Strengths and Weaknesses
- EVM - compatibility with dApps built on the Ethereum blockchain
- Transaction speed - Acala can handle 200 transactions per second
- Substrate - allows developers to have a free hand in programming
- Shared security - all parachains share network security with the Polkadot blockchain
- $aUSD - this stablecoin has not historically maintained its peg to 1 USD
- Limited expansion - Acala primarily focuses on DeFi applications
- Young project - Acala is a relatively new project, so it has not yet been fully tested in practice
Acala blockchain is a decentralized blockchain network that operates on Proof of Stake (PoS) consensus. It aims to address some of the limitations and issues that traditional blockchain networks face, with the goal of providing users with the ability to utilize blockchain technology for various purposes such as financial services, market predictions, voting, and more.
Built on the Substrate platform from Polkadot, Acala blockchain utilizes Polkadot's parachains concept, which allows for interoperability with other blockchains within the Polkadot ecosystem. This provides users with access to a larger ecosystem and a greater number of features.
Acala Network also has its own cryptocurrency, $ACA, which is used as the base coin within the Acala ecosystem and allows users to pay for transactions and services within the network.
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Functioning of the Chain
The development of Acala is divided into three networks. In all three networks, the Acala stablecoin, Acala swap, and Homa staking protocols are deployed.
The three networks are:
- Mandala Test Network: this is a network where you can try out Acala without risk and without paying. It is not a perfect version, and there may be errors and unannounced restarts
- Karura: this is an unaudited and experimental version of Acala protocols on the Kusama network as a parachain. Its economic value is represented by its native tokens, $KAR and $KSM, which can be used as reserve assets for the stablecoin
- Acala: upon launch, it was deployed on the Polkadot network as a parachain
The main Acala network operates several protocols that govern the operation of the entire system.
Honzon Stablecoin protocol
Collateralized Debt Positions (CDPs)
CDPs are a key component of the stablecoin on the Acala Network platform, and a way for users on the Acala Network to acquire stablecoins and conduct transactions without the need for the constant conversion of value into other currencies. CDPs are designed to be secured by cryptocurrency assets, allowing users to borrow money against their collateral.
Each CDP contains two key items - collateral and debt. Collateral is the asset that the user deposits as a guarantee, while debt is the amount of stablecoin ($aUSD) that the user obtains based on that collateral. If a user wants to obtain a stablecoin, they open a CDP by depositing certain cryptocurrency assets, thus creating collateral. They can then use this collateral as a guarantee to obtain stablecoins, which they can use for transactions on the Acala Network.
It is important to note that the user must always maintain sufficient collateral value compared with the debt value. If the collateral value falls below a certain level (the "collateral ratio"), the CDP may be considered risky and therefore automatically liquidated. Liquidation means that the collateral will be sold and the resulting funds will be used to pay off the debt. If any funds remain, they will be returned to the user.
CDPs are designed to be safe and minimize risk for users. For example, the system automatically increases the debt level if the collateral price rises, so the user does not have to manually increase their debt. The system also uses off-chain workers (automatic service schedulers) to automate the liquidation process, increasing the safety and stability of the stablecoin.
Homa Tokenized Staking Liquidity Protocol
The Homa Protocol is a solution to the problem of low liquidity of deposited assets. It works by creating a staking pool that tokenizes the deposited assets into L-Assets, such as $L-DOT, which can be traded and used in other applications. The protocol manages the issuance and payout of L-Assets. Homa Protocol aggregates the supply of each user and participates together in staking. It is designed to optimize yield and ensure liquidity through decentralized management on the blockchain, algorithmically adjusted staking strategies and providing adaptable fee plans.
The staking strategy is performed for locked $DOT, which are governed by the Homa Council. L-DOT token holders can also propose and vote on changes. The staking strategy includes preferred validators, risk and reward allocation strategies, validator selection criteria, and reinvestment strategies. The protocol regularly rebalances rewards and activities to earn compounded rewards.
Acala, as a parachain, uses classic validators but also Collators, which are part of the Acala network and responsible for collecting transactions from the parachain and creating parachain blocks. This block is then sent for validation to the Polkadot Relay chain. Collator, therefore, helps to maintain the parachain and ensures its proper communication with the Relay chain.
AcalaSwap is a decentralized exchange (DEX) that supports the exchange of Substrate and ERC-20 tokens. It contains multiple liquidity pools, each including two different assets. Users can exchange any assets for another in a single transaction if there is a path between them. For example, if there is an A-B pool and a B-C pool, users can still exchange asset A for asset C if there is a common path through Token B.
The "Software Development Kit" (SDK) is a set of tools and documentation for developers that enables them to create applications and services based on a given blockchain platform. The SDK provides programmers with the necessary libraries, APIs, and other tools that facilitate integration with the blockchain ecosystem. SDKs can vary depending on the platform and blockchain protocol, and may include various tools such as interactive consoles, test networks, client libraries, and more.
