When it comes to the cryptocurrency sector, Cardano (ADA 1.46%) has been gaining traction as a major player. It's a highly anticipated project that has already generated its fair share of buzz, given its pure proof-of-stake consensus mechanism and status as a top-10 crypto by market capitalization.
That said, some investors wonder if Cardano could go the way of Terra Luna (LUNA 2.47%), a cryptocurrency that failed to live up to its hype and ultimately faltered. That's because Cardano has just launched its own algorithmic stablecoin, Djed, this week.
How might this launch affect Cardano's risk profile, and is it a good or bad thing for investors?
Cardano: the next algorithmic stablecoin ecosystem?
This week has been a big one for Cardano, with developer Coti announcing the launch of Djed (DJED) on Tuesday. This launch followed a successful security audit and some serious testing (which lasted for more than a year). Indeed, if there's anything the Cardano developer team is known for, it's taking the proper time to vet various upgrades and releases.
In that regard, there's probably a lot to like about the Djed stablecoin. Cardano's ADA token rallied roughly 5% immediately after it was announced that the stablecoin hit the Cardano mainnet. However, ADA has given up most of these gains today.
The reasons for this uncertain price movement appear to be tied to concerns around the recent fate of other algorithmic stablecoins. The collapse of Terra's LUNA stablecoin is still relatively fresh in the minds of many investors.
Thus, whether Djed will be able to right the wrongs of Terra and become a stablecoin that can avoid losing its peg and collapsing remains to be seen. Today's decline seems to suggest there's just as much trepidation around this launch as there is anticipation.
Bulls note that this decentralized algorithmic stablecoin could be a big catalyst for Cardano, since it could become the foundation for other opportunities for the Cardano ecosystem. It's anticipated that up to 40 partnerships will materialize around the Djed stablecoin. These partnerships and associated upgrades (Djed is expected to introduce dynamic fees and pricing to the Cardano ecosystem) could bolster demand for ADA tokens as collateral to mint more Djed.
Of course, the grand plans of co-founder Charles Hoskinson and his developer team will depend upon Cardano's ADA token avoiding a death-spiral scenario, similar to what we saw with Terra. That's where the uncertainty comes in for many investors.
Can Cardano avoid the fate of Terra?
It's really hard to predict or project how Djed will be able to perform relative to other algorithmic stablecoins that came before it. In some ways, there's an argument to be made that Cardano's Djed stablecoin has the upper hand, knowing what went wrong with previous collapses. Sometimes, learning from the mistakes of others can be extremely valuable, and Djed certainly ought to benefit from the historical record we now have.
One of the key things that makes me more confident about Djed's ability to not only survive, but potentially to thrive in the long term, is the ultra-conservative approach the Cardano team has taken to its various major upgrades. Whether we're talking about the launch of this algorithmic stablecoin, or the network's previous Vasil upgrade, Hoskinson and his team clearly take the slow-and-steady approach.
In the world of crypto (at least up to last year), speed has been rewarded over quality. Cardano's focus on quality could be the differentiating factor that leads this project's algorithmic stablecoin to success, after others have failed.
