Acala (ACA)

From CryptoWiki

Basics

"Mostly known for its stablecoin, but they’re also building staking derivatives —a token that’s a derivative of staked DOT tokens and can be used in DeFi— and a DEX. They want to become the go-to financial shard on Polkadot. The goal is for any financial activity that comes to the new network will land on Acala first. Much of their concept is inspired by MakerDAO, though they do aim to improve on it with different liquidation and oracle solutions."

"Acala is building two protocols: a stablecoin protocol (Honzon) using Maker-style collateralized debt positions and a staking liquidity protocol (Homa) that allows DOT token holders to receive liquid representations of their staked assets (L-DOTs). Issued L-DOTs will also be accepted as collateral in the stablecoin protocol."

History

Audits & Exploits

  • Bug bounty program can be found [insert here].
  • The website's (5-9-2020) roadmap says audits are beginning about now.
  • From their October update (28-10-2020):

"We have completed 2/3 planned security audits including one from SRLabs, and an upcoming audit from Trail of Bits. More details on the finding will be released in the coming weeks."

  • From their blog (12-11-2020):

"So far SRLabs and Slow Mist have completed their audits, and the Trail of Bits audit is scheduled to commence in Jan 2021.

The SRLabs audit found 0 Critical, 1 High, 7 Medium and 2 Low-level issues.

The SlowMist audit found 0 Critical, 0 High, 1 Medium and 1 Low-level issue.

The one high-level issue regarding weight assignment was a planned task yet to be implemented at the time of the audit. All other network security related issues have been addressed and reviewed by the auditors. There are two application-related issues (#5 and #8 in SRLabs report) are general DeFi issues such as DeX front-running, which yet to have a satisfactory solution. We are addressing it from a risk management perspective by setting safe parameters. The full report from SRLabs and SlowMist are here."

Bugs/Exploits

"Acala parachain remains paused.

Acala’s native stablecoin aUSD is edging back to its dollar peg following the community’s vote to destroy 1.29 billion aUSD. These tokens were minted following an exploit of a “misconfiguration” in one of Acala’s liquidity pools. Once attackers exploited the flaw, the mass minting of the stablecoin plummeted its value. The coin de-pegged and dropped to a new all-time low of $0.0054 on August 14. However, the stablecoin has since pumped 10,158% over the past 24 hours and is now trading at $0.92, according to data from Coingecko. According to a trace report, nearly 99% of the erroneously minted aUSD that remained on Acala were burned from exploiters' wallets.

Depite reverting the mass-minting of aUSD, many in the Acala community raised concerns around the project’s ability to pause the parachain amid the chaos."

"Looks like @AcalaNetwork was just hacked due to a bug in the iBTC/AUSD pool. Here is the attacker wallet which now holds over a billion $AUSD."

Governance

Admin Keys

General Council

  • HasGauntlet as some of their professional delegates (30-11-2022).
  • From the website (5-9-2020): "A decentralized network governed entirely by Acala Network Token (ACA) holders."
  • From their docs (14-9-2020):

"The overall Acala network is governed by the General Council and specialized councils. Specialized councils would govern specific domains of the network e.g. the Financial Council would govern the financial and risk management of the network, and the Homa Council would govern the Homa protocol.

In order to make any changes to the Homa Protocol, the idea is to compose active L-DOT and ACA holders, via the General Council and the Homa council together to administrate a Homa protocol-specific upgrade decision. A change proposal can be raised by the council or the public (L-DOT or ACA) holder, but the decision to approve or against it is made collectively. There is a pathway to decentralization from elected council referenda to public referenda.

Any network upgrade would be under the governance of the General Council. L-DOT holders are entitled to govern Homa protocol-specific proposals through the Homa Council. The General Council would have oversight of the Homa Council to ensure the overall welfare of the Acala network.

