Charles Hoskinson, founder of IOHK and the Cardano chain, has proposed an explanation for Terra’s stablecoin, UST, and its native coin, LUNA, collapsing today. He also claims that Djed, the Cardano-based stablecoin, is well secured from losing its dollar peg.
Meanwhile, LUNA has managed to fight back. After dipping below $1, the coin surged to the $5 range before plunging again. At the time of writing, it was selling at $0.3, down 96.42%.
Hoskinson believes LUNA’s demise was caused by an attack that any DeFi protocol or cryptocurrency may suffer at any time. He claimed that such an attack might be carried out by anyone, from hackers to traders. Hosk said that a minor exploit is all that is required to break it and succeed.
When asked how the Djed stablecoin based on Cardano (ADA) will avoid losing its USD peg, Hoskinson responded succinctly: “Overcollateralization.” Djed, like UST, is an algorithmic stablecoin; however, its algorithm is based on a 400%-800% collateral ratio for Djed and Shen (Djed’s reserve coin).
Djed’s collateralization process is thus decentralized, with users minting Shen and depositing ADA into the liquidity pool. As a result, the rate of collateralization remains relatively consistent.
Don’t know if Hoskinson’s statement is right or wrong, but ADA had plummeted 35% at the time the tweet was released.
DISCLAIMER: The Information on this website is provided as general market commentary and does not constitute investment advice. We encourage you to do your own research before investing.
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