As  much touted "Ethereum killer" Cardano continues on a  slow but steady development path to take down the biggest altcoin by marketcap, it has announced that it will be issuing its own stablecoin, and software development company, COTI, has been identified as the official issuer.

The announcement was made during yesterday's Cardano Summit by  Cardano founder, Charles Hoskinson.

In a blog, COTI explained that the Cardano stablecoin, expected to promote the growth of its nascent ecosystem, will be based on an algorithmic design and using smart contracts to ensure price stabilization. So, let's talk about it.

What is a stablecoin?

A stablecoin is a cryptocurrency with value tied to an outside asset to support its stability, like the US dollar or gold. This helps to serve as a buffer for the oftentimes while fluctuations in cryptocurrency prices and serve as a bridge between these digital currencies and the traditional financial system.

There are quite a few stablecoins in circulation, however, the best known are Tether's USDT, MakerDao's DAI, Binance USD, TrustToken's TrueUSD, the Paxos Standard (PAX) developed by the Paxos Trust Company, and Circle's USDC. In each case, the entity behind the stablecoin is expected to have a basket of assets, cash and cash equivalents, backing the stablecoin

Regulators and the Stablecoin

With the volume of stablecoins in circulation growing, of course, regulators are expressing growing concern as queries have been raised about whether the entities issuing stablecoins in fact have the reserves they claim.

The Block's graph of Total Stablecoin Supply

Most recently, Securities and Exchange Commission (SEC) Chairman Gary Gensler referred to stablecoins as poker chips at the casino's gambling tables, and  stricter regulation is expected in the near future.

Yet, while regulators fear a run on the traditional banking system, stablecoins continue to play an integral role in the development of the cryptocurrency industry. And so, the Cardano stablecoin, the Djed, named after the ancient Egyptian symbol of stability,   is expected to strengthen the Cardano ecosystem. 

What is Djed?

According to its whitepaper, the Djed stablecoin is an algorithmic protocol that is pegged to a target price and crypto-backed in the sense that the bank keeps cryptocurrency in its reserve.

"To the best of our knowledge," the development team stated in the paper. "This is the first stablecoin protocol where stability claims are precisely and mathematically stated and proven. Furthermore, the claims and their proofs are formally verified using two different techniques: bounded model checking, to exhaustively search for counter-examples to the claims; and interactive theorem proving, to build rigorous formal proofs using a proof assistant with automated theorem proving features."

Is Djed a Game Changer?

The development team certainly thinks so.

They argue that utilizing their method addresses regulatory concern about the transparency of reserves, as this issue does not arise when the backing asset is a cryptocurrency on a public blockchain.

"Furthermore," they state, "Issues related to the inefficient and unreliable execution of stabilization measures can be eliminated by implementing the stabilization mechanisms as smart contracts that are automatically, reliably and transparently executed."

There are two versions of the Djed: Minimal Djed designed to serve as a stable and secure medium of exchange, and the more complex  Extended Djed, designed to address issues raised with the minimal version, for example, a bad actor's reserve draining attack, and positioning it to react faster to external events, ensure an optimal level of reserves and provide more security when performing complex operations.

Not just another stablecoin

As the official issuer for Djed, the COTI team argues that the Djed isn't just  another stablecoin built upon Cardano's chain.

"It is also designed to become the ultimate coin with which Cardano’s entire network transaction fees will be paid," they stated. This will serve to ensure the predictability of transaction costs, avoiding volatile and exorbitant gas fees for users, an issue which continues to remain a key concern for users on the Ethereum platform.

"It makes more sense for a chain to have predictability in how much transaction costs, rather than have volatile gas fees," the team stated. "Djed will do just that."

The potential, they say, is breathtaking.

So, what do you guys think? Do you think Djed provides the assurances absent in other stablecoins? Do you think its design is groundbreaking with the potential to revolutionize the stablecoin industry? And will you be copping a few Djed to conduct transactions on Cardano? I'd love to hear your take on this.

Thanks, as always, for stopping by, guys. Until the next one, be safe!