Reserve Coins are digital assets designed to uphold the algorithmic peg of stablecoins. When users trade these coins, they supply the necessary liquidity to keep the peg ratio at an adequate level. This reserve system allows for the collection and pooling of base fees from transactions involving the associated stablecoin. In return for helping to sustain the peg ratio, holders of Reserve Coins receive a portion of this fee pool as a reward. Prior to the launch of Djed, the team plans to introduce a Reserve Coin specifically intended to support Djed’s peg and ensure its liquidity stability.

Shen (SHEN) serves as the Reserve Coin for Djed, a name chosen to continue the project’s ancient Egyptian motif. The term Shen represents a symbol associated with symmetry and royalty. Its circular shape links it to concepts of completeness, protection, eternity, and infinity. The team determined during brainstorming that this name accurately reflected the traits of Djed’s Reserve Coin.

Users can buy and sell Shen to help keep Djed pegged to the USD. In return, they receive a portion of the transaction fees from the reserve pool. Because the Reserve Coin is a tradable asset, holders also have the opportunity to gain from short-to-mid-term price changes as an additional incentive.

Djed serves as the initial over-collateralized, crypto-backed algorithmic stablecoin contract on the Cardano network. It functions by holding a reserve of base coins (ADA) while minting and burning both stablecoins and reserve coins. To keep the stablecoin pegged to its target price, the contract buys and sells stablecoins using the reserve and collects fees that accumulate within that reserve. The holders of reserve coins are the final recipients of this revenue; they increase the reserve with their own funds while taking on the risk associated with price volatility.

The Djed research paper was authored and developed by the IOG team, which includes Joachim Zahnentferner, Dmytro Kaidalov, Jean-Frédéric Etienne, and Javier Roberto Diaz. The project is powered by Coti.

Djed stands out as the first stablecoin protocol to undergo formal verification. By applying formal methods during development, the team has used mathematical theorems to prove key design and stability features:

• Peg bounds: The price stays within defined upper and lower limits. Within the standard reserve ratio range, trading remains unrestricted, removing any incentive for users to trade stablecoins outside the peg on secondary markets.
• Crash resilience: The peg holds firm even if the base coin’s price drops sharply, up to a specific limit determined by the reserve ratio.
• Insolvency protection: Since no bank is involved, there is no bank contract that can fail.
• Prevention of bank runs: Users are treated fairly and paid appropriately, which provably eliminates the incentive to rush to redeem stablecoins.
• Growing equity: Under certain conditions, the surplus per reserve coin is guaranteed to rise as people interact with the contract, ensuring profit for reserve coin holders.
• Reserve security: Under specific conditions, malicious actors cannot perform a series of actions to drain reserves from the system.
• Limited dilution: There is a cap on how much the issuance of additional reserve coins can dilute existing holders and their profits.

Djed maintains its peg through an algorithm that requires a collateral ratio between 400% and 800% for both $Djed and $Shen. Shen absorbs price volatility in ADA, covering any deficits to ensure the collateralization rate remains intact.

Rather than relying on market makers, the ADA reserve pool is managed by users who mint $Shen and contribute ADA, giving the $Djed system a decentralized structure. Fee incentives encourage $Shen holders to supply this liquidity.

Because $Djed can be over-collateralized by up to 8x, the likelihood of it losing its peg is reduced. Specifically, every 1 $Djed minted is backed by 3–7 dollars worth of $ADA in the reserve. If the ratio drops below 400%, minting new $Djed and burning $Shen are both disabled. This restriction acts as a safety net for $Djed holders during market downturns, supporting sustainability. Additionally, the issuance of new $Shen is monitored to keep balances stable and guarantee sufficient ADA remains in the pool to cover the dollar value of $Djed upon burning.

DJED and SHEN can be minted directly via their platform or acquired on leading Cardano decentralized exchanges.