- Acala Network is a key participant in the Polkadot ecosystem for decentralized finance (DeFi).
- The protocol provides a variety of DeFi goods and services, including lending, borrowing, and staking, that deliver the Polkadot user experience, reduced gas expenses, and overall scalability.
What Is Acala?
Acala is a decentralized finance (DeFi) network and liquidity hub for Polkadot (DOT) that supports Ethereum smart contracts. The infrastructure of Acala consists of a platform for liquidity staking and a stablecoin network.
The stablecoin network of Acala serves as the foundation for Polkadot’s decentralized finance (DeFi) system. Users can send value across the blockchains that Polkadot connects, known as parachains, by using the cross-chain protocol, which makes use of the relay chain, a shared security layer.
The decentralized exchange (DEX) in the Acala ecosystem enables users to stake DOT tokens for LDOT and is supported by an automated market model. LDOT can therefore be used to invest in, lend, or collateralize the Acala Dollar ((EVM)-compatible), a decentralized algorithmic stablecoin that is unique to the Polkadot platform.
How Does Acala Work?
Acala provides a liquidity staking mechanism, stablecoin, and DEX. It offers access to assets and decentralized applications (dApps) on the Ethereum network and DOT-based derivatives as an Ethereum Virtual Machine (EVM) compatible decentralized financial center for Polkadot.
Acala Swap, an automated market maker (AMM)-based decentralized exchange, and Honzon and Homa, two protocols created to offer stability and liquidity for the Polkadot network, make up the network at the moment.
What Is Honzon?
The stablecoin protocol is called Honzon. A system of collateralized debt positions (CDPs) is used to back the Honzon-powered stablecoin aUSD, which is tied to the U.S. dollar and supported by digital assets. MakerDAO and their DAI stablecoin introduced CDPs as a means of decentralized price stability maintenance for cryptoassets. Horizon accepts DOT as collateral as well as bridging assets like Bitcoin (BTC) and Ethereum (ETH).
What Is Homa?
The Homa protocol uses an algorithmically modified staking mechanism to guarantee liquidity. Homa tokenizes staked assets by establishing a staking pool on the AcalaSwap platform.
LDOT is converted into staked DOT in the AcalaSwap and is kept liquid and tradeable across all Polkadot-related networks. The holders of LDOT may exchange it for DOT at any time.
What Makes ACA Unique: Use Cases
- With forkless updates available on the Acala blockchain, developers can continuously update the chain to meet changing needs.
- Users of the Acala network can stake their DOTs in exchange for liquid DOTs that can be utilized for trading or other activities without unstaking.
- The ACA is a deflationary token; after being paid for the platform, it is burned and permanently removed from the network supply.
- Owners of ACA tokens receive voting privileges to take part in network growth since they double as governance tokens.
- The DeFi hub and dApps on Acala, Polkadot, Kasuma, etc. may establish dependable, decentralized oracle infrastructure thanks to Acala’s Open Oracle Gateway, which enables leading projects to be deployed on the Acala network.
