Cardano Stablecoin DJED Depegs as its Reserve Ratio Falls, Causing Unminting Issues

The COTI-issued stablecoin Djed has deppeged across all Cardano decentralized exchanges as the token’s reserve ratio recently fell below par.

Launched on mainnet in January 2023, the Cardano algorithmic stablecoin Djed is already causing problems related to de-pegging and unminting for its users, The Cardano Times (TCT) revealed.

Djed Depegs as Reserve Ratio Slumps

According to the free media network of Cardano, the reserve ratio of Djed has fallen below the percentage range needed to keep the algorithm-based stablecoin stable.

REPORT: $DJED, the stablecoin issued by Coti; has failed to maintain a reserve ratio between 400-800% making it un-mintable through the $DJED protocol for users, which has caused a consistent de-pegging on all #Cardano DEXs with $DJED trading at a price of $1.078 as of writing. pic.twitter.com/mZLUd0E2bC

— The Cardano Times (@TheCardanoTimes) July 5, 2023

Notably, Djed’s reserve ratio was designed to stay within the range of 400% to 800% to maintain parity with a dollar constantly.

However, the Cardano stablecoin’s reserve ratio has declined to 346% per a snapshot shared on Wednesday by TCT. As of July 4, its base reserve had roughly 39, 343,556 ADA, equivalent to 11,555,202 DJED tokens.

This has resulted in the inability of users to un-mint their tokens through the Djed protocol. The stablecoin, which has the DAG-based Layer-1 protocol COTI as its official issuer, has depegged on all Cardano decentralized exchanges.

The tweet revealed: “DJED, the stablecoin issued by Coti, has failed to maintain a reserve ratio between 400-800% making it un-mintable through the DJED protocol for users, which has caused a consistent de-pegging on all Cardano DEXs.”

To further buttress this, The Cardano Times shared a chart depicting June’s trading history of Djed, noting that users cannot buy the stablecoin at $1.

Cardano Community Reacts

This development triggered a mild fuss in the Cardano community. While some users noted that Coti has failed to ensure sufficient liquidity for the stablecoin, others claimed that Djed is working as intended.

Djed holders can still get the $ amount of ADA when selling via https://t.co/mZzY9X7wGI or ~10% more when selling via a DEX. I would say djed works as intended, it needs time for ppl to realize the investment opportunity by holding SHEN. Organic adoption doesn’t happen over night

— Bj₳rne🦉| TECH Pool 🦾 (@CardanoTech) July 5, 2023

Responding to the user who submitted that the stablecoin has “completely failed” regarding liquidity, TCT clarified that Djed has only de-pegged on all Cardano DEXs and not on the protocol itself.

Though the algorithmic stablecoin still maintains a price of $1.00 on its protocol through its burn mechanism, TCT noted that it was impossible to buy the token at $1 in the open market at the time of its announcement.

de-pegging on Cardano DEXs*

The protocol itself maintains a price of $1.00 through its burn mechanism, but obtaining $DJED for a price of $1.00 through the open market or through the protocol itself is impossible at the time of writing this tweet.

— The Cardano Times (@TheCardanoTimes) July 5, 2023

On the other hand, the EMURGO Academy Community Lead Jonah Koch noted that the stablecoin is working as designed. He further suggested ways to help Djed maintain its peg. He added that the stablecoin issuer should stop minting the reserve token SHEN to pay COTI holders. Koch stressed that SHEN should only be minted to maintain Djed’s peg.

It bears noting that this development comes shortly after Cardano’s overcollateralized dollar-pegged stablecoin Djed became available for lending and borrowing on Liqwid.