Acala Network is a dual protocol platform that plans to offer stable currency and staking liquidity on Polkadot while being entirely governed by Acala Network (ACA) token holders. On July 1st, Acala Network Cofounder Ruitao Su and COO Bette Chen joined us to answer all of our Acala questions.
- Honzon Protocol will bring a multi-collateral stablecoin to Polkadot.
- Homa Protocol will provide staking derivative to DOT holders.
- ACA, aUSD, and L-DOT will have wallet support and cross-chain transfer capability at launch.
- ACA tokens will be rewarded to DOT holders who help secure a parachain slot for Acala.
- ACA tokens will be rewarded to collators on Acala.
- Expected that L-DOT holders will be able to vote for validators and participate in Polkadot’s on-chain governance.
- DOTs staked via Homa protocol are still subject to slashing.
Acala is a decentralized financial consortium that plans to create cross-chain open finance infrastructure for the Polkadot ecosystem. The project is founded by Laminar, a synthetic asset and margin trading platform, and Polkawallet, a mobile wallet for the Polkadot network. The Acala platform will consist of two protocols, Honzon and Homa.
The Honzon protocol is the multi-collateral stable-coin protocol, enabling credit facility of aUSD, Acala’s stablecoin, by collateralizing DOT, BTC, and other assets on Polkadot. Once credited, aUSD can be traded or loaned to others in order to earn interest. aUSD is cross-chain capable, and poised to be the stablecoin across Polkadot ecosystem.
The Homa protocol will provide liquidity to DOT holders who decide to stake. DOT holders who stake via the Homa protocol will receive the DOT derivative – L-DOT, which are liquid and fungible yield bearing tokens. L-DOTs can be used as collateral in Honzon, which will allow users to take out a loan while still earning rewards from the underlying staked DOT.
“L-DOT is the DeFi steroid for Polkadot, as there’s competition between DOT used for staking (20% return) vs DOT used for DeFi… L-DOT releases the liquidity of DOT and make it more affordable to run DeFi Dapps.”Bette Chen, COO of Acala
L-DOT holders will still be able to choose which validators they nominate their DOTs to while staking via the Homa Protocol.
The Acala team also expects that L-DOT holders will be able to participate in Polkadot’s on-chain governance, but the current voting mechanism doesn’t support multiple vote records from a single address. The Acala team is working with the Polkadot team to solve this problem.
L-DOT holders are still subject to slashing on Polkadot. That said, validators are elected on a daily basis by L-DOT holders, which means they can respond quickly to vote out bad validators.
The ACA token is the governance token on the Acala Network. Similar to MakerDAO’s MKR, ACA token holders are responsible for governing the Honzon and Homa protocols, and the Acala Network in general.
Built for Polkadot
The Acala team sees Acala as the “DeFi shard” within the Polkadot ecosystem. Acala is built on Substrate, which makes it easy for wallets, and other chains on Polkadot to integrate with Acala tokens. Polkawallet will support all features of the Acala Network including transfer, loan management, minting, and redeeming L-DOT.
“We would like to see Acala become the Financial Hub on Polkadot, with strong fundamentals (e.g. loan, DEX volume, L-DOT pool), and a thriving ecosystem built-on top of us.”Ruitao Su, Cofounder of Acala
Securing a Parachain Slot
Acala plans to secure a parachain slot on both Polkadot and Kusama once parachain auctions begin. 30% of ACA tokens will be distributed to DOT holders who choose to participate in Acala’s parachain auction.
The Acala team estimates that it will take roughly 7,500 DOT (based on average chain security cost) to secure a parachain slot on Polkadot, but this is dependent on the market once these auctions begin taking place.
The Acala team is confident that it will be amongst the first to secure a parachain slot, as a lot of its backers, supporters and community are also DOT holders. However, if Acala fails to secure a parachain slot, then it will run on Polkadot/Kusama as a parathread, which offers the same security as a parachain, but in a pay-as-you-go fee model that is similar to Ethereum.
Although Acala will benefit from Polkadot’s shared security model, it will still need to run collator nodes to keep the network alive. Acala expects that it will need around 20 to 30 collator nodes in order to maintain uptime. These nodes can self-stake ACA tokens or receive ACA nomination in order to be in the active set. Collator nodes will be compensated for their work in ACA tokens.
Special thanks to Ruitao and Bette for spending an hour with Staking Hub to answer all of our questions!