Djed stands as the initial over-collateralized stablecoin contract on the Cardano network that is backed by ADA. Its mechanism involves holding a reserve of base coins (ADA) while minting and burning both stablecoins and reserve coins. To keep the stablecoin pegged to a target price, the contract buys and sells stablecoins using the reserve and collects fees that build up 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 created by the IOG team, which includes Joachim Zahnentferner, Dmytro Kaidalov, Jean-Frédéric Etienne, and Javier Roberto Diaz. The project is powered by Coti.

Djed (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 off-peg in secondary markets.
• Crash resilience: The peg holds firm even if the base coin’s value drops sharply, up to a specific limit determined by the reserve ratio.
• Insolvency prevention: Since no bank is involved, there is no banking contract that can face bankruptcy.
• No bank runs: Users are treated fairly and paid appropriately, which provably eliminates the incentive to rush to redeem stablecoins.
• Rising equity: Under certain conditions, the surplus equity per reserve coin is guaranteed to grow as users interact with the contract, ensuring profit for reserve coin holders.
• Reserve protection: 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 a collateral ratio between 400% and 800% for $Djed and $Shen. Shen absorbs ADA price volatility, covering deficits and securing the collateralization level.

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 nature. Fee incentives encourage $Shen holders to supply liquidity.

Because $Djed allows over-collateralization of up to 8x, the likelihood of losing its peg is reduced. This results in 3–7 dollars worth of $ADA held in reserve for every 1 $Djed minted. Should the ratio drop below 400%, minting $Djed and burning $Shen are both disabled. This restriction acts as a safety net for $Djed holders during market downturns, supporting sustainability. Additionally, new $Shen minting 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 DEXs.