Scooping Staking Opportunities with Acala | aUSD and LDOT
Acala is a specialized stablecoin and liquidity blockchain that is decentralized, cross-chain by design, and future-proof with forkless upgradability. It’s a layer-1 smart contract platform that’s scalable, Ethereum-compatible, and optimized for DeFi. With the Acala EVM+, Acala lets developers leverage the aUSD ecosystem while enjoying the best of Ethereum and the full power of Substrate.
Acala leverages Polkadot’s cross-chain nature to use various reserve assets for aUSD. At present, it is mostly made up of DOT and DOT-derivatives, Acala’s native asset (ACA), and cross-chain assets like Bitcoin (BTC) and Ether (ETH). The Acala stablecoin can be trustlessly integrated by other blockchains connected to Polkadot and applications on those chains. The Acala ecosystem continues to expand and offers some of the highest yielding staking opportunities for investors.
This week, we hosted Dan Reecer of Acala. We summarized some of his “alpha drops” below. You can watch the full interview with Dan Reecer on YouTube here:
How does aUSD differ from DAI?
The founders of Acala came from the Ethereum ecosystem trying to find a platform where they could really scale. The team evaluated Cosmos, Eth 2.0 and Polkadot – it was ultimately decided that Polkadot would be the best fit because of the power of Substrate. The Acala team learned a lot from how Maker Dao developed their stablecoin (DAI) and the mistakes and trade-offs they made to get where they are today. aUSD was built as a multi-chain stablecoin from the beginning with a vision to become the de-facto stablecoin in the Polkadot and Kusama (DotSama) ecosystem. Some of the key differences are that:
- aUSD can be transferred between blockchains in the ecosystem without bridge risk
- DAI had early issues processing liquidations, aUSD improves on this by creating deep liquidity pools for the assets backing aUSD on their DEX
- aUSD prioritizes oracle price feeds to guarantee that the oracle price will be in every block
- DAI transitioned from single collateral to a multi-collateral stablecoin, aUSD was multi-collateral from the start
The Acala tech stack and how the team has developed liquid staking
aUSD was the first product that Acala built, with the plan to build the ecosystem around that. Acala has built its own DEX to maintain proper liquidations for aUSD and to make sure everything can run smoothly on the backend. In addition, the team also developed EVM +, which combines the power of Substrate and EVM to unlock new capabilities.
Liquid staking | LDOT
LDOT was developed to unlock vast amounts of liquidity that was ‘stuck’ in Polkadot staking. Native $DOT can be staked for ~ 14% per annum, which is attractive for investors – but there are two problems:
- 28-day lockup to stake DOT
- 80 DOT minimum to stake
Acala’s DOT Liquid Staking product (LDOT) is aimed at helping token holders extract optimal value from their DOT tokens in a user-friendly and efficient manner. There are a few key benefits when using LDOT:
- Higher APY than DOT staked on Polkadot
- Liquidity to multiply yield in DeFi
- Support from world-class validators like Blockdaemon and Coinbase Cloud
- Instant unstaking
- Only 5 DOT minimum for staking
LDOT optimizes capital efficiency and DeFi strategies for the Polkadot ecosystem.
How can I get hold of LDOT?
Go to apps.acala.network and connect your wallet, from there it is essentially one-click staking where you stake your native DOT and receive LDOT. You can now use this LDOT elsewhere in the flourishing Defi ecosystem.
Institutional Liquid Staking
Many liquid staking protocols currently available do not meet the needs of enterprises. Institutions have specific needs for KYC/AML and need to main certain levels of compliance as regulated entities. Acala has formed a partnership with Alluvial Finance, Coinbase Cloud, and Figment to develop a non-custodial staking solution that can provide more flexibility to enterprises by allowing them to take advantage of a truly crypto-native and global liquid staking solution.
The partnership allows institutions to take part in a second instance of the Acala staking protocol. This is fully permissioned so that all participants know who else is participating, which allows them to meet the necessary regulatory requirements. Acala acts as the technology provider to provide institutional DOT liquid staking. This is a close collaboration with Coinbase Cloud and Figment, who will act as the early validators for these staked assets.
