Acala — Powering Cross-Blockchain Open Finance Applications on Polkadot

by Ruitao Su & Fuyao Jiang

Introducing Acala

We are thrilled to announce Acala — a first-of-its-kind decentralized finance consortium , with a vision to create cross-chain open finance infrastructure for the Polkadot ecosystem. Acala aims to bring stability and liquidity to the crypto world. The initial implementation is a cross-chain capable multi-collateralized and decentralized stablecoin based on Substrate, which is transferrable to all chains on the Polkadot network .

Acala is founded by two active members in the Polkadot ecosystem: Laminar and Polkawallet. We are running the Acala network in the form of a consortium, because:

  • we believe that as a common-good foundational layer of the Polkadot DeFi ecosystem, the protocols should NOT be dominated by any single entity;
  • we are building a community-owned stablecoin network , where stakeholders, participants, and users are able to govern the core monetary policies of the ecosystem collectively;
  • we are broadening the membership and inviting ecosystem participants to join the consortium and the movement towards a truly decentralized and community-owned currency.

Web3 Foundation Grant

This announcement coincides with great news from the Web3 Foundation that a significant development grant has been awarded to the Acala stablecoin project, which is a recognition of the team’s effort and our solution as part of the DeFi ecosystem. We are excited to be part of the W3F and Polkadot family and look forward to closer collaboration and further contribution towards the ecosystem.

“We’re excited to see a community-led project build a stable coin for Polkadot. It could be a key part of infrastructure that will enable various use cases in the Polkadot network such as DeFi and gaming applications.” — Jack Platts, Head of Collaborations at Web3 Foundation

Substrate Builder Program Inaugural Member

Acala is also proud to be selected to join the first batch of the Substrate Builder Program. The Substrate Builders Program powered by Parity identifies, supports and mentors current and potential Substrate-based blockchain projects that are building impactful chains. We look forward to working closely with the Parity team and other builders to take the development of Acala’s protocols, products, and community to the next level.

Connecting the Dots (aka Value Networks)

The significance of cross-chain communication to the blockchain is like that of the internet to the intranet. Polkadot empowers a network of blockchains to interact with true interoperability, economic and transactional scalability . Currently, valuable networks namely Bitcoin, Ethereum and other public, enterprise consortium networks are operating mostly in silos. As such, they are far from realizing their full potential. Polkadot’s shared security model and cross-blockchain communication — covering the exchange of information and value — will inevitably give rises to fairer peer-to-peer digital jurisdictions and autonomous economies . This creates the basis for truly open finance — that leans more towards public good than siloed private infrastructure — that many have envisioned but never had the means to realize.

When we look at an organization, it is the people in it that manifest the culture and values . When we look at a blockchain network, which intrinsically is a social construct, it is the community and participants who make the network come to life. Polkadot is a community of builders . Just to name a few this community includes: Parity, a long-term builder in the Ethereum community and now Polkadot’s lead development team; ChainX, the asset gateway bridging and integrating assets from other blockchains such as BTC, ETH, EOS, etc to the Polkadot ecosystem; Plasm network, a platform to build scalable decentralized applications; Laminar, a synthetic asset, and margin trading platform to bridge on-and-off chain liquidity; Polkawallet, one of the first mobile wallets in the Polkadot ecosystem; Polymath, a compliant security token platform will build out a new base layer blockchain on Substrate, and Chainlink, an open-source oracle system will also contribute to Polkadot, making much of off-chain data feeds, and various APIs available to all chains on the Polkadot network.

Acala Protocols

The first two protocols in Acala’s portfolio that are now under construction would serve as the stepping stones towards stability and liquidity as the foundation for a freer and more open finance future for the masses.

Honzon — The Stablecoin Protocol

The first is a decentralized cross-chain capable multi-collateralized stablecoin powered by the Honzon Protocol, a cross-chain stablecoin system that will:

  • create a sound, stable currency for low cost, borderless value transfer for all chains in the network
  • enable business lending with predictable risk
  • serve as a building block for more open finance services

The ACALA stablecoin, a.k.a. aUSD, is pegged to USD at 1:1 ratio. Essentially users would take out a loan of aUSD by locking selected valuable crypto assets e.g. DOT, BTC or ETH as collateral. Users would need to pay interests to maintain this loan. The Honzon protocols have a set of mechanisms to maintain stability and manage risks from price fluctuation of the underlying collateral asset.

