Thanks to technological innovations such as Polkadot interoperability, Acala has opened up a new field of DeFi outside of Ethereum. DeFi can communicate with different blockchain networks across chains.
Written by: Paul Veradittakit, Pantera Capital Venture Partners Compiler: Perry Wang
Pantera Capital recently invested in Polkadot’s ecological DeFi platform Acala, and participated in the investment including ParaFi Capital, Digital Currency Group, 1confirmation, Arrington XRP Capital, Polychain Capital, Altonomy and CMS Holdings and other top crypto venture capital institutions.
- At present, most mainstream DeFi projects are mostly running on Ethereum and use ERC-20 Token. Scalability, transaction speed, gas fees, etc. constitute constraints. With the outbreak of DeFi fever, the market urgently needs a way to achieve cross-different blockchain networks.
- As a financial hub on the Polkadot network (a decentralized network linking different blockchains), Acala provides a set of basic financial elements across different blockchains. Acala has two main protocols:
- Honzon: Users can deposit any blockchain assets (such as Bitcoin and Ethereum) into the Acala platform to generate a CDP (collateralized debt warehouse), from which they can borrow Acala Dollar (aUSD) linked to the U.S. dollar. aUSD can circulate freely to any blockchain network in the Polkadot ecosystem, and can be used for DeFi services such as lending (just like Dai in MakerDao).
- Homa: When a user wants to participate in the Polkadot network to obtain benefits, they need to pledge Polkadot’s native token —- DOT. The Homa protocol allows users to convert the pledged DOT into a freely circulated DOT (L-DOT) that contains pledged proceeds. L-DOT, as a kind of on-chain certificate, can be circulated and traded on any blockchain network. This creates an incredible model of turning pledged assets into liquid assets.
- Acala’s governance token is ACA, which can be used for voting rights, payment of stability fees (a small fee charged by Acala when users close CDP), and can be used as the last resort to ensure the security of the entire system in the face of extreme black swan A line of defense.
- As of this writing, Acala has 14,500 accounts on its test network, 142,000 signed transactions, and a total of $52 million worth of test assets generated to participate in a three-week test network activity. The heads of the Acala Foundation (Ruitao Su, Bette Chen, Fuyao Jiang, and Bryan Chen) all have a strong background in DeFi, Token economics, and blockchain interoperability, and have made outstanding contributions to Polkadot, Substrate, etc.
- Acala finally provides a very promising model for cross-chain DeFi. As we have seen when using DeFi on Ethereum, these simple elements can help drive the explosive growth of the development and investment of many applications. As the cross-chain DeFi protocol achieves the diversity of available functions, new potential applications will emerge in the future.
Free the vast world of DeFi beyond Ethereum
DeFi has undoubtedly become one of the most popular blockchain verticals this year, and it is slowly becoming an area where funds continue to flow in and innovative and innovative. New things such as liquid mining have attracted people’s attention. Cryptocurrency enthusiasts are constantly looking for new and disruptive ways for DeFi to expand. The most important breakthrough idea is to consider the current constraints of DeFi.
A particularly interesting bondage is the bondage of the Ethereum blockchain itself. Currently, most DeFi protocols are running on the Ethereum network, using their own ERC-20 for various use cases. But Ethereum is not immune to its own problems (including scalability, transaction speed, high gas fees, etc.), and as more and more DeFi protocols emerge, they will bring a variety of applications and use cases. They need to be Run on the blockchain. So the next most important development direction of DeFi is to get out of Ethereum.
DeFi in Polkadot
This is where Acala comes in. As the first stablecoin platform in the Polkadot ecosystem, Acala uses Polkadot as the underlying foundation to build cross-chain DeFi and connect different blockchain networks. As a newly launched decentralized protocol, Polkadot, which is constantly improving and developing, can not only connect different blockchain networks, but also simplifies the development of cross-chain communications with parachains.
Acala uses Polkadot’s cross-chain interoperability to provide a set of common protocols to help build cross-chain DeFi applications. The core of the Acala protocol is the Acala Dollar (aUSD), a stable currency that supports multi-asset mortgages, and can be traded freely between different blockchains. To obtain aUSD, users need to open CDP (essentially a smart contract that supports the exchange of one asset with another asset) through Acala’s Honzon protocol interface. Users can use DOT or any blockchain network assets connected to Polkadot (such as Bitcoin and Ethereum) to create a CDP, and then lend a certain amount of aUSD, and users can also circulate the borrowed aUSD according to different purposes Go to other blockchain networks in Polkadot ecology. Before the user repays the borrowed aUSD, the pledged assets in the CDP are locked and cannot be withdrawn.
