Cardano (ADA) founder Charles Hoskinson has hinted on Twitter his confidence in algorithmic stablecoins. At the end of January, the algorithmic stablecoin Djed was successfully launched on the Cardano network. However, many crypto fanatics still sound alarm bells when they hear of ‘algorithmic stablecoin’, but Hoskinson remains confident despite the demise of TerraUSD (UST).
Algorithmic stablecoin on Bitcoin
Hoskinson responded to a tweet from Jesse Powell, Kraken’s CEO, who hinted that the market may lose confidence in US financial products following the loss of the Tether (USDT) and USD Coin (USDC) peg. Circle said it has placed $3.3 billion of its total $40 billion in USDC reserves with the controversial Silicon Valley Bank (SVB). The value of USDC crashed, briefly falling below $0.90.
According to Hoskinson, banks will always disappoint you as long as they practice fractional reserve banking. Fractional banking is a banking system in which banks hold only a fraction of customer deposits in reserves.
I still firmly believe that algorithmic stablecoins long term are the most essential research stream to fully realize the original vision of Bitcoin. Banks will always let you down as long as they are fractional reserve. https://t.co/zeQVSzhuaI
— Charles Hoskinson (@IOHK_Charles) March 11, 2023
In his tweet, he stated that he believes algorithmic stablecoins is the most essential research stream to fully realize Bitcoin’s (BTC) original vision.
What is Cardano’s stablecoin Djed?
Algorithmic stablecoins are another class of stablecoins that rely on algorithms to keep value stable. In the case of Djed, an algorithm must guarantee that the peg to the US dollar is maintained at all times. As mentioned earlier, there is little trust within the crypto community in these types of stablecoins due to the failure of UST in May 2022.
Within the Cardano ecosystem, SHEN will cover ADA price fluctuations to ensure price stability. Djed is backed for no less than 400%, which means that for every DJED token there is four dollars worth of underlying asset. With this, Djed is also a so-called overcollaterized algorithmic stablecoin.