Special voting rights would be afforded to L-DOT holders to participate in voting for or against Homa protocol related proposals, which include but no limited to these areas

  • update exchange rate model
  • update fee structure
  • update staking pool reserve
  • update redeem premium rate model
  • update and propose new staking strategy"

"As a governance token, ACA tokens provide their holders voting right in Treasury governance, Council member election, referendum, network upgrade, risk management and more, e.g. adjustment of key risk parameters, such as Stability fee, Liquidation Ratio, and Collateral Type

Sovereign Wealth Fund (dSWF) 

  1. "Network fees from the following sources are stored in the Treasury, which is under governance of ACA holders. Stability Fee To close a CDP with outstanding debt of n aUSDs, the CDP owner is required to pay s · n aUSDs as Stability Fee, where s is the effective interest rate.
  2. Liquidation Penalty All open CDPs are constantly monitored by the system. For each collateral type, a corresponding liquidation ratio is voted by ACA holders, reflecting the amount of overcollaterization a CDP is required to meet to avoid liquidation. Once the value of the CDP collateral has fallen below the requirement based on the liquidation ratio, the CDP becomes risky and is automatically liquidated by the system through a hybrid mechanism consist of built-in DEX and Collateral Auctions. In a Collateral Auction, a proportion of collateral is sold to cover the outstanding debt in the CDP, and a liquidation penalty of p · n aUSDs, with any remaining collateral returned to the CDP original owners.
  3. System Fees System fees include native transaction fee, DeX fee, L-DOT protocol fee and fees for other network activities."
  • From their blog (2-12-2020):

"The fund itself is represented by an on-chain account. This account does not have a private key associated with it. Instead, the general council and network governance have the capacity to manage the funds in the account.

Funds go into the account in three ways. The first two come from Acala’s Honzon protocol, which works similar to Maker. Honzon provides a multi-collateral lending platform that accepts several forms of collateral in exchange for a loan of aUSD, Acala’s stablecoin that is pegged to the US dollar. Just like in Maker, borrowers need to pay a stability fee on their loan. Unlike in Maker, instead of burning the fee, Acala deposits the fees into its sovereign wealth fund.

Second, the Acala network takes a penalty fee in case a loan’s collateral drops below some threshold. This fee prevents undercollateralized loans and only applies when the network needs to liquidate some collateral. Just like the stability fee, though, it goes into the wealth fund rather than being burned.

Third, Polkadot, like other Proof of Stake networks, locks tokens to back validators and secure the network. If all goes well, those tokens make some return, but if the chosen validators misbehave, the tokens are liable for slashing. This schema is very much aligned with network security, but very much at odds with Acala’s thesis that funds should be able to serve contemporaneous purposes. Homa reconciles this tension by creating a staking pool where users can deposit DOT in return for some freely transferable L-DOT (although not necessarily at a one-to-one ratio). The pool is managed by the Homa Council for decisions like a validator selection strategy (again, whole other article), and L-DOT holders can return their L-DOT to the network and reclaim the underlying DOT plus its share of the staking revenue from the pool and minus some fee that goes — you guessed it — into the sovereign wealth fund.

Acala first plans to use these funds to secure a parachain slot. 

Acala Treasury

  • From their blog (8-9-2021):

"Acala has successfully completed the Build Acala: Ready the Treasury event, garnering over $61M USD in contributions from over 26,000 community members around the world. This $61M will be donated from the Acala Foundation to the on-chain Acala Treasury, Acala’s Protocol DAO, upon launch of Acala on Polkadot."

aUSD Ecosystem Fund

"Acala, along with an initial nine Polkadot parachain teams and several supporting venture funds, has launched the $250 million aUSD Ecosystem Fund to support early-stage startups building applications with strong stablecoin use cases on any Polkadot or Kusama parachain. The fund participants are seeking Solidity or Substrate-based applications driving yield or utility for aUSD, including money markets, DEXs, derivatives, asset management, DAOs, payments, and other use cases."

Token

Launch

Token allocation

"The total supply of the ACA Tokens will be minted at the launch of the mainnet and stored in the ACA Reserve Pool to be distributed to ACALA Foundation, Seed Investment Partners, IPO Participants as Reward, and the rest sold to the public."

  1. ACALA Team 20.25%
  2. Ecosystem 5% will be reserved for Ecosystem development, e.g. rewarded as grants and bounties.
  3. Acala Foundation Treasury 11.62%
  4. Strategic Investors 29.13% will be distributed to the strategic investors: – Seed Investors - 18.33% – Ventures - 10.8% 
  5. Reward 34% will be distributed as reward, to IPO participants as proposed in Section 7, and network contributors including liquidity providers, early participants, oracle operators and collators.

