What is Acala Network?

Source: Acala’s Website

Acala network is a decentralized finance (DeFi) platform built on the Polkadot blockchain that offers users unified liquidity and cross-chain capabilities.

Since the Acala network is a liquidity-focused platform that aims to provide users with the most on-chain experience and asset utility, it is built with features that let users get the most out of their digital assets. Among these features is its cross-chain capability. The Acala blockchain’s cross-chain capability allows users to interact with other parachains in the Polkadot ecosystem.

History of the Acala Network

Acala Network was founded in 2019 by the Acala Foundation, a collaboration of two Polkadot groups: Laminar and Polkawallet. The Acala Foundation aimed to build a decentralized, interoperable finance market in the Polkadot ecosystem.

The Acala Foundation also aimed to make the Acala network highly decentralized and community-driven.

Due to its impressive efforts in building a stablecoin system and a liquidity staking platform and its goal of becoming a principal DeFi platform for the Polkadot blockchain, the Acala Foundation received a development grant from the Web3 Foundation in 2019.

The Web3 Foundation is a blockchain-based, non-profit organization that supports the development of decentralized web software protocols, technologies, and applications.

After its premier funding, the Acala Foundation received additional funding from private investment rounds and crypto investment firms, including Polychain and Pantera Capital, raising over $8 million from several rounds.

The Acala Network has also continued to grow, attracting more than 200,000 users and having a total value locked (TVL) of about $4.5 million, becoming a leading DeFi platform in the Polkadot ecosystem.

Features of the Acala Network: Acala DApp, Euphrates and Homa Protocol

Acala DApp

Source: Acala’s Website

The Acala dApp is hosted by appchain, Acala’s application-specific blockchain. The decentralized app unlocks access to various DeFi activities like asset bridging, regular staking, liquid staking, and asset swapping.

Users can stake DOT in exchange for LDOT, which can, in turn, be used in other DeFi activities. Additionally, platform users can stake ACA, the native token of the Acala network. The DApp also possesses a pathway to view governance proposals, evaluate governance activities, and participate in voting.

Euphrates

Source: Acala’s Website

Euphrates is an Acala Network liquidity dApp platform that allows stakers and liquidity providers to earn boosted rewards in ACA tokens. It allows users to support different protocols with their capital, earning rewards in the native tokens of these protocols and ACA tokens.

Users bridge liquid staking tokens from the Solana network using Wormhole. The LST tokens are then staked to earn rewards in addition to the underlying staked SOL yield. This enables yield farmers to maximize their yields. Additionally, the LST can be withdrawn at any time without penalties.

The Euphrates platform also benefits developers by providing a robust distribution platform that fosters a vibrant and incentivized environment. Hence, both users and developers can benefit from the Euphrates dApp platform.

Homa Protocol

Homa Protocol is a tokenized staking liquidity protocol in the Acala Network that helps maintain the liquidity of assets staked in the network.

The Homa Protocol helps solve the issue of illiquidity on the Acala Network. On the Homa protocol, users can stake their DOT tokens to receive the Liquid DOT, or LDOT token, in return. The LDOT token received can be used as collateral in other decentralized applications on the Polkadot blockchain.

So, users who stake their DOT tokens are not completely left illiquid or out of tokens, as the LDOT tokens can still be used in the network and Polkadot ecosystem.

How Does Acala Network Work? Collators, Polkadot-Leveraged Security, and EVM Compatibility

Collators

Collators are nodes that ensure the smooth running of the Acala blockchain. To help maintain the Acala blockchain network, collators perform three key roles;

1. Collection of parachain transactions from users.

2. Creation of parachain blocks.

3. Creation of state transition proofs.

State transition proofs prove a blockchain’s true state or status, including how blocks are updated. After they are created, they are sent to the validators in the Polkadot blockchain for confirmation.

Polkadot-Leveraged Security

The Acala network leverages or harnesses Polkadot’s robust security mechanisms for block validation and finalization to maintain high security and decentralization. This security mechanism inherited from the Polkadot blockchain helps Acala Network resist centralization and censorship control.

In addition, Acala also has a trustless bridge that connects it to Polkadot and other Parachains in the Polkadot ecosystem. Using this trustless bridge, assets can be seamlessly transferred between parachains, and interoperability is enhanced.

EVM Compatibility

The Acala network is EVM-compatible. EVM compatibility allows blockchain networks to run Ethereum-based smart contracts and decentralized applications without modifications.

Developers can use the Acala EVM, an Acala Ethereum-compatible virtual machine, to build decentralized applications written in Solidity, an Ethereum-specific smart contract coding language.

