BCGAME - Free 5BTC Daily Bonus!Launched in 2019, the Acala Network (ACA) is an all-in-one decentralized finance (DeFi) platform where users can complete financial transactions through contracts or smart protocols. Stablecoin Acala Dollar (aUSD), indexed to the USD, feeds decentralized applications ( DApps ) and DeFi operations on the network. So far, the platform has not coined its native ACA token or released its mainnet.
What does the Acala network do?
Acala Network is Polkadot's (DOT) cross-chain DeFi hub where users can bet, trade, borrow, lend, earn, and more. Like all DeFi hubs, Acala Network aims to provide an alternative platform to Ethereum (ETH) where users can access DeFi services and DApps without encountering scalability issues. Furthermore, with Acala's micro-gas fee system, the grid solves the problems of gas fee inflation and grid congestion. As a result, users only need to pay a small fee when completing operations on the network.
The Acala Network provides DeFi services such as a stablecoin currency (aUSD), liquidity staking (via Liquid DOT or L-DOT) and an Integrated Automated Market Maker ( AMM ) decentralized exchange ( DEX ). The network uses two protocols to provide stablecoin services and net staking services – the Honzon protocol and the Homa protocol.
The Honzon Protocol
The Acala Network uses the Honzon Protocol to provide stablecoin services. The protocol manages activities involving the decentralized stablecoin Acala Dollar (aUSD). aUSD is a multi-collateral backed cryptocurrency pegged to the US dollar, where 1 aUSD is equivalent to $1 USD. This stablecoin can be transferred and used anywhere blockchain connected to the Polkadot network.
The term “backed by multiple collateral” refers to how users can generate aUSD using other cryptocurrencies as collateral. Users can use any cryptographic assets supported by Polkadot to create Secured Debt Positions ( CDP ) to generate aUSDs. A CDP is basically a loan that users would have to pay with interest to withdraw their secured assets. After a user pays their CDP, the protocol burns their aUSD to maintain the USD index.
The Homa Protocol
The Acala Network uses the Proof of Stake algorithm to reach consensus and uses stakeout to secure its network. Prior to net staking, once tokens were staked on PoS blockchains, interested parties could not use them for other applications that would cause illiquidity issues. Also, while there were staking rewards, some DeFi lending apps have started to offer higher yields. This motivated users to lend their crypto assets instead of gambling, thus risking network security.
The Acala Network's solution to the issue of illiquidity of staked assets is the Homa Protocol. The protocol provides net stakeout services to DOT holders by establishing a stakeout pool where users wager DOTs and receive L-DOTS in return. L-DOTS are staking derivatives that serve as token staking receipts and provide liquidity. Users can use L-DOTs for applications like loans to earn interest, acting as collateral for minting aUSD and trading assets on all blockchains connected to the Polkadot network.
DEX based on Acala AMM
Acala Network implemented an integrated AMM-based DEX for users to trade assets in liquidity pools. An AMM provides liquidity to DEX and ensures that the total liquidity of a pool remains the same through automated trades based on a pricing algorithm. With DEX, users can exchange tokens instantly without requiring an order book, while liquidity providers gain incentives by providing tokens to liquidity pools.
The interesting point is that Acala DEX allows the trade of any cryptocurrency between blockchains connected to Polkadot. As Polkadot is a very popular project, Acala DEX has a large collection of cross-chain liquidity pools. Unlike Ethereum-based AMM DEXes, trading fees in Acala are also much cheaper and users can pay the fees with any cryptocurrency.
What is the native Acala network token?
In addition to aUSD and L-DOT, there is the ACA, the Acala Network's native token with a total planned supply of 100 million. According to the Acala Network white paper, tokens will be minted with the release of mainnet. The ACA token will have the following use cases:
- Network Utility Token: The network will use ACA tokens as payment of transaction fees, stability fees (aUSD loan interest rates) and penalty fees (in case of liquidation).
- Network Governance: Users holding ACA tokens can propose network updates and risk parameter adjustments such as settlement ratio, stability rates and settlement penalty. The network's general governance board then decides whether to accept or reject the proposals.
- Contingency solution: If the prices of the guaranteed assets suddenly collapse, the network will automatically dilute and sell the ACA tokens.
Who is behind the Acala Network?
