DJED uses exogenous collateral (ADA). This means that the collateral that backs DJED, ADA, has its own utility (its primary use-case is separate from the Djed stablecoin project), and is completely independent of the Djed protocol. ADA is used to buy DJED's reserve coin SHEN.

DJED is overcollateralized by 400% to 800%, this means that it has 4 to 8 times more underlying value in the form of SHEN (that is purchased with ADA) backing it than the total sum of DJED minted. Algorithmic stablecoins on the other hand are usually only partially collateralized or undercollateralized.

The stability of DJED is based on this overcollateralization and not on trust in a governance token.

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