The Cardano network’s stable cryptocurrency asset encountered a liquidity problem

Cardano

The algorithmic stable cryptocurrency DJED, developed on the Cardano network and launched in early 2023, has encountered a significant problem in maintaining stability.

Due to the decrease in the reserve ratio of DJED, developed on the Coti protocol, below the expected levels, the cryptocurrency became unable to be minted. For the stable cryptocurrency to remain equivalent to the US dollar, the reserve ratio should be between 400% and 800%. However, when this ratio fell to 346%, a serious issue regarding stability emerged.

Subsequently, with the help of decentralized exchanges on the Cardano network, the algorithmic cryptocurrency that maintained its stability successfully reached the $1 level. The stability issue, confirmed by Cardano Times, drew criticism from many users due to the fluctuations that occurred. Users blamed Coti, responsible for the issuance of DJED, for not providing sufficient liquidity for the asset.

On the other hand, Cardano Times stated that DJED maintained its stability within its own protocol, only losing stability on decentralized exchange platforms. Price fluctuations in stable cryptocurrencies are considered a source of concern for users. The occurrence of such a problem in algorithmic stable assets further worries users.

Last year, the collapse of Terraform Labs, which resulted in billions of dollars in losses in the cryptocurrency market, was triggered by the loss of stability of the platform’s algorithmic stable asset, UST. Following this event that plunged the industry into chaos, algorithmic stable cryptocurrencies became the center of debates. These types of cryptocurrencies need to have a high collateralization structure to maintain stability during periods of market volatility since they carry reserves in a decentralized manner.

On the other hand, assets such as Tether and USD Coin, which maintain their stability with fiat currencies and similar liquid products, experience fewer liquidity issues as they are managed by a centralized authority.

Source: Günay Caymaz/Investing

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