Network based systems

Astar Network and Acala Partner to Launch DeFi Rising to Open New Opportunities for Developers

What is happening

To boost DeFi on Polkadot, the DeFi network Acala has partnered with Polkadot’s innovation hub, Astar Network. The “Astar x Acala DeFi Rising” initiative has just been released by the two major parachains to provide developers with more options and incentives.

The growing number of decentralized applications (dApps) on Astar is largely due to the range of adaptable financial products offered by Acala, which supports the Polkadot network. Through this partnership, developers can use native Acala assets like aUSD, LDOT, and ACA to create a protocol on the Astar DeFi environment with the added benefit of collecting ACA and other benefits from the many different teams that make up the Astar ecosystem.

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What is Acala

The aUSD ecosystem is powered by the Acala decentralized financial network. Acala USD is the native stablecoin of the Polkadot ecosystem, and it is a decentralized, multi-collateral, and crypto stablecoin. DeFi protocols built into Acala’s Ethereum-enabled blockchain can be used by app developers. These protocols include a derivative of trustless staking (liquid DOT – LDOT), a decentralized exchange, and the EVM+, a hybrid EVM that provides an Ethereum-compatible development environment that is also fully compatible with Substrate.

Compostability, Parachains, and Bridges on Polkadot – The Next Frontier for DeFi

All parachains paired with the Polkadot relay chain benefit from economic security of the relay chain validators, which is crucial for DeFi composability. There is a higher barrier to entry and the need for trust between communication chains in proof-of-stake systems, as teams need to discover and start their own set of validators. When using Polkadot, on the other hand, cross-chain communication does not depend on whether or not the receiving chain trusts the sending chain. Parachains share an equivalent level of trust, making things simpler for programmers and ensuring consumers have a consistent experience across all platforms.

Polkadot implements asynchronous communication across parachains using cross-chain message passing (XCMP). With XCMP, sending a message ensures a response from the receive chain or allows the send chain to forward the message in the expectation of getting some response (such as the return value of a function called on the receive chain).

Using bridges, Ethereum and Bitcoin-based DeFi will be able to interact with other nodes in the Polkadot network. Polkadot’s robust feature set is ideal for use in DeFi initiatives. Enabling the creation of decentralized blockchains opens the door to several fascinating applications.

Instead of creating their own native parachain, some organizations choose to install their infrastructure on top of existing DeFi chains in the Polkadot ecosystem. For example, Ren has deployed its RenVM bridge module on the Acala network as part of an alliance with Acala.

Developers can choose to build on top of parachains in two ways: by creating runtime modules and integrating them into the parachain, or by using a parachain like Moonbeam, Plasm, or Edgeware that already supports smart contracts ( in particular, Solidity or Ink! based on smart contracts). In the future, we anticipate that some groups will still choose to grow using pre-existing frameworks.

Liquid staking is a special type in DeFi. Holders of staking tokens can acquire instant liquidity without a lock-up period by exchanging their tokens for a synthetic token that can be traded on an exchange. Despite the increased risk of centralization, token holders are clearly benefiting. In the near future, Polkadot will likely be the most widely used blockchain ecosystem for liquid staking, as at least six companies are already developing solutions for it.

Polkadot’s DeFi initiatives are not just carbon copies of others; they are the pioneers of entirely new fields of study. An example is the Acala Decentralized Sovereign Wealth Fund (dSWF). The dSWF’s goal is to ensure the long-term financial viability of the Acala project by supporting the maintenance costs of the Polkadot network and funding ongoing R&D. Like MakerDAO, Acala’s stablecoin platform requires the payment of a stability charge when terminating a Collateralized Debt (CDP) position. Stability fees collected after a CDP is decommissioned should be kept in a central account. Then, whenever the profit of the system exceeds a particular level, the additional ACA tokens will not be burned but used to purchase DOT on the open market and added to the dSWF’s DOT reserve. Innovation in the Polkadot ecosystem is advancing at an alarming rate with the implementation of cross-chain message passing and compatibility between protocols and blockchains.

Understanding the Acala and Polkadot ecosystem

aUSD, the de facto stablecoin of the Polkadot and Kusama ecosystems, is issued and traded on the Acala DeFi network, which also powers financial apps on Polkadot. Staking DOT tokens on the Relay Chain ensures security and maintains liquidity for users using LDOT, a staked DOT-backed token, one of Acala’s recently released DeFi solutions.

By using Astar’s cross-consensus messaging (XCM) format to perform decentralized, trustless cross-chain transfers, the DeFi Rising initiative is the first step towards a healthy DeFi ecosystem.

For Astar to become the de facto standard for multi-chain smart contracts, developers will need access to a large amount of high-quality assets like aUSD and LDOT. Astar programmers can use Acala’s solid foundation to build new decentralized applications. In exchange, the first use cases for widespread adoption of aUSD in the multi-chain future will be developed by the Astar ecosystem.

Acala’s $250 million aUSD Ecosystem Fund and Astar’s SpaceLabs Initiative are available for projects that enhance the value of aUSD on the Astar Network. Startups developing robust stablecoin use cases on Polkadot or Kusama parachain are encouraged to apply for the $250 million aUSD Ecosystem Fund. The aUSD community is looking for use cases including Money Markets, DEXs, Derivatives, Asset Management, DAOs, Payments and other use cases that can be powered by Solidity or Substrate and increase the return or utility of the currency.

Final Thoughts on the Astar and Acala DeFi Rising Program

The collaboration between Astar and Acala is essential for the Polkadot ecosystem as it brings developers together and drives innovation in DeFi. In my opinion, for the Polkadot ecosystem to compete with Ethereum, such programs are essential to attract software developers to build the next generation of applications.

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Image credits: GuerrillaBuzz Blockchain PR agency, Mike Enerio and Nik Shuliahin.

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