Acala - The DeFi Hub of Polkadot

#What is Acala?

Acala is a high-performance DeFi platform that has been built as a parachain to the Polkadot network. It was founded by two teams that were a part of the Polkadot ecosystem: Laminar and Polkawallet. This protocol brings a slew of DeFi services to Polkadot, including a decentralized exchange (DEX), staking liquidity (Liquid DOT (LDOT)), and even an algorithmic stablecoin aUSD. Acala is both a parachain platform on which other teams can build on and an application layer providing the aforementioned financial products.

Today, DeFi applications face many problems when it comes to mainstream adoption, and many of these issues stem from the platform they were built on. Unlike Ethereum, which requires gas fees to be denominated in ETH, Acala allows any blockchain platform to participate and pay for computation in any currency in what the team terms as “Bring Your Own Gas”. Thanks to this functionality that promotes micro-gas fees, Acala is slowly but surely solving the high transaction fee and network congestion problems faced by decentralized applications (dapps) built on Ethereum. Additionally, since the platform used to design Polkadot, Substrate, is capable of parsing any language that compiles to WebAssembly, it is much easier for developers to try their hand at creating a dapp.

Acala Could Play a Big Role in the Future

Ethereum is currently the most popular DeFi platform, though not all developers are willing to learn Solidity, which means that Acala’s open approach to development can be crucial in the long run. Additionally, its engineering team has also deployed a custom-built Acala EVM, a novel contribution to the Polkadot ecosystem that gives a seamless, full-stack experience for Solidity, Substrate, and Web3 developers. This way, developers on Acala get the benefit of the EVM environment without sacrificing the power of Substrate.

The Acala EVM also brings protocol composability between EVM and Substrate runtime environments, giving its developers outstanding tooling support. Smart contracts deployed within the Acala EVM can directly access both native and cross-chain assets like DOT, aUSD, PolkaBTC, and XBTC, while even ERC-20 tokens can be made available at the runtime level. These can be listed on the DEX, or be used as gas fee tokens through governance approval. Composability is vital to a sustainable development environment because it allows developers to use existing resources as building blocks to create higher-order dapps.

The blockchain’s trustless, permissionless and stateful nature allows computers to truly unlock the power of composability, enabling developers to build on top of shared infrastructure without worrying about dependencies. Just like how Ethereum pushed the limits of what blockchain could achieve, Polkadot and Substrate are redefining distributed ledger technology (DLT) as a whole and could lead to many new on-chain innovations outside of the Ethereum ecosystem. Acala runs on a fundamentally different model than Ethereum, which is more inclusive and beneficial to developers and end-users alike. Their goal is not to redeploy Ethereum on Polkadot, but to create an environment conducive to cross-chain innovation and interactions between distributed applications on top of interoperable blockchains.

Optimizing DeFi Options

Unlike most smart contract platforms, Acala is more focused on optimizing the DeFi situation, integrating its DEX, stablecoin, and liquid staking protocol. While Acala’s current focus lies on its DeFi applications and compatibility with Ethereum, once the floodgates to a more open ecosystem have been opened, there may be no turning back for DeFi developers.

Interoperability is the next frontier for blockchains, allowing them to communicate with each other, seamlessly make transactions across chains and operate smoothly across multiple decentralized networks. It also ensures a more user-friendly experience, which is imperative to improving adoption and enabling multi-token transactions across different blockchains. Completely decentralized blockchain networks function without any intermediaries or third-party involvement. While current models have allowed for rapid development in the blockchain space, the lack of interoperability has severely diminished many efforts to create better dapps.

Blockchain without interoperability will only create disconnected systems that cannot share resources — a vital aspect of a sustainable development ecosystem. Interoperability lets users from various networks interact without spending resources on translating the information sent or received. When it comes to developing innovative solutions, it is common for developers to ignore standards in favor of greater creative freedom. However, this can lead to interoperability and communication bottlenecks. One of the biggest challenges for the blockchain industry is setting the different parameters and models for interoperable networks to adopt.

Polkadot encourages customization among its parachains, making each project part of its broader ecosystem. With the mainchain handling security, new projects need no longer look to incentivize participants to join yet another blockchain network, and can instead tap into the resources that have already been set in place by Polkadot.

Acala and Polkadot are recontextualizing what it means to crowdsource funds to start a blockchain project. While thousands of blockchain projects have started up in the last few years, the resources used to create each one often could have been better used, improving the technology as a whole.

Finally, given that fundraising is a tradition within the crypto space, Acala has positioned itself as the DeFi hub on Polkadot, testing new and more effective ways of setting up configurable blockchain applications without requiring a lot of capital on hand.