- October, the Acala Foundation was established in collaboration with two development groups, Polkawallet and Laminar
- received a grant for development
- received additional grants from the Web 3.0 foundation
- in series A funding rounds, it raised 8 million USD from 20 investment groups
- June, Karura was launched as a parachain on the Kusama blockchain
- November, Acala blockchain was launched as the first parachain for the Polkadot blockchain
- January, Acala was officially launched on the mainnet
- March, Kujira will launch the EVM+ Karura system, which provides efficient liquidation for $aUSD
- March, Polkadot Parachains and Venture Funds merged to form the "$aUSD Ecosystem Fund," worth 250 million USD, to develop the Acala $aUSD native stablecoin
- March, Acala and Karura joined the Wormhole Multi-Chain Bridge
- April, Acala launched Liquidity Staking for DOT coin
- October, support of the hardware wallet Ledger for Acala and Karura
The Acala parachain supports its stablecoin, $aUSD, but it has not maintained its peg value to the USD. The closest to this rate was on 15 November 2022, when the value of 1 $aUSD was 0.76 USD. However, since then, the value has been declining, and on 16 December 2022, it was only 0.23 USD. If you are considering investing in this stablecoin, you need to be very cautious.
Hackers have previously attacked the Acala network, and on 14 August 2022, 1.2 billion $aUSD were minted, causing significant deviations from the dollar exchange rate.
- Bryan Chen - Co-founder and CTO
- Fuyao Jian - Co-founder
- Bette Chen - Co-founder
- Ruitao SU - Co-founder
- Dan Reecer - Chief Growth Officer
The team members met in Hangzhou, China during the first Substrate Hackathon in 2019, where Gavin Wood and Bryan Chen (co-founder of Acala) were judges. The team is directly supported by Web 3.0 Foundation and Polkadot. In addition to the team itself, the quality of their advisors plays an important role in helping them to rise to the forefront. For example, Dan Reecer, who previously worked on marketing for Polkadot and Web 3.0 Foundation, now also leads Acala's marketing.
$ACA is the native coin of the Acala blockchain.
- Payment of transaction fees
The parameters for submitting and processing proposals for the Acala blockchain relate to the management of the Acala platform.
- Public referendums will be held every 2 days
- During the voting period, votes will also be counted every 2 days
- If a quick decision is needed, there will be an emergency voting period with a duration of 3 hours
A minimum deposit of 200 $ACA is required to propose a referendum. This will be followed by a period for the enactment of the referendum, which will last at least 2 days. During this time, the funds will be locked and the proposal will be accepted.
In the event of a veto by the authorities, the proposal may not be submitted again for a period of 7 days.
As of 19 February 2023, the circulating supply of $ACA is 613 million coins, and the total number of holders who have at least 0.1 $ACA in their account is 156,000. The largest wallet contains 107 million available ACA coins, which allows it to manipulate the voting.
The next 20 largest wallets hold a total of 312 million ACA coins, which comprises half of the current total circulation. Most of these coins are locked and released gradually over time.
Given this imbalance, it is not possible to speak of fully decentralized voting, as if any of the top 20 wallets want to push through their proposal, they are likely to succeed.
Revenue & Tokenomics
The Acala blockchain has received funding from multiple financing rounds, raising a total of 69.7 million USD. Revenue is generated from fees for using the Acala blockchain, which is then used to finance and develop the project. These fees can come from transactions within the platform or from parachain auctions. The estimated revenue for 2022 was approximately 5 million USD, which was used for employee payouts and the operation of the Acala blockchain.
Distribution of the ACA coin:
- Backers - 11.66 %
- Early Backers - 18.33 %
- Founding team - 20.25 %
- Community - 49.76 %
- Auction Reserve and Liquidity program - 34 %
- Foundation reserve - 10.76 %
- Ecosystem development - 5 %
All ACA coins will be vested at approximately 10 % per year until the end of 2026. The current supply is 613,061,111 ACA coins (as of 19 February 2023). The total supply is 1 billion ACA coins.
The Uniqueness of the Chain
Acala Swap is an Automated Market Maker (AMM)-based DEX whose unique feature is that it allows users to trade any cryptocurrencies across blockchains connected to Polkadot. Polkadot is a popular project in the crypto world, so Acala Swap has a large collection of liquidity pools, meaning that users have a larger number of trading options. Another advantage is that users can pay fees with any cryptocurrency, meaning that they don't have to convert their assets to a specific currency to pay fees.
This is a specially designed EVM (Ethereum Virtual Machine) for Polkadot, which combines the best features of EVM and Substrate, allowing Ethereum developers to leverage new features and solve problems associated with Ethereum.
