Acala is a blockchain network built to power aUSD stablecoin and, in turn, the Polkadot and Kusama economy. Karura, on the other hand, has been serving as the technical canary network for Acala to provide a parachain on Kusama for early deployments geared towards refinements and experimentation. As the lead network of the two, Acala’s role is to drive economic growth on Polkadot and Kusama. Going forward, Acala and Karura will continue to operate in parallel, strengthening one another and playing an important role in each other’s development, growth, and governance.
In order to strengthen each other, Acala and Karura need to be more closely aligned from an economic, governance, and sustainability perspective.
Acala’s stablecoin protocol was originally launched on two networks operating under different token symbols (aUSD and kUSD) and governance, but using the same protocol. This is the primary product of the Acala and Karura ecosystem. Currently, stablecoin liquidity and utility is fragmented between aUSD and kUSD impeding the capital efficiency, liquidity, and utility of the Acala-based stablecoin, aUSD.
Governance across Acala and Karura are not yet connected and the two networks should ideally be connected in terms of decision-making processes in on-chain governance. This will allow network participants in both networks to influence decisions made on the other respective network given how closely tied the two are.
Acala Treasury is established for network self-sustainability in order to help self-fund future parachain slots on Polkadot. Acala Treasury could support Karura via donation or other means.
Proposal: We’d therefore like to propose an enhancement of Acala and Karura’s on-chain economic and governance integrations by unifying the two stable currencies into one (aUSD), adding the Karura parachain as a member of the Acala Financial Council, and potentially allocating a portion of Acala DOT Treasury to Karura in the form of KSM if needed to obtain a parachain slot.
Solution: Focusing stablecoin efforts between Acala and Karura on the Acala Dollar will allow aUSD to serve both the Polkadot and Kusama ecosystem as the native Dotsama stable currency.
How it’s accomplished: By serving as the native stablecoin for the Dotsama ecosystem, the Acala and Karura ecosystems can join forces to build a multi-chain DeFi economy around a single stablecoin. This allows the two networks to mutually benefit from an ever-increasing issuance and utility that comes from a common stablecoin. We believe the unified liquidity and coordinated adoption efforts that result from a focus on aUSD will benefit both Acala (ACA) and Karura (KAR) network owners given the economic benefit that Acala will bring to Karura as its experimental network.
The upgrade of kUSD to aUSD will happen by upgrading all kUSD on-chain to automatically be reflected as aUSD - this means users, DApps, and developers have no required action. kUSD held will simply become aUSD. Karura users will now have the opportunity to open aUSD Collateralized Debt Positions (CDPs) directly on Karura in order to mint the native stablecoin of the Polkadot and Kusama ecosystem. You can think of it like a second branch of the aUSD borrowing operation, where of course the Acala chain is the primary ‘headquarters’. Since aUSD parameters and collateral types will be the exact same on both Karura and Acala, and the tokens redeemable 1:1 on either chain, aUSD can have two homes and proliferate across all 200+ parachains in the Dotsama ecosystem.
aUSD will aim to serve as the default quote asset on all parachains and DApps. aUSD will also be used to provide liquidity in Acalaswap (available on both Acala and Karura) and in other parachains’ DeFi DApps. For example, once there’s DOT/aUSD, KSM/aUSD, parachainToken/aUSD pairs, DOT/KSM/parachainToken can trade freely against each other without the need to create a pool for each pair. This will greatly enhance capital efficiency in liquidity provision and market making on Acala, Karura, and respective parachains.
Additionally, holders of reserve assets (DOT, KSM, ACA, KAR, governance-approved parachain assets, and other cross-chain assets like BTC or ETH) will be able to spend, trade, and access services using a stable currency while retaining exposure to their reserve assets and their underlying growth, given the collateralization mechanism for minting aUSD and not needing to sell their reserve assets. This will also drive more utility to KAR by adding the ability to collateralize for aUSD loans with immediate use cases in a wide ecosystem including across parachains and other Web3 layer-1 chains, hence giving KAR holders access to an economy exponentially the size of the economy that kUSD would have provided.
All in all, this stablecoin upgrade will enhance the synergy of the Dotsama economy as one union and optimize the Acala and Karura ecosystem for the aforementioned capital efficiency, liquidity, and utility goals of aUSD.
Solution: In order to more closely align Acala and Karura’s networks and participants, we’d like to propose the Karura parachain being added as a council member in Acala governance.
How it’s accomplished: This would place Karura as a voting member of Acala governance, allowing all Karura token holders to vote on relevant governance decisions for that one seat on Acala council. For example, if the Karura token holders voted “yes” on an Acala governance decision, the Karura parachain council seat would vote “yes” on the given decision. Since both networks would share the aUSD stablecoin and are deeply integrated from a technical standpoint, intertwining the governance mechanisms is a logical next step for the networks.
Solution: In order to further unite the Acala and Karura networks, we propose to donate tokens from the Acala Treasury to the Karura Treasury in the form of KSM tokens. Karura needs KSM in order to win a parachain slot auction every year in order to maintain liveness on Kusama and continue in its role as partner and supporter to Acala. By providing KSM from Acala to Karura, Karura will be set up to further bootstrap a native Treasury which can itself earn yield via LKSM staking and can be used to fund future parachain slots. Given KAR’s fixed supply with no inflation, this allows KAR to continue in its deflationary model and aiding in future self-sustainability of the network by being able to self-fund part or most of the next parachain slot and future parachain slots.
By providing Karura a stablecoin with enhanced efficiency, liquidity, and utility paired with Treasury support and governance decision-making rights from Acala, we believe this will attract new innovation to the ecosystem, propelling the experimental vision of Karura forward.
A bridge between Polkadot and Kusama or between Acala and Karura will be a necessary prerequisite to perform this enhancement. There is a default Polkadot-Kusama bridge being constructed, and there may also be other bridges connecting Acala and Karura in the meantime.
There will be a unified risk parameter management scheme on both networks, including the same set of collaterals on both networks. kUSD can then be upgraded to aUSD (1:1) seamlessly.
As aUSD becomes available in multiple trading venues on multiple networks, there will be more arbitrage opportunities to trade price differences for profit, and in turn help stabilize the price of aUSD.
#1 kUSD symbol upgrade to aUSD on Karura has been completed.
- a new TokenRegistry pallet has been deployed to support registering metadata for various type of native and non-native tokens incl. Token Name, Token Symbol and Decimal Places
kUSDToken Symbol subsequently changed to