Djed Formalism
Orange Dollar implements Minimal Djed, a formally verified algorithmic stablecoin protocol designed by IOHK (the team behind Cardano).
The Paper
"Djed: A Formally Verified Crypto-Backed Pegged Algorithmic Stablecoin" — Zahnentferner, Kaidalov, Etit, Diaz (2021)
The paper provides mathematical proofs that Minimal Djed maintains its peg under defined conditions, including guarantees about reserve adequacy and the ability to always redeem stablecoins.
Key Invariants
- Peg maintenance: As long as the reserve ratio stays above the minimum, every OD token can be redeemed for its face value in WBTC
- Reserve floor: The 400% minimum ratio ensures the reserve always exceeds OD liabilities by a wide margin
- Fee accumulation: Fees collected from operations strictly increase the reserve, strengthening collateralisation over time
Adaptations
Orange Dollar adapts Minimal Djed for Bitcoin:
| Paper | OD Implementation | Reason |
|---|---|---|
| Reserve in native currency | Reserve in WBTC (OP-20) | OPNet contracts can't custody native BTC |
| External price oracle | MotoSwap TWAP | Fully on-chain, no trusted feeds |
| Generic blockchain | OPNet (Bitcoin L1) | Bitcoin-native settlement |