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DeFi Altcoin

What Is Acala?

Published on Jan 08, 2023

Updated on Apr 25, 2024

The Acala network is a smart contract platform that seeks to become the central hub of decentralized finance in the Polkadot ecosystem. But what is Acala offering its users? Acala is programmed to host a wide variety of financial applications, including borrowing and lending platforms, an automated market maker and a comprehensive stablecoin network. Acala’s architecture also supports a liquidity staking platform.

Acala is built on the Substrate, a development that facilitates the development of parachains in the Polkadot ecosystem. Substrate allows the network the unique utility of allowing users to pay the chain’s gas fees in a variety of supported cryptocurrencies. This is one of the top features of the network and has many DeFi users excited about Acala.

One of the integral features of Acala and the wider Polkadot ecosystem is interoperability. For this reason, the Acala team has also developed an Ethereum Virtual Machine, or EVM. The Acala EVM allows developers to easily deploy Ethereum-based dApps and smart contracts directly into the Acala network.

ACA is the native token of the Acala network. It is used for on-chain governance, electing council members, and paying gas fees on the network.

What Is Acala: Key Points

Acala aims to be the DeFi hub of the Polkadot Ecosystem
Acala provides a host of financial applications, including a DEX, stablecoin network, and a borrowing and lending platform
Users can pay gas fees on the Acala network in a range of supported currencies
The Acala EVM brings further interoperability to the Polkadot ecosystem, allowing users to leverage the Acala network from the comfort of the EVM
ACA is used to vote on governance proposals that shape the future of the network and elect council members.

How Acala Works?

Acala is developed using Substrate and functions as a Polkadot para chain. This means that Acala is able to leverage the powerful technology of the Polkadot ecosystem while effectively operating its very own chain. The result is that Acala DeFi tools are not at risk of using a network that is congested by other dApps. This unique approach is a big part of what is special about Acala.

To get a better understanding of what the team is building, we need to ask two important questions: What is Acala and how does Acala work? The Acala network offers a comprehensive suite of tools in decentralized finance:

Acala Swap

Acala Swap is the network’s decentralized exchange. This application functions as an automated market maker (AMM) and will allow users to instantly swap tokens on the network. What is unique about Acala Swap is that you’ll be able to trade native cryptocurrencies across Polkadot Parachains.

Staking Liquidity Protocol

Acala’s staking liquidity protocol is named Homa. The Homa protocol is designed to spread liquidity around the network using tokenized staked assets. For example, users can stake DOT tokens in exchange for LDOT, which can then be used in other DeFi applications in the network. Another example of this concept is seen in Ethereum DeFi, where users can stake ETH in exchange for stETH.

The Acala Stablecoin Protocol

Honzon is the name of the protocol that handles the Acala Stablecoin, aUSD. aUSD is the network’s native stablecoin and is pegged to the US dollar. It is backed by crypto-based assets through CDPs (collateralized debt positions). Users can mint aUSD by providing DOT as collateral.

Where Is ACA Used?

The ACA token is used throughout the Acala network. It is required to vote on governance proposals and elect Acala council members. It is also used to pay gas fees for completing transactions on the network, despite the architecture of Acala allowing for gas fees to be paid in other crypto assets as well.

Further to these fundamental uses, the ACA token can also be used in a suite of tools in the Acala Network. ACA can be provided as collateral into the Acala stablecoin protocol in order to mint aUSD and might be used in liquid staking in the future. ACA is also used to pay stability fees and penalty fees during liquidations in the Acala stablecoin protocol. While these fees can also be paid in aUSD from a user’s perspective, the platform will exchange aUSD to ACA behind the scenes in order to pay the required fees.

Acala History

The Acala Network was founded by the Acala Foundation in 2019. Led by Bette Chen and Riutao Su. The Acala Foundation was created when two Polkadot development groups, PolkaWallet and Laminar group joined forces to create the ultimate Defi hub for the Polkadot ecosystem.

The Acala Foundation oversees the development of the Acala Network. However, the Foundation’s long-term goal is for the network to be fully decentralized and community-owned. By this time, the project will be managed and developed further by Acala governance holders.

In 2019, the Acala Foundation received a development grant from the Web3 Foundation. The Web3 Foundation was impressed by Acala’s vision, and foresaw that the Acala Foundation was well positioned to build the ultimate DeFi platform for the Polkadot ecosystem. In November 2021, the Acala Network won the first ever Parachain auction on Polkadot after users staked over 32 million DOT for the platform. Thus, Acala was established as a leading protocol in the Polkadot network.