Ruitao Su, Bette Chen, Fuyao Jiang and Bryan Chen founded Acala through the Acala Foundation in 2019 in a joint effort between the two ecosystem teams from Polkadot, Laminar and Polkawallet. The Acala Foundation currently oversees the network until it reaches full decentralization. Thereafter, ACA token holders will govern the network in lieu of the foundation.
Ruitao Su is co-founder and CEO of Laminar, a synthetic asset and margin trading platform. He holds a BA in Commerce from the University of Auckland and founded Less Code Limited, an award-winning software development studio.
Bette Chen co-founded Laminar with Su and currently serves as Chief Operating Officer for Laminar. Like Su, she is an alumnus of the University of Auckland and studied software engineering. She also holds a Master of Business Administration and has experience as a project manager and business analyst.
Bryan Chen is the co-founder and Chief Technology Officer of Laminar. Similar to the other two founders of Laminar, he is affiliated with the University of Auckland and studied computer software engineering. He is a software engineer with experience in front-end and back-end development.
Fuyao Jiang is the founder of Polkawallet, the mobile wallet for the Polkadot ecosystem. He was one of the first Polkadot developers and community builders. He is now an open contributor to Polkadot and Acala Network.
Several institutions showed support for the Acala Network. In March 2020, Acala Network raised $1,4 million in a seed round with participants including Polychain Capital, KR1, P2P Capital and HashKey. In August of the same year, Acala Network raised USD 7 million in Series A through a simple agreement for futures token sale (SAFT) led by Pantera Capital, followed by other investors such as 1confirmation, Digital Currency Group and Arrington XRP Capital. The Web3 Foundation has also awarded several development grants to the Acala Foundation.
What is Outlook for Acala Network?
With the rise of DeFi last year, there are many established platforms offering stablecoin, liquid staking or DEX services. As Acala provides all three services, the network has a lot of competition:
- In the multi-support stablecoin scenario, the MakerDAO (DAI) currently dominates. However, MakerDAO suffers from scalability issues as Ethereum is its underlying blockchain technology. Ethereum is slow and handles about 10-15 transactions per second. In contrast, Acala is part of Polkadot, which handles at least 200 transactions per second. Due to the high performance of Polkadot, the Acala Network is more than 10 times faster than the MakerDAO.
- As an AMM-based DEX, the Uniswap (UNI) is Acala Network's closest competitor. However, Uniswap has neither a stable medium of exchange (like aUSD) nor a staking derivative (like L-DOT). The Uniswap platform only provides users with the ability to trade tokens in a decentralized manner, which is just a fraction of what the Acala Network can achieve.
- In net staking, platforms such as StaFi allow users to bet on multiple cryptocurrencies and receive the corresponding staking derivatives. In addition to its native token, StaFi also supports many popular tokens, such as ETH and DOT, and plans to expand its catalog. Acala offers only DOT stakeout and provides only one type of tokenized state. On a good note, one report stated that this is a strength of the network as it provides fungibility and increases liquidity.
Unlike Ethereum-based protocols, Acala does not rely on external liquidators to monitor and close dangerous positions. Instead, the Honzon Protocol automates the process through a unique integrated service, called out-of-chain workers, to enhance the stability and security of the aUSD.
Another great advantage of the Acala Network is compatibility. The network will deploy a custom Acala Ethereum virtual machine (EVM) so that developers can build Ethereum-compatible applications and create cryptographic assets with functions similar to ERC-20 tokens in Acala. In addition, the network accepts applications written in popular programming languages (which are compiled for WebAssembly ), which reduces the input limit for application development.
However, most of its resources are not yet online. According to its roadmap, the implementation of EVM and smart contracts has been a work in progress since the end of last year. Furthermore, the platform is still in its test network and has not coined its native token. There is no definitive timeline for when Acala will launch its core network, but it is expected that it will come online after Acala tests all the features on its test network.
Conclusion
The Acala Network is an ambitious project that seeks to bridge the gap between Ethereum and Polkadot. The platform offers a number of DeFi services, such as stablecoin, liquid staking and DEX, which do not require users to pay high gas fees. The network's next challenges are to deliver the features promised for a complete product, launch its mainnet, and coin its token for decentralized governance. With funding, donations and a skilled team, Acala Network has enormous potential to make great strides in the DeFi field.