The Acala EVM also helps developers mint assets like ACA and aUSD and cross-chain assets like DOT and renBTC, which function similarly to ERC-20 tokens. Once transactions in the Acala EVM are completed, they are signed using the Polkadot extensions and converted to an Ethereum-readable format.

Acala Network Governance System

The Acala network has a well-structured governance system to enhance decentralization and maintain a community-first platform.

Leveraging the Polkadot’s technology, the Acala network utilizes the following governance system and structures to maintain decentralized governance of the system;

• A referenda
• A general council
• A technical committee

Referenda

A referenda is a voting system in which people propose changes or decisions, and others vote on them. In the Acala network, the public or council can propose, and others can vote in support or against it.

While there is usually an enactment or waiting period before a proposal can be implemented, it can be implemented swiftly in emergencies.

It is also important to note that the referenda process is often governed by the referenda chamber appointed by the Acala Foundation.

General Council

The general council is a group of ACA token holders appointed by the Acala Foundation. Together with the referenda chamber, it makes decisions regarding runtime upgrades, network resolution, and stopping potentially harmful proposals.

There are other councils in the Acala network like the;

• Financial council: This oversees the updates of stablecoin parameters and other protocol fee parameters.
• Homa staking council: This oversees the updates of liquid staking parameters.

Technical Committee

The technical committee is responsible for fast-tracking proposals critical to the network’s operation, including delaying the enactment or cancellation of uncontroversially dangerous proposals.

By implementing an emergency shutdown, the technical committee ensures that all network operations are decommissioned systematically, safeguarding users and their assets.

Members of the technical committee are usually appointed by the general council using the 2/3 approval rating.

What is the ACA Token?

Source: Acala.network

The ACA token is the native token of the Acala network. About 1 billion ACA tokens were minted during the Genesis block.

The ACA tokens are distributed in the following way;

• 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%

Uses of the ACA Token

• The ACA token is a utility token in the Acala Network. It is used to pay transaction, stability, and penalty fees within the network.
• The ACA token is a governance token that allows its holders to vote on or propose changes to the Network.
• The ACA token can be used as a contingency asset in situations such as a sudden price collapse of a collateral asset. In this case, it will automatically be diluted and sold in the market for system recapitalization.

Is the ACA Token a Good Investment?

The ACA token is the native token of the Acala network, a decentralized finance (DeFi) platform built on Polkadot. Since the Acala network has a staking platform, users can lock their tokens for a set period of time and earn boosted rewards in return. Holders of the ACA tokens can also participate in the decentralized development of the network, thereby facilitating its growth.

While DeFi staking may seem profitable, ensure you do your due diligence. Learn as much as possible about the project, including its core development team and tokenomics.

Risk Analysis

Advantages

A major advantage of the Acala network is its simplified user experience and interoperability features. The Acala EVM allows users and developers to interact easily with other parachains in the Polkadot ecosystem.

Unlike other blockchains like Ethereum, which are known to have a high gas fee, the Acala network has a very low gas fee, so users can seamlessly interact with the network and other parachains, all at a minimal cost.

Disadvantages

Although the Acala network promises rewards for staking, it can only endure if it promises high returns, incentives for stakers, and liquidity. Anything short of that will lead to a serious decline in its user base.

Since it is a DeFi staking platform, it may also suffer problems related to DeFi staking, like smart contract risks. Exploiting any vulnerability of the platform can lead to loss of funds, most of which are often unrecoverable.

Competitive Analysis

With a market cap of more than $13 billion, Polkadot is one of the biggest blockchain networks in the world. Hence, it’s natural that it serves as the building block of several DeFi projects. Notable among these DeFi projects is one of Acala’s major competitors, Parallel Finance, the DeFi platform founded by Yubo Ruan in 2021.

Although Parallel Finance offers products and features very similar to those of the Acala network, a major feature that gives the Acala network an edge over Parallel Finance is its aSEED asset.

Formerly known as aUSD, aSEED is Acala’s upgraded asset, giving users the flexibility to exit holding and engage in the growth of the Acala network. Thus, aSEED fosters the collective building of the network.

How Can You Own the ACA Token

To own an ACA token and become a part of users benefiting from the multi-chain usability provided by the Acala network, follow the simple step-by-step process:

Set up a Wallet

To own the ACA token, you need to purchase it from a cryptocurrency exchange. To do this, create a Gate.io account, complete the KYC process, and add funds to the account to purchase the token.

Take Action on ACA

Users can sign up and purchase or trade ACA tokens here.