Stablecoin Djed: Is Cardano an Ethereum killer?

The phrase “Ethereum killer” has become something of an ongoing crypto joke. Over the years, it has been used to describe a wide variety of Ethereum rivals, but most of these have fallen by the wayside. This includes EOS, a former “killer” who famously raised over $4 billion during his ICO, but who saw his native token decline from $22.71 in April 2018 to $1.07 today, amid a relative lack of use.

This list probably also includes Cardano, founded in 2015 by Ethereum co-founder Charles Hoskinson and launched in 2017. For several years, work on Cardano continued in the context of ambitious claims about what he would do, without these claims ever being really substantiated. That’s because, while the network had a lot of credentials behind it and some interesting technical basics, it never attracted any real use, even after its enabling of smart contracts in September 2021.

However, all of this is potentially set to change, since last month saw an important milestone for Cardano and its development. Namely, the Cardano Djed (DJED)-based algorithmic stablecoin was launched, providing the cryptocurrency ecosystem with something – i.e. a stable stablecoin – that has been crying out since Earth’s collapse in May 2022. And given that DJED uses significant amounts of ADA in its reserves, its launch could also mean that ADA will enjoy some big price increases in the coming months.

Djed Stablecoin launches, ADA Price Rallies

On January 31, Cardano code maintainer COTI launched Djed on the Cardano blockchain. As an algorithmic stablecoin, DJED’s price is kept close to $1 by burning and minting and its Shen reserve token (SHEN), while ADA is also used to back its value. Interestingly, Djed is substantially overcollateralized, with SHEN and ADA held in a ratio of between 400% and 800% of DJED’s face value.

According to Djed’s white paper, this makes it “the first stablecoin protocol where stability claims are stated and proven in a precise and mathematical way.” Such claims were enough to generate considerable interest in Djed when it was launched, with the stablecoin now at a circulating supply of 1.9 million.

More significantly, the arrival of Djed has caused a large increase in demand for ADA, not least because the latter is one of its main reserve tokens. So, on the one hand, DJED’s reserves have now swallowed up about 30.17 million ADA, up from 20.1 million on January 31. At the same time, investors now expect the launch of Djed to signal an increase in the price for Cardano over time, so they went ahead and bought ADA in the days following the launch of the stablecoin. This also includes big investors (aka “whales”), with Cardano witnessing an increasing number of transactions worth at least $100,000 in recent days.

In fact, the ADA price went from a low of $0.35 in the week before the launch of Djed to a seven-day high of $0.413 on February 2, an increase of 18%. This has made ADA one of the best performing coins during this time and potentially provides a sign of things to come.

What is important to note at this juncture is that DJED’s reserves will inevitably grow in parallel with the growing demand for stablecoins. The DEXs based on Cardano MuesliSwap and Minswap have already quoted the stablecoin, while the same has centralized the Bitrue exchange. The number of exchanges that support the stablecoin is likely to grow steadily over time, which will require more DJEDs to be minted.

In turn, other ADAs will be taken out of circulation and placed in Djed’s reserves. In theory, this will increase the price of ADA over time.

Of course, it should be emphasized that only 0.09% of the circulating supply of ADA has been taken out of circulation at this time. This is largely due to the fact that Djed has just been launched and has a very small supply, at 1.9 million (worth about $1.9 million). But as we learned from the cryptocurrency market, demand for stablecoins can be very large, with TerraClassicUSD (USTC) having a market cap of around $18.7 billion before its crash in May.

Now, USTC is only worth $318.5 million, indicating the void it left behind from its collapse. In other words, there is a great opening and opportunity for a new stablecoin to serve the cryptocurrency market. And given his claims to have “mathematically declared and proven” stability, Djed could end up being that stablecoin.

Djed will also invite additional demand to the extent that it will offer opportunities to earn returns. This will come from the deposit of DJED itself and the sister token SHEN with the various DEXs already listing them. For example, MuesliSwap has stated that it will offer yields of between 10% and 15% for yield farming via the DJED/ADA and SHEN/ADA liquidity pools on its platform.

As such, there will be an additional source of demand for DJED and ADA, something that will help push up the values of each in the coming months.

Cardano On the Up

Perhaps the most important point of all in this is that the launch of Djed sees Cardano offer more utility to the crypto ecosystem than it has ever done before. The arrival of the stablecoin could see its adoption rate accelerate considerably in the coming months, with the total value of the network blocked growing from $48.95 million on January 1 to $102 million today, an increase of more than 100% in about a month.

Yes, Cardano’s value as a network has actually doubled since the launch of Djed and will likely continue to grow. This is partly due to Djed himself, but also due to the constant development of Cardano regularly testifies.

In particular, the layer one network has a major update scheduled for this month. This will update its Plutus smart contract language, so that it “supports ECDSA and Schnorr cryptographic signatures to make it easier for developers to build cross-chain apps.”

In other words, Cardano will benefit from greater interoperability between itself and other chains, such as Bitcoin and Ethereum. This will potentially expand the user pool for the Djed stablecoin, which by extension ultimately means more demand (and a higher price) for ADA. At the same time, cross-chain compatibility means that multiple developers can include support for Cardano when creating dApps. Again, this will result in increased use of Cardano over time.

Even today, Cardano’s ecosystem counts about 1,200 apps and projects that develop on its network, in addition to more than 115 projects already running. At the same time, 5,689 Plutus scripts (i.e. Cardano’s version of smart contracts) are running on the network, up from just over 3,200 in mid-September.

Combined with the launch of Djed, all of this points to an ecosystem that is not only growing, but will also thrive in the months and years to come. And while it would still be hyperbolic to call Cardano an “Ethereum killer,” it might now be fair to say that it is in the process of becoming a real rival.

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