Utility

  • Has a governance token called ACA, that fills much the same role as MakerDAO’s MKR.
  • They can be utilised (12-9-2020) in ‘staking for collator, staking for oracle and other network activities'.

"As a governance token, ACA tokens provide their holders voting right in Treasury governance, Council member election, referendum, network upgrade, risk management and more, e.g. adjustment of key risk parameters, such as Stability fee, Liquidation Ratio, and Collateral Type."

  • From their docs (14-9-2020):

"ACAs serve three key functions in ACALA Network:

  1. Network Utility Token ACA tokens are used for paying network transaction fees, stability fees (interest rate of the aUSD loan), and penalty fees in case of liquidation.

To close any CDP that has been created to generate aUSDs in the ACALA Network, some ACA tokens are required to be paid as the Stability Fee. Unique to the ACALA Network, an equivalent amount of aUSDs or other supported assets can be accepted as payment of fees, which can be automatically exchanged to ACA via the built-in exchange. When ACA is received, it is burned and removed from the supply permanently. As market demand for aUSDs and CDPs increases, demand for ACA increases as users needs them to pay the Stability Fee.

All active CDPs are constantly monitored by the system, and for each type of collateral, ACA holders would vote for a liquidation ratio - the mininum collateral-to-debt ratio required to avoid liquidation of an open CDP. Once the collateral-to-debt ratio has fallen below the liquidation ratio, then the CDP becomes risky. The CDP will then be automatically liquidated by the system in a Collateral Auction mechanism where a liquidation penalty paid in aUSD will be deducted from the collateral sales. The liquidation penalty will be automatically used to purchase ACA tokens in an exchange by the system, which will be burnt and permanently removed from the ACA supply.

  1. Governance of the Network As a governance token, ACA token holders have rights to propose network upgrades, and risk parameter adjustments (such as Stability fee, Debt Ceiling, Liquidation Ratio, and Liquidation Penalty), which will be approved or declined by the elected on-chain General Council.
  2. Contingency Solution In situations such as a sudden price collapse of a collateral asset resulting in under-collateralized CDPs, ACA tokens will be automatically diluted and sold on the market for system recapitalization."

Token Details

Stablecoin

Acala Dollar (aUSD)

  • Had an exploit and subsequent burn of 1.3B dollars worth. For more info, check above under Audits & Exploits.
  • Scheduled (5-9-2020) for Q3.
  • From CoinDesk (27-8-2020):

"Acala brings roughly the same mechanic to creating a stablecoin as that made famous by MakerDAO. A user deposits an asset and borrows a portion of the value of that asset in the form of a newly minted token. On MakerDAO that’s DAI and on Acala that’s aUSD. This model has also been borrowed recently by Reflexer and Liquity."

LDOT

"L-DOTs issued by the Homa protocol are fungible since all DOT supplied to the protocol are pooled and staked with validators chosen by Acala Network Token (ACA) holders collectively. In addition, DOT owned by the protocol are rebalanced frequently to keep a portion of unstaked DOT tokens to allow instant redemptions for L-DOT holders who pay a redemption fee that decreases proportionally to how long they are willing to wait for receiving the underlying DOT tokens. The protocol is designed to be generic for any staking asset with Polkadot being the first implementation."

Coin Distribution

Tech

"We'll be connecting to Kusama and launch on Kusama first with real stablecoin backed by Kusama token, KSM. And we will also be providing staking service for Kusama as well using our staking derivatives. And so, the same sort of functionality, but then once they’re stable, it will be launched on Polkadot shortly after that. So, we’ll be two network project."

  1. "Acala supports the EVM pallet (aka runtime module), which is essentially an Ethereum Virtual Machine implementation on Substrate so that Solidity contracts can be deployed and run on Acala.
  2. Acala also supports the ink! contract pallet, which enables Wasm (Web Assembly) based Substrate native Smart Contracts written in Rust."

Transaction Details

How it works

Fees

Upgrades

Staking

"[[[Nick Tomaino|Nick] Tomaino]] [of 1confirmation] pointed in particular to an innovation on Acala, called Liquid DOTs (LDOTS), where users can both stake for staking rewards and also borrow against that stake."

"When users redeem L-DOTs for the underlying DOTs, the protocol would unbound staked assets; generally one would have to wait for certain recovery time (28 days as this is written) for the DOTs to be transferrable. The redeem service fee is payable in ACA tokens."