Acala Tokenomics

The ACA token has a fixed total supply of 1 billion tokens. The entire supply of ACA tokens was minted during its genesis block and there will be no further emissions. The Acala Foundation conducted two early funding rounds in 2020. According to Messari, the initial seed round performed in March 2020 raised $1.35 million USD. The second round, performed in August 2020, raised $7.3 million USD.

As per Acala Network, the supply was distributed as follows:

Founding Team - 20.25%
Early Backers - 18.33%
Backers - 11.66%
Acala Community - 49.76

Auction Reserve & Liquidity Program - 34%
Foundation Reserve - 10.76%
Ecosystem Development - 5%

The ACA vesting schedule indicates that early investors and the Acala team currently have not received any tokens from their initial allocation. The total supply will be fully vested to all participants in July 2027.

How Is ACA Created?

The total supply of ACA tokens was completely minted out during its genesis block. This means that no new ACA tokens will be created. This can only change if the community passes a governance proposal which would result in new tokens being emitted.

The ACA token does, however, implement a unique burn mechanism. But what is Acala’s burn function and how does it benefit holders? During periods of market volatility, penalty fees and liquidation fees charged by the Acala Lending Platform are paid in ACA tokens. These tokens are then burned, meaning that they’re removed from the circulating supply forever. This makes ACA a deflationary cryptocurrency and is one of the features that investors love about Acala.

Acala Competition and How It Fares

The Polkadot Ecosystem is one of the largest networks in the cryptocurrency industry. Naturally, it makes sense that there are other projects aiming to be the main hub of decentralized finance in Polkadot. One such competitor is Parallel Finance on the Polkadot network.

Parallel Finance is a DeFi protocol offering a very similar range of tools to those provided by the Acala network. Both platforms offer a DEX, liquid staking, and a lending and borrowing market. Acala Network was a market leader and won the first ever parachain auction slot. Parallel Finance followed shortly after, winning the fourth slot.

At the time of writing, Parallel Finance currently has a TVL of over $499 million USD deposited into the platform. How does this compare to Acala, and what is Acala’s TVL? According to Acala analytics, the Acala network’s TVL currently sits at around $382 million USD.

While Parallel has a slight edge in terms of TVL, the Acala network does offer one crucial function that Parallel does not. The aUSD stablecoin offers massive growth potential to the Acala Network. If Acala realizes its vision and aUSD becomes one of the stablecoins of reference in the wider Polkadot ecosystem, Acala will become the undisputed king of DeFi on Polkadot.

Acala Partnerships & Investors

Acala Network is one of the most hotly discussed projects within the Polkadot ecosystem. Because Polkadot has long been considered a top 15 crypto, the first platforms to launch in the ecosystem represent a great opportunity for investors. The team was able to secure early investment and funding from some of the largest firms in the cryptocurrency industry.

Acala Network secured support from the likes of Polychain Capital, Coinbase Ventures, Spartan Group and Pantera Capital. These teams bring them the experience and vision required to support Acala Network in their aim to build a complete solution for decentralized finance users.

Acala Strengths, Weaknesses, Opportunities, and Threats

Acala Strengths

The Acala Network’s greatest asset is its simplified user experience and interoperability. The Acala EVM makes it easier for developers and users to quickly port over to the Acala Parachain. Further, the Acala parachain charges minimal gas fees that can be paid in a variety of supported crypto assets. This makes Acala extremely user-friendly and well-positioned to onboard a wide user base.

Acala Weaknesses

It is no secret that cryptocurrency investors love staking rewards. Because the supply of ACA tokens is fixed and completely minted out at its genesis block, there is no way to earn staking rewards through ACA emissions. Staking rewards is a very popular utility for crypto tokens and the Acala Network may see reduced adoption without this incentive. That being said, ACA is a deflationary token with a diminishing supply. This is a powerful counter-argument to the lack of staking rewards.

Acala Opportunities

The Acala network’s greatest opportunity for enormous growth lies in the adoption of aUSD and its wider stablecoin protocol. The integration of its own stablecoin sets Acala aside from its competitors. If aUSD and the Acala Stablecoin Protocol can become the primary stablecoin across Polkadot Parachains, the Acala Network will be ideally placed for mass adoption.

Acala Threats

One of the biggest concerns facing the Acala Network is that despite winning the first para chain auction and leading the charge into Polkadot’s DeFi ecosystem, it still isn’t the largest DeFi protocol on Polkadot. As mentioned earlier, Parallel Finance has amassed a larger TVL figure and has established itself as a serious competitor to the Acala Network.

Acala Roadmap

According to the Acala Network roadmap, the next phase of development to be completed is the deployment of the Acala EVM. This key feature will help onboard DeFi users who are comfortable with the Ethereum user experience, and leverage the power of Polkadot and Acala’s technology.

