What is Acala? (ACA)
Summary of Acala (ACA)
- Acala is a cross-chain DeFi network and liquidity hub built for Polkadot.
- Along with an AMM-style DEX, the Acala ecosystem includes a stablecoin network and liquidity staking protocol.
- ACA is the native token of the Acala network, and is used to pay transaction fees. It is also used as a governance token and contingency solution for sudden price drops associated with collateral assets.
- Transaction fees on Acala can be paid in ACA, as well as many other tokens.
Acala is an Ethereum compatible, smart contract platform that consists of a decentralized finance (DeFi) network and liquidity hub for Polkadot (DOT). Acala’s infrastructure includes a stablecoin network and liquidity staking platform.
Acala’s stablecoin network functions as a building block for decentralized finance (DeFi) on Polkadot. The cross-chain protocol leverages Polkadot’s shared security layer, called the relay chain, while enabling users to value transfers across the blockchains, referred to as parachains, that Polkadot connects.
The Acala ecosystem includes a decentralized exchange (DEX) powered by an automated market model, which also allows users to stake DOT tokens for LDOT. LDOT can in turn be invested, lent or used to collateralize the Acala Dollar (aUSD), a Polkadot-native decentralized algorithmic stablecoin.
Acala is the Polkadot equivalent of Karura, the Acala test network where new functionality can first be proven on Polkadot’s so-called “canary network” named Kusama, before deploying to the Polkadot ecosystem. Karura was the first project to secure a parachain on Kusama during its parachain slot auction process in the summer of 2021.
ACA is Acala’s native utility token, which powers smart contract execution and allows holders to vote on network development.
Who created Acala (ACA)?
Acala was founded in 2019 as a cooperative arrangement between Laminar and Polkawallet. The consortium was formed to create a cross-chain financial foundation for the Polkadot ecosystem. The Acala team is led by co-founders Fuyao Jiang, Ruitao Su, Bette Chen and Bryan Chen.
In September 2021, the company’s initial coin offering (ICO) raised $61 million. Upon launch in January 2022, these funds will be transferred to the on-chain Acala Treasury.
Acala utilized a Crowdloan model to fund its initial operation with the intent of winning the first parachain slot auction on Polkadot. Blockchain startups compete in these auctions by bidding for the privilege to launch and operate on Polkadot.
With over 32 million DOT contributed by 81,000 participants over seven days, Acala secured its parachain slot in November 2021. The Genesis block of the Acala network launched on December 18th, 2021.
How Does Acala Work?
Acala offers a DEX, stablecoin and liquidity staking protocol. As an Ethereum Virtual Machine (EVM) compatible decentralized financial hub for Polkadot, Acala provides access to both DOT-based derivatives as well as assets and decentralized applications (dApps) on the Ethereum network.
The network currently consists of Acala Swap, an automated market maker (AMM) based decentralized exchange, and two protocols developed to provide stability and liquidity for the Polkadot network: Honzon and Homa.
Honzon is the stablecoin protocol. The stablecoin powered by Honzon, aUSD, is pegged to the U.S. dollar and is backed by crypto assets through a system of collateralized debt positions (CDP). CDPs were first popularized by MakerDAO and their DAI stablecoin as a way to maintain price stability of crypto assets in a decentralized way. Collateral can be provided to Honzon in DOT, or bridged assets such as Bitcoin (BTC) and Ether (ETH).
Honzon’s enhanced security and stability is provided by an automatic schedule service known as ‘Off-Chain Worker.’ Off-Chain Worker monitors and automatically closes positions at risk of liquidation.
The Homa protocol ensures liquidity through an algorithmically adjusted staking strategy. By establishing a staking pool on Acala Swap, Homa tokenizes staked assets.
Within Acala Swap, LDOT is exchanged for staked DOT and remains liquid and tradable across all Polkadot connected chains. LDOT can be redeemed by its holders for DOT at any time.
Why does ACA have value?
ACA is the native token of the Acala ecosystem. The main functions of ACA include paying for transaction fees and governing the network.
Holders of ACA can propose network upgrades and risk-parameter adjustments, such as debt ceilings. An elected on-chain general counsel ultimately decides on the approval of proposals.
ACA can also be used as a contingency solution against the sudden price collapse of collateral assets. Should undercollateralized CDPs cause a sudden price drop in these assets, ACA tokens will be automatically diluted and sold for recapitalization.
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Why buy ACA?
Acala represents a first-of-its-kind DeFi infrastructure protocol for powering financial activities across all chains on the Polkadot network. The ACA token amounts to a stake in the underlying blockchain it powers.
Low gas fees may also be of interest to investors looking to purchase ACA. Uniquely, while settling transactions for a fraction of the cost of competing networks, gas on the Acala network can be paid with tokens other than ACA, including BTC, ETH, USDT and DOT.
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