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    DeFying Gravity: Acala Network — Polkadot Parachain for DeFi 

    Acala Network

    We continue the DeFying Gravity series where we talk about the weirdest, the most promising, and sometimes just the funniest projects in the fast-changing crypto space. This time we going to take a look at the new Polkadot DeFi platform, which just completed the crowdloan stage and is preparing to establish on the mainnet. We explored the features and potential of the parachain to understand what innovations and utility it brings.

    What is Acala Network?

    Acala Network is a smart contract platform amended for decentralized finance and also scaling dApps to Polkadot. It’s also considered a liquidity core of Polkadot. Acala is a layer-1 contract platform with inbuilt liquidity and preset financial apps, for instance, trustless staking initiatives (liquid DOT), a multi collateralized stablecoin backed by cross-chain tokens, and AMM DEX (automated market maker decentralized platform). The project offers just small gas fees that users can cover not only with the native coin but with any other digital asset, including BTC, Ether, etc. 

    Acala Network was firstly introduced in 2019 and has already attracted numerous endowments from Web3 Foundation. It is also backed by Coinbase Ventures, Digital Currency Group, Arrington XRP Capital, and other top crypto-related companies.

    Acala parachain is a unique decentralized organization conveying a collection of protocols presented as Polkadot’s Defi building block. It is a cross-chain stablecoin network that offers a secure, pegged-to-US dollar digital currency with a low price that users can send between connected blockchains with a minimal commission. The collateral also can be applied from the other networks, thus providing a bigger supply limit.

    Platform’s reliability is protected by the Polkadot shared security protocol that grants higher flexibility and allows upgrades without the forks. All the decisions on the network are made by the holders of native ACA coin owners to grant absolutely transparent relations, built on facts other than trust.

    The main intent of the Acala network is to ascend to a more secure environment by supporting Polkadot’s shared security technology, but also to provide full decentralization through an institution raise and coin issue model. Acala also aims to be farsighted with the forkless determined upgrade. 

    It provides several products for  digital  financial system:

    • a multicollaterized stablecoin approved by the Horizon protocol;
    • a trustless staking asset via Homa protocol;
    • an AMM (automated market maker) DEX decentralized exchange.

    These services are now running on the Mandala Acala testnet and preparing to run on the mainnet once Polkadot’s parachain goes live.

    Acala Network also includes an Ethereum-compatible virtual machine for setting up the dApps written with Solidity (an Ethereum language for creating smart contracts). Another use for EVM is minting the tokens similar to ERC-20.  It is also the main feature of the network’s interoperability framework. The transactions performed with EVM are later turned into Substrate transactions, signed with Polkadot extensions, and then translated into the format readable by Ethereum. 

    Acala’s development team is public and not hiding the real identities of the team members are revealed on the official page. 

    Acala Network token (ACA)

    ACA is the utility asset powering the parachain platform.  Its use cases include:

    • transaction fees — to cover micro gas transaction commissions and smart contract execution;
    • node incentives — to enable nodes incentivizing to monitor and relay messages to Polkadot; 
    • governance, — to give a chance to every ACA holder to take a part in deciding the project’s future and to elect the council members;
    • algorithmic risk adjustment — for automatic customization of the specifications, including interest rates or collateral ratio;
    • pallet deployment — for the team members to launch new Substrate pallets on the parachain by staking ACA.

    The whole supply of ACA (1 billion tokens) will be aquired on the launch day of the mainnet and no tokens will be minted after. The coins will be kept in ACA Reserve Pool and steadily delivered to Acala Foundation and Seed Investment Partners. A certain percentage of the reserve is allocated to IPO contributors to reward them for their participation, and all the rest will become available for trading through the exchanges. 

    Acala Network also has its own stablecoin with a price backed by USD (1 aUSD=1 US dollar). Honzon protocol is stabilizing its price via the dynamic system of Collateralized Debt Positions, governance, and incentivized key actors. Stablecoins can be generated through CDP creation and also purchased from the exchange platforms or brokers.

    Any digital asset from one of the connected networks, blockchains, or dApps established on them can be used to create ACA. For example, one can do it with Bitcoin or Ether. The stability Fee for a USD coin generation is paid in ACA tokens. Native Acala’s swapping service automatically converts USD to ACA for compensating the payment commissions. These assets are burnt straight away after the payment, meaning that the total supply decreases with every transaction.

    Acala Crowdloan 

    Instead of applying to the private venture capitals for funding, ACALA’s developers preferred another approach. The team went for the Public Crowdloan to guarantee a ubiquitous, unbiased, and transparent distribution of Acala Network tokens. 

    ACALA crowdloan was organized for those who were interested to contribute to the growth of the developing parachain and the solutions built on it. To join one had to sign in to the waitlist and prepare DOT coins. Those contributed tokens got locked in the special vault for 2 years. Users also could become a part of the IPO without a Waitlist but with less privilege. When Acala released on the mainnet, IPO participants will get rewarded with ACA tokens. 

    Polkadot requires all the parachains to start participating at the same time, and moreover to get a security slot, parachain needs to win the unpermissioned candle auction, that’s why organizing an IPO appeared as the best move that gains supporters and collects unbound DOT that led to the win in the auction. Everyone who contributed to the IPO was rewarded with ACA tokens.

    Even though the assets won’t be vested immediately, but only during the 96 weeks lease period, they provide governance rights and allow to take part in other platforms’ events except transferring and exchanging. 

    Crowdloand consisted of several quests. To get rewarded users needed to complete the tasks. Participants who signed in a waitlist were only required to complete 2 tasks, while the others had to finish all five of them. For each quest, there was a 2% ACA Bonus and unique non-fungible token rewards for everyone who completed all the tasks. Though every contributor got NFT except those who participated through the exchanges. More than 81 000 wallets took part in the IPO. 

    NFT was distributed to every contributor except those who participated through the exchanges. 

    To contribute the users could have used one of the 4 ways:

    • traditional crowdloan;
    • liquid crowdloan;
    • exchanges;
    • mobile wallets. 

    Acala submit the DOT received during an IPO in the Polkadot auction to compete for a security slot on the network. As Acala has already won the auction, it’s guaranteed to go live in December.  After 2 years, the smart contract will unlock the vault, and contributed DOT will be sent back to the IPO participants while they will also keep rewarded ACA tokens. Altogether 170 million ACA tokens were distributed to the crowdloan supporters.

    The future of Acala

    At the time of publishing, Acala completed its IPO and won the first Polkadot Parachain Auction, gathering $1.3 billion in DOT of contributions and overcoming Moonbeam, layer-1 Ethereum platform. It means that the project will go live on December 17 at the same time as the parachains that will win the following auctions. 

    The founders also shared their views on the future of the platform: following the setup, the financial products on the network will be rolled out step by step. For instance, LDOT, AMM DEX, and its development environment will be on in 2022. The first launching phase also includes step by step establishment of the platform’s governance. 

    Recently the announcement for hiring appeared in the official Twitter account of Acala, meaning the team is going to be expanded in order to speed up the work on the project and the development of the existing and new features. 

    The official roadmap doesn’t mention more milestones planned, but it seems like after going to the mainnet project will most likely be recognized even wider and not only in the crypto community. 

    The content of this article is for informational purposes only and should not be construed as investment advice. We ask you to do your research. This text is not a guide to action. The author's opinion may not coincide with the opinion of CoinJoy