Acala Updates, News, and Highlights

The Acala team has been exceptionally active in the past few months. But what is Acala doing to grow the protocol? Acala is rapidly expanding its network through a series of partnerships. These partnerships are primarily bringing further adoption and utility to Acala’s native stablecoin aUSD.

Several notable Polkadot platforms are integrating utility for aUSD into their protocols. Projects of note include PolkaDex, Composable Finance, Picasso, and Equilibrium.

One of the standout protocols that has announced it will support aUSD is Satori. Satori is an on-chain derivatives trading platform. Satori’s unique platform aims to disrupt the derivatives trading industry by leveraging Polkadot’s ecosystem. The platform will allow users to trade on a variety of parachains and has recently announced that it will support collateral provided in the form of native Acala tokens like aUSD and LDOT.

This announcement further develops the growing use cases not only for aUSD, but also for Acala’s liquid staking protocol. Providing further utility for LDOT will help onboard users and naturally grow the Acala ecosystem.

What Is Acala Governance?

All holders of the ACA token have the right to participate in matters of governance in the network. Voting power is proportionate to the number of ACA tokens held, not through a tiered system of holding qualifying amounts of tokens. Due to this framework, every holder has the opportunity to make their voice heard, regardless of the size of their investment.

The Acala network aims to one day be fully decentralized and governed by the Acala community. To achieve this, Acala is progressively decentralizing the network. Over time, the Acala Foundation is operating centralized councils that make key decisions about the development of the network. ACA token holders can elect council members to represent their interests in the early stages on the Acala protocol.

In good time, the network will migrate to a joint council and referendum strategy. This will be a fully decentralized, community-led initiative. All council members and future referendums will be elected by ACA token holders. Using Acala’s on-chain voting mechanism, holders can even delegate their votes to others.

Where To Buy ACA?

If you’re interested in what the Acala Network is building and would like to buy ACA, OKX has you covered! We provide highly tradable markets with deep liquidity to ensure your ACA buy orders are executed instantly.

To buy ACA, first, you’ll need to acquire some USDT to trade. Deposit USDT to your account or purchase some on our ‘Buy Crypto’ page. Then, head to the OKX Trading Terminal and open the ACA/USDT. Submit a market order for ACA and your order will be matched instantly.

How To Store ACA?

Your highly secure, unique cryptocurrency wallet is provided free of charge with your OKX account. This is by far the simplest place to store your tokens after buying ACA. All OKX wallets are guarded with industry-best SSL encryption and you can further protect your assets with 2 Factor Authentication.

If you prefer to store your ACA in a private wallet, there are several options available. Popular choices among ACA holders include the PolkaDot js Wallet, Talisman, or Subwallet.

Another common choice for cryptocurrency investors is to hold your tokens on a hardware wallet like Ledger or Trezor. Hardware wallets provide some of the best security in the crypto space and are generally the choice of long-term investors who don’t actively use their cryptocurrency.

FAQ About Acala

What Can I Do With My ACA Tokens?

You can use your ACA tokens for a variety of purposes in the Acala web app. ACA can be provided as collateral in order to mint aUSD, the native stablecoin of the Acala Network. ACA can also be used to trade in Acala Swap, and is used to pay gas fees on the Acala para chain. Finally, ACA is neede to govern Acala and plays a crucial role in voting on the future development of the platform.

Who Are the Founders of Acala Network?

Acala was founded by Bette Chen and Riutao Su, who lead the Acala Foundation. The Acala Foundation is the result of a merger between two separate projects, Polkawallet and Laminar. The long-term goal of the Acala Foundation is for the Acala Network to become fully decentralized and community-led in the future.

How Can I Stake ACA?

The ACA has a fixed supply of 1,000,000,000. This means that no further ACA tokens will be created or emitted via staking rewards unless a governance proposal is passed that permits ACA staking. Due to the fixed total supply, there is currently no possible way to stake ACA for further rewards.

Is ACA a Deflationary Cryptocurrency?

ACA is used to pay penalty and liquidation fees when borrowers are liquidated within the Acala Network web app. As per the ACA token burn mechanism, these tokens are then consequently burnt and removed from the supply forever. This makes ACA a deflationary cryptocurrency.

How Can I Withdraw My ACA Tokens to a Private Wallet?

To withdraw your ACA tokens to a private wallet, first, click the ‘Assets’ tab on the OKX website. Next copy your private wallet address and follow the instructions provided to withdraw your tokens. Please be sure to correctly input the correct wallet address and network, or your tokens may be lost forever.