[CORRECTION: In a version of this story that was initially published, Acala was incorrectly described in the headline, and in the story itself as a “Chinese startup.” While three of the four co-founders are Chinese, they do not live there now. Furthermore, Acala was launched in Singapore, not China. The story has been updated to correct these errors.]
While it's a bit like comparing apples to oranges, there are two hot assets in crypto right now: DeFi, as a whole, burgeoning sector; and DOT, the native token of Polkadot, a public blockchain protocol known for cross-chain data sharing. Both have seen explosive growth in their market caps.
Acala, a DeFi project built on Polkadot, could be the best of both worlds. On August 27, Acala announced a new round of series A funding led by Pantera, and joined by Arrington XRP Capital, ParaFi Capital, 1confirmation, CoinFund, DCG, among others.
This week’s da bing looks at Acala and how it contributes to the thriving ecosystem of DeFi.
Grabbing a slice of the non-Eth DeFi pie
Acala was launched in Singapore; three of its four co-founders are from China though no longer live there. The Acala team wants to build a DeFi powerhouse for the Polkadot ecosystem with a host of financial primitives. Its first product is a cross-chain-capable, multi-collateralized, and decentralized stablecoin Acala Dollar (aUSD) based on Substrate, a framework for developers to build blockchain with ease. Acala has also shipped a testnet lending protocol and a decentralized exchange.
With all three products in place, users can send, receive, lend, and be rewarded in USD across any blockchains connected to the Polkadot network.
Indeed, being the star project on the Polkadot network has been Acala’s unique selling point. “Choosing Polkadot isn’t simply due to Ethereum’s clogged network and its skyrocketing gas fees,” Ruitao Su, co-founder of Acala network told me. “We’ve known the team behind Substrate for over two years and love the fact that many developers follow Gavin Wood, the founder of Polkadot.”
Su said the team had considered using the Cosmos Network, another cross-blockchain protocol, but ruled it out given a lack of security guarantees that make bootstrapping a DeFi product harder. “The shared security design of Polkadot gives Acala bank-grade security, without us having to worry about it. Such a technical advantage is very appealing,” Su told me.
With approximately 14,500 new accounts, 142,000 transactions, and $52 million total value locked during a 3-week testnet campaign, Acala is likely the most prominent and active parachain on Polkadot. At the same time, Acala has brought Polkadot into the DeFi game, which makes Polkadot suddenly more relevant and competitive, if it wants to be an “Ethereum-killer.”
Staking derivative: Liquidity Dot
Another major innovation of Acala’s financial primitive is its staking derivative. Users can stake DOTs in exchange for L-DOT, a fungible derivative of staked DOT. The magic here is that dormant and staked DOTS suddenly gain life and can be used in additional DeFi use cases for yield-farming, all without sacrificing network security; the original DOTs remain staked in the network.
“Through our trustless staking pool, DOT becomes yield-bearing DOT,” Su told me. Essentially, users don’t have to give up staking rewards for DeFi yields.
The significance of staking derivatives will loom even larger when more public blockchains move to Proof-of-Stake networks. Assets, aka liquidity, will have to choose whether to be used in staking or locked in DeFi to be farmed. Staking liquidity solves this dilemma by allowing users to do both.
Since it has already bootstrapped most of its tech, Acala plans to spend its new capital on marketing and community development. In addition, as a parachain of Polkadot, Acala itself is a blockchain, meaning that applications can be built on top of it. “We hope to deploy smart contracts and Link oracles on Acala in the near future,” Su said.
It is true that Acala combines DeFi and Polkadot. But as more DeFi protocols pop up, users will likely be pickier about products and yields. The only way for Acala to continue its success is to prove that it brings real yields to users— regardless of which protocol it is built upon.
Top 3 other things that happened in China last week
#1. YFII rebranded into DFI: a clean slate?
YFII, the little sister of Andre Cronje’s YFI, just claimed her independence on August 27, and now wants to be known as DFI. The YFII project generated much controversy when it forked from YFI, and subsequently struggled to define its own identity. Prices dropped and the community went quiet, until now.
The rebranding isn’t simply a visual one. DFI’s ambition is overt. It wants to bring DeFi to the masses by solving some of the most obvious obstacles preventing Chinese retail investors from entering DeFi “farmland:” language and technical barriers. One such solution is an integration with a third-party wallet MEET.ONE which now allows users to deposit, trade, swap, and even vote, all via a simple user interface.
DFI has also repurchased 4963.52 YFII, equivalent to $4.5 million, and redistributed the profits to its users. Sounds like the token buyback schemes of centralized exchanges? Chinese users love such profit-sharing as much as everyone else, and DFI has provided just what they need.
DFI now has more than 10 WeChat groups and a telegram channel of more than 2500 focusing on community development. In addition, 8 WeChat groups are focusing on OTC trading. The transformation of YFII to DFI might be the most successful case of a copy-cat turned into a real tiger.
#2: Filecoin continues to fire up
The decentralized storage protocol Filecoin launched its Testnet Incentives Program on August 24. Some 4 million FIL, its native token, will be rewarded to winning miners that onboard the most storage.
It could have just been a straightforward incentive program, but since Filcoin is Filecoin, and there’s so much money in it, controversy emerged. On August 19, a community member named Jiang Song published a Medium article arguing that Filecoin has not fulfilled its decentralization promise. Instead, Song wrote, it is “controlled by an invisible force as its rules become less fair and therefore more centralized.”
Song’s argument is that the Program’s reward is determined by unqualified bots situated in Europe, rather than in a decentralized fashion. “The lack of real use cases for the entire competition also makes it meaningless,” Song wrote. Song’s second argument is “big miners monopoly.” The criticism here is that Filecoin’s vision—truly decentralized, democratic storage is being threatened by deep-pocketed miners in China. That is, miners who have less capital can’t effectively compete in the race.
Criticisms aside, Song is actually a fan of the project, as are many China-based Filecoin believers. Still, the Filecoin team ought to manage the perception that centralization is creeping in.
#3: A digital currency center launched in Beijing
Beijing, the hometown of your correspondent, has launched a “Beijing Institute of Digital Currency” on August 26. The institute is co-founded with elite universities in Beijing with the aim to nurture new talent and develop Beijing’s digital economy.
Establishing a new research center might seem academic but it could be the first step of DCEP’s wide-spread “community effort.” Just like most crypto projects, DCEP needs adoption. Having satellite offices in major cities accelerates such an effort.
Expect more seminars, talk, propaganda, and material on the streets of Beijing soon.
Do you know?
“呼吸,” which literally means “breathing” is the latest DeFi buzzword. In crypto, 呼吸 is a buzz phrase that means making money from DeFi farming is as easy as breathing. “It takes one second worth of breathing to make a few bucks,” a popular phrase says. We are still at the honeymoon period of DeFi as more liquidity enters the field. Will the breath continue to be smooth? Or is a hiccup looming?