Acala Network secured Polkadot’s first parachain slot on Nov. 18, winning the auction with a bid of 32M DOT (worth roughly $1.3B at the time) that was supported by more than 81,000 unique addresses. Acala Network is now slated to go live alongside the next four parachain auction winners in mid-December.
Polkadot’s parachain lease auctions (PLOs) are used to allocate shards or “parachains” to projects building on Substrate for three-month durations up to two years.
Since Polkadot’s May 2020 mainnet launch, only its relay chain has been live, restricting the network to exclusively processing a small range of transactions such as transfers and staking functions. Parachain slots winners will build out support for specialized computation, smart contracts, and novel DeFi applications.
Leased parachain slots are secured by pledging to lock up large sums of DOT for the duration of a lease’s period, with many of Polkadot’s top projects offering vast sums of governance tokens to users who lock up DOT in support of their parachain bids.
The Defiant spoke to Acala co-founder Bette Chen to discuss what users can expect once the project’s parachain goes live.
Acala describes itself as a “DeFi hub” targeting the fintech industry that enables the creation of highly customizable financial applications built on its open-protocol layer dubbed “EVM Plus.”
Acala emerged as an early front-runner in Polkadot’s first parachain auction, with its sister project Karura having won the first parachain auction on Polkdot’s experimental pre-release sandbox network, Karura (KSM), earlier this year.
Acala was launched in 2018, with the project initially seeking to enable robust customization for developers through their own Layer 1 network. However, Chen states the team eventually opted against a siloed custom Layer 1 blockchain in favor of pursuing greater interoperability and modularization.
“It was so hard because every time you want to build something, you have to build from the ground up — you basically have to write the entire stack, unless you copy-paste Ethereum and tweak it […] I think that’s probably why there are so many projects that claim to do this and that, but out of thousands only a handful actually come out and deliver not even a full version.”
The Acala team began researching the leading proposals for sharded ecosystems of the time, describing sharding as offering a highly “collaborative” mode of organizing distributed ledgers.
After exploring Ethereum 2.0 for its scalability and Cosmos for its customization, Acala chose Polkadot’s Substrate tech stack after it was launched toward the end of 2018. Chen praised Substrate both for its capacity to support advanced commercial applications and its shared security model through nominated proof-of-stake consensus.
Chen also praised Ethereum and Polkadot co-founder Gavin Wood’s engineering prowess and devotion to distributed ledger technology, stating: “He’s not in the game for commercial reasons, he doesn’t need the money after his success in Ethereum […] He literally just wants to change the world and build something that empowers people.”
With the launch of Acala’s parachain, projects building on top of its EVM Plus engine will be able to deploy.
Chen describes EVM Plus as an open protocol layer and specialization platform that “opens the doors for programmable banking systems, financial instruments, and structural products.”
EVM Plus comprises a highly modularized version of Substrate’s Ethereum Virtual Machine (EVM)-compatibility module “Pallett” that is focused on enabling robust customization at lower levels for developers. Chen emphasizes that EVM Plus offers developers “specialized customization” that is hard to achieve using Ethereum, predicting that “specialization is going to trump generalization in the long run.”
“Every single specialized area in the financial domain has different requirements and compromises — without the ability to customize you will never provide projects with the best platform.”
Chen notes that many other Polkadot projects offering EVM compatibility do so using the Pallett module in Substrate, emphasizing that Pallett can only support Ethereum-based contracts that cannot interact with Substrate protocols.
While Pallett allows projects to “essentially run Ethereum on Polkadot,” Chen notes that developers must still navigate “the same benefits[,] disadvantages, and technical constraints” associated with building on Ethereum.
“Everything happens in a ‘black box’ with EVM,” she added.
The specialized utilities enabled by Acala’s EVM Plus include the ability to pay fees in any supported assets including stablecoins. Chen adds that Acala will be able to support other virtual machines in the future, including web assembly-based protocols.
Despite Acala’s focus on specialization, Chen stressed that EVM Plus “will be very close to the Ethereum experience,” noting that both front-end users and back-end developers will be able to use familiar tools such as Metamask and Truffle.
“On the surface, the tooling, experience, and compatibility will remain as close as possible, which means you can use your Metamask as a user from the front-end, and as a developer, you can use your familiar [tools] for the development process, but you are operating with a next-generation engine.”
With the upcoming launch of its parachain, Acala’s initial batch of products will introduce key DeFi primitives onto the Polkadot network — including collateralized stablecoin minting in the form of Acala’s aUSD token, and its Liquid Staked DOT (L-DOT) and Liquid Crowdloan DOT (lcDOT) liquid staking derivatives.
lcDOT will be issued to direct crowdloan contributors on a 1:1 basis to the number of DOT locked up using Acala’s portal.
During the Acala’s parachain lease, PLO participants will be able to use lcDOT as collateral to mint Acala’s aUSD stablecoin, in addition to trading or pooling the tokens using Acala’s forthcoming automated market maker (AMM).
While the token will trade freely on Acala’s DEX and is not pegged to the price of DOT, the token will be redeemable in exchange for DOT on a 1:1 basis once the lease period has expired.
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Roughly 24 million DOT or 75% of crowdloan contributions were received directly in exchange for lcDOT. Chen highlighted: “At launch, Acala will have over $1B in liquidity on-chain.”
Once the parachain is live, Acala users will also receive L-DOT tokens in exchange for staking DOT using the platform. L-DOT will accumulate rewards while allowing stakers to remain liquid — allowing them to mobilize the value of their locked DOT in DeFi applications. L-DOT will be redeemable 1:1 for DOT.
With Acala set to boast ten-figure in liquidity at launch, Chen hopes that Acala’s aUSD stablecoin will emerge as a pseudo-reserve currency to the Polkadot ecosystem. “Acala’s position is the DeFi and liquidity center of Polkadot, and it’s centered around our stablecoin.”
Acala allocated 34% of its ACA governance tokens through the crowdloan, which also represents more than two-thirds of ACA designated as “community funding.”
Deliver the Freedom
Tokens distributed through the auction are subject to a two-year linear vesting period, although 20% of tokens will be unlocked once the parachain goes live. Unlocked ACA will also be supported by Acala’s forthcoming DeFi suite.
Early backers have received more than 18.3% of supply, while investors who participated in later rounds hold 11.6% of ACA’s supply. The project’s founding team also holds roughly 20% of tokens.
ACA’s entire supply will be minted at launch, meaning it has a 0% annual token emission.
“Our goal is to let people use crypto without knowing they are using crypto,” said Chen. “We want to deliver the freedom, the transparency, and the yield opportunities to folks who don’t necessarily need to know that Acala exists.”