Acala Staking Program
By virtue of Polkadot’s design and shared security model, parachains on the network do not need to set up their own validator set. As a result, ACA was launched with a fixed non-inflationary supply – whereas most networks pay stakers through inflation. The Acala network earns fees on the various dApps it has built and through staking income from staked DOT in their treasury – this sometimes runs into a surplus.
The Acala staking program uses this surplus to buy back ACA in order to distribute ACA-aUSD LP tokens (Liquidity Provider tokens) to ACA stakers. This gives users a share in that pool on the DEX, which allows them to earn fees from trading activity on the DEX. The Acala team did this to convert ACA holders into Acala network users, it incentivizes network usage, and engages the community. To get a more detailed breakdown of how it works, check it out here.
Tapio DOT (tDOT)
As liquid staking has grown in popularity, it has caused a few issues where there can be several forms of a token, exp. stETH, rETH, yETH, zETH etc. This can fragment liquidity, and make it difficult for dApps to integrate and support every form of the token. The solution is to aggregate all of these long-form tails into one.
The Polkadot ecosystem faces a similar problem with different forms of their token. tDOT is a synthetic asset backed by native DOT, staking DOT, and DOT derivatives. tDOT is designed to standardize different formats of DOT derivatives for increased usability, yield aggregation, and liquidity efficiency.
tDOT can be used anywhere in the ecosystem and acts as a yield-bearing token. tDOT is expected to be the largest asset outside of DOT and has been welcomed by the whole community.
Current adoption rates for Acala?
Acala is still in a building phase to integrate different dApps and allow other protocols to onboard aUSD. The TVL on Acala is currently topping ~$350m on the network.
- aUSD TVL = $80M
- $60m in LDOT liquidity
- $200M in liquid crowdloan DOT
As the liquid staking product gets adopted and aUSD continues to grow, the TVL can be expected to grow significantly.
Top Yield in DotSama
Tyga is a 3pool on Kusama currently paying 17.74%. The pool is made up of USDT, USDC, and aUSD.
Competition for aUSD
aUSD is the only native stablecoin on the Polkadot network. It is likely that aUSD will become the default stablecoin for all parachains on Polkadot and Kusama. Acala has seen a lot of support from teams in the network and continues to gain traction with institutional players looking to get a piece of staking on the network.
How can Acala go mainstream?
Acala has two main focuses at the moment, aUSD and LDOT. The team is not focused on attracting a retail frenzy on the network, but rather on being a backend technology provider that mainstream platforms can leverage to build consumer-facing products. By way of example, the team has partnered with Current.com to build a Defi backend to provide a yield to their customers. Current will soon introduce crypto products on their platform which has over 4 million active users. Acala is working with the team to provide products with a front end that users are used to while being powered with Defi in the backend.
The age-old debate – Cosmos versus Polkadot?
Both networks have a similar ethos that is built upon a belief that the future is multi-chain. The teams approached interoperability differently and made tradeoffs to achieve certain outcomes which they believe are more important. The networks differ with regard to the security model:
Polkadot has shared security
Polkadot and Kusama are the only networks with truly shared security, meaning that all chains on the network get their security from the relay chain (Polkadot and Kusama). This means that none of the parachains on the network need to spend time and effort to build their own validator set – they are secured by the multi-billion dollar security of Polkadot and Kusama. As a result, chains on the network do not need to worry about the lack of security that another chain has – since they are all secured by the relay chain. In addition, this allows projects to send messages, assets, and instructions to any other blockchain on the network without bridge risk.
Cosmos does not have shared security
On the contrary, Cosmos has a different security model. If a chain that you are connected to has weak security, you are at risk if they get exploited or hacked. When Terra imploded and the value of the network dropped to a low enough level for a hacker to make an attack, there was a frenzy to take control of the validator set to make sure that no attack can happen. As this would put all connected chains at risk too.
Connecting the two ecosystems
Cosmos and Polkadot are making strides towards connecting two ecosystems by working with teams like Axelar and Wormhole to help integrate the two. Osmos and Moonbeam have recently formed partnerships to make DOT tradeable on the Osmosis Dex and ATOM tradeable on Moonbeam. Acala is following suit by working with various ecosystems outside of Polkadot using the Wormhole bridge