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What Investors Need to Know About Cardano's New Stablecoin, Djed

One of the big announcements to come out of the 2021 Cardano Summit was the launch of a new stablecoin, Djed. Cardano's (ADA) founder Charles Hoskinson said, "The Djed stablecoin could be a game-changer in the crypto space, appealing to an entirely new audience at a time when the industry is already experiencing astronomical growth."

Stablecoins are cryptocurrencies whose value is pegged to a non-crypto asset, like gold or the U.S. dollar. These cryptocurrencies have proved useful to investors in several ways, not least because it isn't always easy to convert crypto assets into traditional (fiat) money on cryptocurrency exchanges. Stablecoins can offer an easy way to trade in and out of a volatile market.

Here's what you need to know about the Djed coin.

1. Djed will be issued by COTI (COTI)

COTI is a decentralized payment platform that organizations can use to build their own digital payment solutions. COTI already acts as a payment platform for Cardano's ADA Pay. Back in April, Cardano used the payment gateway to raise money for Save the Children, meaning people could donate Ada directly to the charity.

COTI Group CEO Shahaf Bar-Geffen said the first Djed will be mined in the coming weeks.

2. The D is silent

When you read a lot about cryptocurrency, it's not always easy to know how to pronounce the names out loud. So, in case you're wondering, Cardano founder Charles Hoskinson pronounces it like "Jed."

3. Djed will reduce fees and keep costs predictable

Gas (transaction) fees are an ongoing issue in the crypto world. Depending on the network, there's a fee for every transaction -- and as crypto prices rise, so do transaction costs.

Paying fees using a stablecoin like Djed removes some of this uncertainty for Cardano users.

COTI's Bar-Geffen told the Cardano Summit audience, "I believe that adding the Djed stablecoin to the Cardano blockchain will significantly improve how transactions are settled on the platform."

4. It's an algorithmic stablecoin

There are several types of stablecoin out there. The most common are stablecoins that are backed at a 1:1 ratio by a traditional (fiat) currency like the U.S. dollar. (That means for each U.S. dollar stablecoin that exists, there's $1 in non-crypto funds.)

The best known of these is Tether (USDT). The concern with Tether, though, is that it hasn't always had enough cash in reserve, but that's another story.

Algorithmic stablecoins like Djed work a bit differently than traditional ones. Rather than backing the coin with external assets, there's an underlying algorithm to keep the Djed price consistent. Put simply, if the price increases, a smart contract automatically issues more coins. And if the price falls, it buys more to push it back up again. The system keeps a pool of base coins in reserve to maintain balance.

5. Stablecoins may be in for a rocky ride

It's a good idea for crypto investors to keep one eye on the regulatory environment, especially as stablecoin storm clouds are gathering in Washington. Lawmakers are concerned that stablecoins aren't held to the same standards as normal banks, potentially exposing investors to heavy risks.

Stablecoins are a crucial part of the burgeoning decentralized finance (DeFi) industry, which takes the middleman out of traditional financial services like loans and interest-earning accounts.

According to Bloomberg, the Treasury will soon release a framework on how stablecoins should be handled. And SEC Chair Gary Gensler has stressed several times that he believes many stablecoins are unregistered securities and should come under the purview of the SEC.

Bottom line

COTI's price jumped to a new all-time high following this weekend's announcement, but Cardano remained steady. Perhaps that's because speculation over its smart contract launch at the start of the month had already pushed the price up considerably. Cryptocurrency prices remain volatile, so it's important to only invest money you can afford to lose.

However, in the long term, the Djed stablecoin may indeed address a number of issues for developers, especially with DeFi. It's also worth looking at the other announcements that came out of the Cardano Summit. These include several new partnerships, a reforestation project that will be tracked on the blockchain, and a sports NFT deal. All in all, Cardano continues to deserve its top spot on the cryptocurrency charts.

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Emma Newbery owns Cardano and COTI. The Motley Fool owns shares of and recommends Bitcoin.

We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Ally is an advertising partner of The Ascent, a Motley Fool company. The Motley Fool owns shares of and recommends Bitcoin. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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