If you look down at Acala from a bird's eye view, you'll see a sprawling DeFi platform with modular financial services within Web3. In case you're wondering, Web3 is the internet of blockchains united by the interoperable Polkadot network.
As the first decentralized finance protocol to launch when Polkadot parachain auctions begin, Acala rightfully calls itself the DeFi hub of Polkadot. However, because Acala is Ethereum-compatible out of the box, it's potentially the DeFi home base for all crypto.
Let's unpack what Acala offers below.
Right now, DeFi is stuck on specific blockchains and can't break itself free.
What happens when you want to use Solana assets as collateral for a loan on Ethereum-based Compound Protocol? Well, you can't. The same goes for any financial move you want to make between anyblockchains that exist today.
There's Ethereum DeFi, Solana DeFi, Binance Smart Chain Defi, Algorand DeFi — the list goes on. Ethereum tokens are stuck on Ethereum and ditto for the tokens specific to the other blockchains.
Polkadot is different because it's an interoperable blockchain standard that any blockchain can plug into as a parachain. After porting into Polkadot, all of these once isolated blockchains can finally talk to each other and do business. That's what Web3 is, and that's what the internet of blockchains is all about.
So, where does Acala fit into this picture? It takes advantage of Polkadot's blockchain agnosticism by offering DeFi products and services you can use no matter which blockchain assets you own.
If you want to take out a loan using Acala, you can collateralize it with cryptocurrencies from different blockchains. You can also use the Acala AMM decentralized exchange to swap native assets from other blockchains without wrapping them.
In the few years since stablecoins entered the crypto market, they've entirely revolutionized how crypto operates. From having an easy way to anchor trading profits to participating in DeFi on protocols like Compound, stablecoins have grown to Bitcoin-like levels of importance.
Since Polkadot is a cross-chain interoperability network, Acala decided to leverage that versatility to bring aUSD to the table. aUSD is Acala's algorithmic stablecoin pegged 1:1 with USD but backed entirely by crypto collateral.
Acala's stablecoin platform works via Honzon; a protocol developed in-house to mint stablecoins any time a user deposits accepted collateral. After launch, the Honzon protocol will accept DOT, ETH, and BTC as collateral, with more cryptocurrencies expected as parachains roll out.
The way aUSD stablecoins work is simple. When you deposit collateral, aUSD is minted, and you open what's called a Collateral Debt Position. In effect, the CDP is just a fancy way of saying you owe money to the protocol and will have to pay back the loan plus interest later.
When you repay your CDP, the Honzon protocol burns the corresponding amount of aUSD, thus shrinking the circulating supply to maintain the dollar peg.
The Acala token (ACA) is an essential utility and governance token within the Acala network. Its three primary uses are:
- Parachain leasing: To secure a parachain slot, anyone who bonds DOT for Acala will receive ACA tokens during the parachain leasing phase.
- Governance: ACA tokens are used to participate in governance matters such as proposing network changes, voting on referenda, and fee administration.
- Transaction fees: Both the Honzo and Homa protocols generate fees from CDP repayments, liquidations, and L-DOT transactions.
You can't trade ACA tokens yet because Polkadot parachain auctions haven't gone live. Once they do, Acala will almost certainly become the first Polkadot parachain, and soon after ACA tokens will begin trading on Acala DEX.
Long story short, what is ACA?
Polkadot parachains are coming sooner than most people think. Gavin Wood recently outlined the few remaining steps before launch in an excellent Medium post. That means Acala and true cross-chain DeFi is inching closer to reality with each passing day.
Acala’s likelihood of introducing a seachange for DeFi is high, especially for users and investors already buying and staking DOT tokens. Given DOT’s ranking within the top ten cryptocurrencies overall, the number of tokens ready to migrate to and use Acala is significant.
Will Acala succeed in bridging the gap between Ethereum and other Polkadot-connected parachains? Hope for the project is high, but thankfully, Acala’s fundamentals look to be a fine match.
Source:
MMA_Crypto