Joel Frank
ADA, the cryptocurrency that powers Cardano’s layer-1 blockchain protocol, is easing back on Wednesday after closing out a blockbuster first month of the year. ADA gained a stunning 58% in January, its best single-month performance since August 2021’s 109% gain.
ADA reached as high as $0.40 per token, a stunning rebound from December’s sub-$0.24 lows, with Cardano benefitting from a broad rally in cryptocurrency prices as a result of optimism that 1) the Fed will be less aggressive with monetary policy tightening in 2023 as inflation in the US rapidly eases and 2) that the 2022 crypto bear market might now be over.
ADA/USD was last changing hands around $0.3750, down a little over 3.5% on Wednesday, with some traders taking profit ahead of the upcoming Fed policy announcement scheduled for 1900GMT – some analysts have warned that markets are underestimating the Fed’s resolve to keep lifting interest rates, and that risk assets (like crypto) could fall as a result.
Where Next for Cardano (ADA)?
Cardano bulls will be concerned that, despite January’s staggering surge, the cryptocurrency wasn’t able to muster a decisive break to the north of its 200-Day Moving Average near $0.3950. But they will take heart from the fact that ADA has been finding strong support at its 21 and 100DMAs in recent weeks, and also managed to break above a long-term downtrend midway through January.
If the Fed doesn’t deliver a much-feared hawkish surprise, then crypto prices may once again turn higher, suggesting a break above the 200DMA is a possibility. This would open the door to a run higher towards $0.42-44 resistance area. Another theme for Cardano traders to monitor is the recent launch of Cardano-based stablecoin Djed.
Cardano-based Stablecoin Djed Launches – A Boom for ADA?
Djed is a new USD-pegged algorithmic stablecoin, like Terra’s failed UST. But Djed’s developers, Input Out Hong Kong (the developers of the Cardano blockchain) and Coti (the developers of the Coti blockchain), say this algorithmic stablecoin is different given that it is “overcollaterized”.
Congratulations to the team @COTInetwork on the launch of #DJED #Shen today and another great step forward in the continuing evolution of the #Cardano #DeFi ecosystem @Cardano @Cardano_CF https://t.co/NEnFAErkFp
— Input Output (@InputOutputHK) January 31, 2023
According to the Djed website, the new stablecoin is backed by ADA and uses SHEN as a reserve coin. “To ensure Djed’s stability, it uses a collateral ratio between 400% and 800% for DJED and SHEN,” the website states. But that doesn’t mean that a death spiral (as was seen with Terra’s UST) is impossible. All it would take is for the collateral ratio to fall under 100% to spark a bank run that would force Djed off of its 1:1 peg to the US dollar.
ADA fell 92% from its record highs in 2021 (around $3.10) to its 2022 lows, suggesting that such price declines in the main asset backing Djed are possible. Either way, such a decline isn’t likely any time soon, given the recent uptick in the cryptocurrency market’s sentiment.
And Djed has seen a strong start to life. Its circulating supply is already 1.736 million and given its current reserve of 27.05 million ADA tokens, the collateralization ratio is currently 591%. Cardano doesn’t yet have a thriving Decentralized Finance (DeFi) ecosystem – despite ranking as the 8th largest cryptocurrency by market capitalization, Cardano barely makes it into the top 30 cryptocurrencies when it comes to trade value locked (TVL) within its smart contracts.
Cardano’s TVL was last around $113 million, a poultry number in comparison with the likes of Ethereum and the Binance Smart Chain, which have respective TVLs of $48.16 and $7.06 billion. But Djed could help accelerate growth in Cardano’s DeFi ecosystem.
Fluid, a Cardano-based crypto lending platform, is already accepting Djed as collateral against loans, while Cardano-based Decentralized Exchange (DEX) MuesliSwap recently said announced that it hopes to offer Djed users an annualized yield between 10% to 25%.
Yield Farming just got better with the launch of the new Djed stablecoin and Shen token on MuesliSwap! Join the action and earn big rewards in our concentrated liquidity pools #DeFi #Stablecoin #YieldFarming #MuesliSwap pic.twitter.com/RUF7S5er28
— MuesliSwap (@MuesliSwapTeam) January 31, 2023
A rise in demand for Djed tokens as DeFi investors hunt for yield would push up demand for Cardano, and could be a positive tailwind for the cryptocurrency in the months ahead.
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This article was written for Business 2 Community by Joel Frank.
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