed is the first formally verified stablecoin on the market.

IOG says its properties, which include upper and lower limit maintenance, robust design in the event of market crashes, no bankruptcy, and no potential outflow of funds, can be proven by a mathematical theorem.

Also, because the underlying assets are publicly viewable on the blockchain, the project claims to be completely transparent. Add to this a smart, contract-driven method of automating the stabilization process, and Djed offers a refreshing alternative to others.

In the early hours of the morning (GMT), ADA hit a new all-time high of $ 2.56. This was the result of an amazing run over the past seven days that saw Cardano grow 23% and overtake Binance Coin to take third place.

Source: ADAUSD on TradingView.com

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