Different Implementations

Interoperability

"In collaboration with Ren, we are bringing Bitcoin — and in future other currently isolated asset classes — onto the Acala Network and into the wider Polkadot multi-chain universe!"

"Acala Network revealed it’s [parachain] now supports the Ethereum Virtual Machine (EVM). With this integration, assets on Acala will be freely interoperable with the second most liquid blockchain in crypto."

Other Details

Oracle Method

  • From their docs (21-5-2020):

"Oracles provide pricing information for assets on the Acala Network. Acala has designed its oracle infrastructure to meet these demands through the implementation of the following features:

  1. Multiple Providers: The oracle module accepts data feeds from multiple nodes and data providers, and the aggregator combines the data to a single price.
  2. Quality of Service: Oracle operations are classified as high-priority transactions with a favorable fee schedule and DDoS attack protection, e.g. allow 1 call per block from each authorized provider to reduce delay, ensure reliability, and maintain cost-efficiency.
  3. Progressive Decentralization: Initially, oracle providers will be authorized and whitelisted to maximize security and predictability, while gradually shifting to be more permissionless and trustless over time.

Right now we whitelist a number of trusted operators to provide price feeds. We will take a phased approach to decentralizing our oracle system, starting with adding operator to Operator Membership by sudo account, then upgraded to general council approval. We are also following closely with the governance and technical progression in the space, and will gradually improve decentralization while maintaining highest security."

The Open Oracle Gateway

"Acala is launching a new oracle service for the Polkadot ecosystem. The Open Oracle Gateway will provide data for Acala, Karura, Kusama, and various other platforms running on Polkadot. The Gateway is the result of a collaboration between Acala, Laminar, and Band Protocol.

The network will aggregate various oracles in one place, allowing applications to choose between providers based on their needs. Alternatively, users of the Gateway can pull data by trusting all of the providers in the network. It’s a big change for Acala, which previously ran its own network with various nodes sourcing off-chain data.

In addition to the increased quantity of operators, oracle transactions will now be filed by a process called “Quality of Service,” with oracle transactions treated as high-priority regardless of network congestion level. Moreover, transaction fees will be customizable, and it will be possible to refund valid feeds. 

Though oracle providers will initially be checked, it’s expected that the Gateway will become more decentralized over time. Acala has teased the possibility of adding an “Oracle Council” to handle decision making."

Their Other Projects

Acala DeX

"The Acala DeX protocol is inspired by Uniswap, but built as a runtime module as part of the Acala Substrate chain to serve the aUSD community. Each liquidity pool contains a balance of two tokens, and the exchange rate is simply the amount of one token divides that of the other. Users enjoys instant token swap without the need for an order book, whereas liquidity provider could supply liquidity of the two tokens in a pool to earn a fee."

Karura (KAR)

"Karura is the decentralized financial hub of Kusama. The network is built as Acala’s sister network with nearly the same codebase, enabling a scalable, user-friendly, and fast cross-chain DeFi platform. Karura’s parachain is a fast-moving and powerful platform that enables efficient, inexpensive, and sophisticated financial applications, improving trading effectiveness and saving time. The platform offers a suite of financial primitives: a multi-collateralized stablecoin backed by cross-chain assets like Kusama and Bitcoin, a trustless staking derivative, and a decentralized exchange to unleash liquidity and power financial innovations."

"Has raised 200,000 KSM tokens, equivalent to $100 million, in a crowd loan, the protocol said in a tweet. More than 900 addresses on Kraken exchange and more than 8,500 contributors, mostly from Karura’s own portal, chipped in on the funding round. For each KSM, contributors will receive 12 KAR tokens. Loaned KSM tokens can be used once Karura’s parachain lease ends after 48 weeks."

  • It won the first auction slot on Kusama (22-6-2021).

The Open Oracle Gateway

"Acala is launching a new oracle service for the Polkadot ecosystem. The Open Oracle Gateway will provide data for Acala, Karura, Kusama, and various other platforms running on Polkadot. The Gateway is the result of a collaboration between Acala, Laminar, and Band Protocol."

Roadmap

"We plan to lease the Parachain slot for six years, in hope to switch to our independent blockchain bridging to Polkadot after six years."