Acala also allows users to obtain an on-chain asset that includes the pledged income and can circulate freely while enjoying the Polkadot pledge income. The agreement creates a decentralized pool of mortgage funds, which can exchange mortgage assets (such as DOT) Token into tradable chain assets (called L-DOT or liquidity DOT) and use them in other different fields . L-DOT can be used on all other blockchain networks in the Polkadot ecosystem and can be traded and circulated freely. It can also be changed to DOT at any time. This L-DOT is a bit like a “receipt” or “certificate”, indicating that the user owns the ownership of the DOT and pledge proceeds. This has knocked on the door of many applications, because application developers can treat pledged assets as liquid assets on the chain.
Acala has created a complete DeFi service center. In addition to the above two DeFi functions, it also has functions related to decentralized exchanges, allowing users not only to use aUSD to lend, deposit and earn interest, exchange between different Tokens, and other conventional DeFi Features. In the online Acala Mandala testnet, users can see the interactive interface of all core DeFi functions and experience the operation for themselves. Acala may not be the ultimate vision of non-Ethereum DeFi, but the agreement provides the most basic set of elements that can give birth to richer and more powerful applications in the DeFi field.
ACA governance token has three basic functions:
- As the basis of voting rights for key parameters such as related mortgage rate and liquidation rate in the system.
- If the market crash results in insufficient CDP collateral for the entire system, ACA will serve as the last barrier to protect the system (similar to MKR as the security guarantee of MakerDAO)
- The income source of the Acala protocol is network transaction fees and related protocol fees. The network transaction fee can be flexibly charged for any token accepted by the Acala network (such as DOT, BTC, aUSD, etc.). The relevant agreement fees depend on the usage scenarios of the agreement, and most of them are currently paid in aUSD. Thanks to the liquidity provider of the decentralized exchange, all these fees will be automatically exchanged for ACA settlement in the decentralized exchange.
Most of the ACA will be reserved for the distribution of rewards for IPO (parachain slot auction) participants or network contributors. Part of the ACA will also be distributed to ecological contributors in the form of grants or bonuses to promote Acala ecological development.
How is the agreement progressing?
Acala has become the most active and attractive project in the Polkadot ecology. In addition to excellent testnet data, one of the most critical points is that Acala’s related DeFi products prove that Polkadot can become the bottom layer of diverse DeFi applications. Infrastructure, which will inspire more DeFi protocols to be built outside of Ethereum.
Acala team
The heads of the Acala Foundation include Ruitao Su, Bette Chen, Fuyao Jiang, and Bryan Chen, all of whom are veterans in the DeFi field. Before creating Acala, Ruitao, Bette and Bryan also created Laminar, a synthetic asset and margin trading platform based on Ethereum and Polkadot. Ruitao has extensive experience in the Token economic model, and has launched a decentralized sovereign fund dSWF and a sustainable Token economic model. Bryan is Polkadot ambassador, a core contributor to the Substrate code, and a Substrate technical instructor recommended by Polkadot founder Gavin Wood. Fuyao previously created Polkawallet, Polkawallet, the first mobile wallet in the Polkadot ecosystem. He was an early member of the Polkadot community and made a lot of contributions to the development and promotion of Polkadot.
Some summary
Acala not only represents a DeFi model outside of Ethereum, but also a benchmark for cross-chain DeFi. Thanks to technological innovations such as the Polkadot Interoperability Protocol, Acala not only proved the blockchain industry’s need for cross-chain infrastructure, but also opened up a new field of DeFi, making DeFi no longer just tied to a single blockchain. It can communicate with different blockchain networks across chains.
Acala provides a set of effective and general DeFi basic components, has a richer DeFi experience, and has taken the first step in cross-chain DeFi. In addition, the Acala network is the first DeFi project to complete the conversion of pledged assets of the PoS network into liquid assets, which will unlock a new category of DeFi applications. In the future, the key core technology of the Acala network will help DeFi enter the next new era, allowing DeFi to achieve tremendous growth outside of Ethereum.
Source link: veradiverdict.substack.com