Homa — The Tokenized Staking Liquidity Protocol

The second protocol Homa for tokenized staking liquidity — to alleviate the challenge of opportunity cost of using staking assets other than staking, and risking network security if returns are higher in other applications such as DeFi. The Homa Protocol establishes a staking pool tokenizing users’ staked assets (e.g. L-DOT as locked DOT) that will

  • provide liquidity for staked assets (which would otherwise be locked without further use)
  • enable future markets of the staked assets
  • be tradable and liquid cross all chains on the Polkadot network.

This article will focus more on the stablecoin product, and more information will be released later as we progress.

Acala Stablecoin

Existing stablecoins and crypto-assets are limited by their underlying blockchains in general, while isolation of the ledgers leads to isolation of the corresponding assets, limiting their usage and adoption. A common challenge for the existing stablecoin systems is that crypto-assets that can be used as collaterals are restrained to the type of assets available on the particular blockchain that the stablecoin system is launched on, which caps the total debt ceiling and stablecoin supply. In addition, it is counter-intuitive for non-crypto mainstream users to transfer one currency while paying blockchain gas fees in another.

Acala Stablecoin Network is built on Substrate and to be connected to the Polkadot network, that it will be interoperable with all networks in the ecosystem and beyond.

  • Multi-collateral backed : collaterals can be both native Polkadot assets like DOT and beyond, such as popular crypto-assets like BTC and ETH, which can be bridged into the Polkadot network and used as collaterals to achieve higher supply ceiling.
  • Cross-chain capability : stablecoin powered by Acala Network can be transferred to all chains in the network.
  • Secured : Acala Network will be secured by the Polkadot’s shared security model.
  • Community-owned : Acala network participants will gradually govern and share earnings of the network collectively, achieving true decentralization and censorship resistance ultimately.
  • Specialized Stablecoin Chain : Acala Network will be able to customize its fee schedule, for instance, free transfer of the balance that would enhance usability hugely while maintaining network security.
  • Future Proof : Acala Network is built on Substrate, that it is truly resilient, and able to adapt and upgrade itself without forking.

The next article will explain more details of the protocol and the economic model powering the sustainability of the network, stay tuned.

Roadmap

Build a DeFi Future with Acala

There will be various ways that you can participate in the upcoming Kusama-like Acala Testnet and Acala Mainnet, stay tuned for updates on some fun & juicy reward schemes, our initial parachain offering plan, and much more.

We are also broadening the membership of the Acala consortium for ecosystem partners and industry participants, and look forward to building a truly decentralized finance future together.

Follow us on

Website: https://acala.network
Twitter: https://twitter.com/AcalaNetwork
Medium: https://medium.com/acalanetwork
Forum: https://acala.discourse.group/
Riot: https://riot.im/app/#/room/#acala:matrix.org
GitHub: https://github.com/AcalaNetwork/Acala
Email: hello@acala.network

About Web3 Foundation

Established in Zug, Switzerland by Ethereum co-founder and Chief Technology Officer Dr. Gavin Wood, Web3 Foundation funds research and development teams building the stack of technologies behind the decentralized web.

For more information on Web3 Foundation, visit web3.foundation.

About Polkadot

Polkadot is the first interoperability protocol that enables blockchain networks to work together under the protection of shared security.

By parallelizing transactions, Polkadot solves major scalability issues that have thus far hampered blockchain development. Polkadot also introduces a highly advanced, open governance system that will allow the network to innovate and grow at a much more rapid pace than legacy networks. Applications from decentralized finance and energy to gaming and communications will thrive on Polkadot, forming the basis of digital jurisdictions in Web 3.0. Polkadot is the first project spearheaded by Web3 Foundation.

For more information on Polkadot, visit polkadot.network.

About Laminar

Laminar is a financial institute backed decentralized finance protocol company. Laminar’s Flow Protocols bring both synthetic assets and margin trading on the blockchain. It helps to solve the challenges of opaque pricing and price manipulation in the current financial markets, bridges on- and off-chain parties, and ultimately boosts on-chain trading liquidity, exposure, and variety. Laminar is a Web3 grant recipient and ecosystem contributor. It will contribute financial and risk management expertise to the Acala project, as well as providing initial demand for the aUSD stablecoins.

Website: https://www.laminar.one/
Twitter: https://twitter.com/LaminarProtocol

About Polkawallet

Polkawallet is a mobile wallet that empowers users to on-board the Polkadot ecosystem. Built by early-adoptors and advocates of Substrate and Polkadot, Polkawallet is also a Web3 grant recipient and ecosystem contributor. Polkawallet will provide consumer-focused services for the Acala project, from initial user demand for the aUSD stablecoins to CDP creation.

Website: https://polkawallet.io/
Twitter: https://twitter.com/polkawallet