Usage

Integrations

Projects that use or built on it

"AMPL the rebasing currency and elastic finance building block will be available on Polkadot via Acala network. Ample will become a 1st-class fee token on Acala, Ampleforth contracts will be deployed on Acala’s EVM with minimal changes while enjoying seamless integration with Acala’s DeFi primitives and liquidity, thanks to Project Bodhi."

"Taiga Protocol aims to build a StableSwap exchange and synthetic in what may be the first project committing to build on Karura."

"Laminar Chain is a specialist high performance synthetic asset and margin trading chain based-on Substrate. It will use Acala Dollar (ticker: aUSD) as its base trading currency, to mint synthetic stablecoins such as EUR and JPY. It also introduces a variety of trading instruments including leveraged trading of forex pairs, gold, stocks, and synthetic crypto pairs BTCUSD and ETHUSD. Value transfer (at this stage aUSD) will implement a token standard accepted by the community."

"Ren builds with Acala by deploying its RenVM bridge module on the Acala network. The BTC gateway is provided by RenVM, while minting and burning of renBTC on Acala is provided by this gateway module."

Competition

"Unlike Ethereum, where an external liquidator is required to monitor and close dangerous positions, which is by and large due to the limitation of Ethereum, the Honzon Protocol is able to use Off-Chain Worker - an automatic scheduler service unique to Substrate - to automate this process and inherently increase security and stability of the stablecoin."

Pros and Cons

Pros

"[[[Nick Tomaino|Nick] Tomaino]] [of 1confirmation] pointed in particular to an innovation on Acala, called Liquid DOTs (LDOTS), where users can both stake for staking rewards and also borrow against that stake."

  1. "Clear synergies with Acala’s Honzon stablecoin protocol. 
  2. Flexible liquidity management and redemption mechanism. 
  3. Only one type of tokenized stake, which provides fungibility and increases liquidity."

Cons

  • The team apparently has the ability to pause the parachain when they want to (16-8-2022).
  • Had an exploit and subsequent burn of 1.3B dollars worth of aUSD. For more info, check above under Audits & Exploits.
  • From this report by Chorus One (6-2020), on the possible weaknesses of its LDOT system:
  1. "First iteration only works on Polkadot.
  2. Governance voting and validator choice resides with Acala token holders.
  3. Potential for conflicts of interest since both the stablecoin and staking liquidity protocol are governed by Acala token holders."

Team, Funding, Partnerships, etc.

Team

  • Full team can be found here (5-9-2020).
  • Bette Chen; co-founder
  • Bryan Chen; co-founder
  • Ruitao Su; co-founder
  • HasGauntlet as some of their professional delegates (30-11-2022).

Funding

"Acala has delivered all milestones for the Web3 Foundation grant we received for our xTokens pallet, which brings cross-consensus messages (XCM) ability for fungible assets to all parachains in the Polkadot and Kusama ecosystems (Wave 9 Grants). You can find the implementation on Github. We invite any parachain team to become #ComposableWith Acala by simply following the instructions on the Acala Wiki. This marks the fifth Web3 Foundation grant received by Acala and Laminar, the development arm behind Acala. See all Web3 Foundation grants here."

"Closed a $7 million simple agreement for future tokens (SAFT) led by Pantera Capital. Other investors in the funding round include 1confirmation, Arrington XRP Capital, ParaFi Capital, Coinfund, Spartan Capital and others."

Partners 

"Gauntlet will build a financial model for Karura with a focus on market risks like solvency and capital efficiency. This model will also be refined and extended for Acala on the Polkadot at launch."

"Acala is working with the team at Anchor, a savings and borrowing protocol built on the Terra blockchain, to grow the decentralized stablecoin space through a variety of integrations spanning the Terra and Polkadot ecosystems. Acala and Karura, Acala’s Kusama-based parachain, will initially help expand Anchor’s collateral options for the UST stablecoin with Liquid DOT (LDOT) and Liquid KSM (LKSM), Acala’s yield-bearing liquid staking derivatives. The teams will also work together to stand up deep liquidity pools for aUSD and UST on Acala, serving as a gateway into the Polkadot ecosystem for UST users."

  • Founding member of the Polkadot Alliance (29-11-2022), which, interestingly enough, does not include Polkadot itself.

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