Shahaf Bar-Geffen, the CEO of COTI, said Djed is an overcollateralized stablecoin and not an algorithmic stablecoin.
During COTI’s first update of 2023, Bar-Geffen took the opportunity to make clear that the soon-to-be-launched Djed stablecoin is to be referred to as an overcollateralized stablecoin, despite it operating on an algorithmic design.
How does Djed work?
Algorithmic stablecoins use an automated or sometimes incentivized method to achieve price stability.
In instances of the price being above the peg price, tokens are minted to increase circulation and reduce the price. While pricing below the peg price requires burning tokens to reduce circulation.
Djed is backed by Cardano’s ADA token, meaning users wanting the stablecoin send ADA to the smart contract and receive minted Djed in return. These transactions build up the value and holdings in the Djed pool.
By contrast, selling Djed requires users to send the stablecoin back to the smart contract, which then burns the tok
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