How the Network is Secured
Because Acala is integrated with the Polkadot network as a parachain, it can leverage the security of the entire network and does not have to worry about operating its own blockchain. Acala sends its blocks for finalization to the main Relay chain of the Polkadot network, which means that only 5 validators create new blocks. All other tasks, such as transaction verification and network security, are handled by the remaining 297 validators of the Polkadot network. This way, Acala users can take advantage of the benefits and security of the Polkadot network. Click the following link for more information on how Polkadot is secured.
To set up your own Acala full node, you only need to have a wallet and meet these hardware requirements:
- 4-core 3.4 GHz CPU
- 16 GB DDR4 RAM
- 1 TB SSD
- Linux operating system
- 24/7 online with a 62.5 MB/s connection speed
- NTP (Network Time Protocol) installed
A guide on how to set up a node.
Benefits of validator:
- Participation in network security
- Fees from delegates
The Acala blockchain offers liquidity staking of $DOT coins:
- Go to Liquid Staking page
- Deposit your DOT coins
- Receive L-DOT tokens
- No hardware required
- Rewards from validators
Staking ACA coins is currently possible only on CEXs.
Use of L-DOT token
L-DOT is a token obtained through staking $DOT on the Acala network. Once you have $L-DOT, there are several use cases available.
One way to utilize $L-DOT is to use it as a collateral to mint $aUSD. This stablecoin can then be used for lending, swapping, or any other use case involving stablecoins. Additionally, you can stake your $L-DOT in "collateral staking" to earn additional rewards.
L-DOT token can also be traded on Acala's swap feature in the $L-DOT / $aUSD pair. In the future, other decentralized exchanges (DEXs) may also support $L-DOT trading pairs, as its utility increases beyond Acala.
L-DOT token holders can also become liquidity providers in the $L-DOT / $DOT pool. On Acala, the Tapio stableswap protocol is operational, and users can contribute their L-DOT tokens to the tDOT pool to earn additional rewards from Tapio swap fees and TAP token incentives.
Additionally, there are plans to lend $L-DOT on the Acala blockchain or other parachains.
Acala 7.2 has launched its EVM+ on the mainnet.
In order for Acala to enter the final stage of "Full Democracy," it must meet several checkpoints, including:
- Launching and safely operating all DeFi protocols
- Having sufficient sustainable liquidity
- Establishing transparent processes for the ongoing improvement of everyday business activities for each DeFi protocol
- Identifying expert advisors to ensure network and protocol security and protection
- Sufficient development of the Acala EVM+ system with production-level functionality and security
The DeFi ecosystem on the Acala blockchain consists of 5 applications, with the 3 largest being:
- Acala LCDOT - Liquidity Staking
- Acala Dollar - CDP
- Acala Liquidity-Staking - Liquidity Staking
The total value locked (TVL) in the Acala DeFi blockchain is 247,590,000 USD as of 20 February 2023.
The Acala Foundation provides grants for developers and teams who want to join the Acala ecosystem and contribute to its development. This grant initiative is open to developers from around the world who are interested in creating new tools, applications, and infrastructure for the Acala ecosystem.
When evaluating grant applications, the Acala Foundation will prioritize developers who contribute to the $aUSD ecosystem or integrate with it. The Acala Foundation has allocated 250 million USD to support $aUSD.
Within the Acala and Karura community, Discord serves as the primary channel for communication among developers, fans, and users. The server has various separate sections, including general discussions, technical inquiries, collaboration opportunities, and much more. Despite the community being very large, you can still expect helpful and friendly assistance from other members.
Their Twitter has a huge following and is a great source of news and useful information related to the Acala blockchain and Polkadot ecosystem. Twitter is also where news and projects are often announced.
On YouTube, you can find many videos from the Acala team. While the number of subscribers may be smaller than on Twitter or Discord, the videos on YouTube are a valuable source of information and tutorials for new users and developers, including presentations about Acala's products and news from the Polkadot ecosystem.
Where to Buy
The ACA coin is the 343rd largest cryptocurrency, therefore it is not widely available, and you can only buy it on a few CEX platforms that deal with crypto.
When buying on a DEX, use the Acala parachain’s Karura network:
When buying on a CEX, always check if it supports $ACA.
Acala Network is an ambitious DeFi project with great potential to bridge the gap between Ethereum and Polkadot, with a large number of DeFi projects to come in the future.
The hack that occurred on the Acala blockchain on 14 February 2022, caused significant damage to the reputation of this platform. Although the Acala team has taken steps to improve the situation, distrust of this platform still persists among the majority.
If you decide to invest in the stablecoin $aUSD, or other services offered by the Acala blockchain, it is important to be aware of the risks associated with it. However, if this platform can overcome its problems and fully leverage its potential, it can become a significant player in the DeFi space and bring many useful services and innovations to the entire cryptocurrency community.