WHAT YOU DON’T KNOW ABOUT ACALA
What is Acala?
Briefly, Acala is simply a project that want to bring decentralized finance to a bigger ecosystem. They have suit of products they will be offering and below are the list of the products.
1. The ability for people to able borrow and deposit collateral to borrow.
2. Getting liquid assets for coin that has been stake.
3. Ability to exchange coins in a decentralized manner e.g. if you want to do cross chain swapping of tokens, you can do that with Acala.
4. Ability for people to deposit their coins and earn on its own.
We will talk about each of them very soon.
In Acala the CDPs, which is been known as the Collateral Debt Position, simply mean is that if you have collateral that is acceptable in Acala.
Let us say, for example Acala token is accepted, rainbit is accepted and you want to deposit that collateral in other for you to obtain Acala dollar, that you want to use for any defi application or written products.
This is what you do, you go to the system you deposit that collateral, you can decide to deposit 100% of the coin as collateral after you have deposited it; you can choose to collect 100% of the collateral or any percent of it.
When you deposit these coins, it is not advisable that you take 100% of your collateral. For an example, you deposited $100 worth of collateral. It is not advisable that you take $100 worth loan because when the price of that coin get to a point and the collateral ratio of such a transaction gets very low, it is will be liquidated.
On the other hand, let us say you deposited $100 and you took a loan of about $80, you still have some window of opportunity that you may not be liquidated.
Meaning of Liquidation
Liquidation means the resell of your coin to pay the dept. We should look at a comprehensive illustration: You have a house worth five million dollars, and you go to the bank to deposit it as a collateral. It is not advisable that you will bag five million dollars home. You will take a loan of one million dollars or two million dollars, which make you to be on the saver side because maybe due to unforeseen issues, you were unable to pay back the money and the bank decides to sell the house. The bank will take their money and you still have remaining money out of that sale. Unlike when you take five million dollars loan, you are unable to pay back and you lost everything.
For this Acala collateral that is been collected, it is a stable coin (Stable coins are simply coins which its values do not rise, with minimum volatility. What that simply means is that crypto currency are volatile, you can see coins that goes up and down, and they swing a lot. If you are a seller, you will observe that it is very cheap to accept crypto but in long term, it is not very reliable to keep crypto. So what do you want to do? You want to accept stable coins.
Acala is the first stable coin that is cross chain. We have other stable coin namely: True USD, USD Tether and many more, But many of those coins are within one chain.
HOW DOES ACALA DOLLAR MAINTAIN STABILITY?
It maintain stability through a few parameters and one of them is through liquidation ratio. We can look at the system and say let us set it at Y ratio of every X percent. For example, someone deposited $100 and he borrowed 80%. We can say if that 80% that was borrowed that collateral hit 90% or if we see the system over time is not sustainable, you can go the network and make changes to those kind of parameters. Change parameter like, we can add or remove the kind of collateral e.g. BTC is no more profitable lets change it to more a profitable one.
Liquidized staking: If you look currently, you will observe that there are more than 100 prove of stake chain and we have seen the inefficiency of prove of work systems: they very energy consuming, expensive to setup, it is not environmental friendly and the economic behind it is not very sustainable and many more. That is where prove of stake comes in.
When you look right now, prove of stake is been threatened by the lending industry. Lending is easier to initiate and lending has more acceptance now. What it means is that prove of stake blockchains are actually at risk because if I am a user and this is a blockchain if you stake, you will require a minimum. Let us say for example for this particular blockchain you required to stake a $1000 coins and at the end of the day you look at the annual percentage rate or annual percentage return. If you lend your coins ($1000 coins), you get 10% unlike when I stake my coins and I get 5%.
SOME REASONS WHY LENDING IS BETTER THAN STAKING.
1. In staking, there is a minimum.
2. The reward is not fixed: like prove of work those who have more staking have higher probability of getting more reward in other words it’s like a competition but in lending there is no competition so that is the problem.
What will Acala Help People to Do?
Acala will help people stake coins and you have derogative of it meaning you will be issue a liquid version of it. Derogative are physical assets whose values are pends to another assets. For example, we have gold, and we want to trade gold but we do not want to trade the actual gold a body can issue what is been called derogative.
When you stake your coins with Acala you get a reward in other words you are been given the derogative of that coin such that you can use that coin for any other purpose. In simple term, if you for example stake a coin in Acala you get probably 32 to 36 percent per annual hit. You stake a coin they issue a liquid version of those coins you stake. Those coins you have been issue you can go ahead and decide to deposit them at any interest, or take a loan against them, you can decide to do anything you desired with them.
Atomic Exchange
The atomic exchange of Acala is just like Uniswap. Meaning you will be able to swap your coins. Let us consider this illustration. You have BTC or Acala you can swap them easily without leaving the network.
Deposit and Earn Feature
You can actually deposit your coins and earn interest on them. The coins you could deposit; you can deposit any kind of coin. Let us take for example after staking your coins because they issued liquid version of it you can deposit it, so you are getting double reward.
Network Participant
What are the people that really participate in Acala?
Collectors: Collectors are people who are leger keepers or you can call them gatekeepers. They store transactional state in a network. Meaning they forward data that actually happen like transaction, loan, trade and other. They store those data. Anybody can query those data any time. They are the information gatekeeper of the network.
Oracle Providers: These people supplies the network with accuracy. They are the once who will say, this is the price of this kind of asset and they supply the network with those kind of information and the smart contract of the network, really need that kind of information.
Liquidators: These people enforce setting standard in the network. Earlier on, I told you deposited a collateral and you took a loan, if you were unable to pay back the loan after some time, these people will be force, to sell your coins, that is their duty. In other words, you deposited $100 and you took a loan of $80 but the price of that coin is very low, such that your collateral can no more sustain the loan you took. What will they do? They will be force to sell your coins i.e. the $100 deposited has been depreciated to $80 of the loan you took; they will sell your coin because the network do not want to lose.
Acala is a trap pattern network meaning there are things, which sustain the Acala network, which are been listed, below.
Acala Testnet: where people can test tokens, do some transaction.
Acala Minute: when Acala goes live it will be a network that has value.
Karura Network: It is a canary network as similar to what you see in Polkadot network. Polkadot has canary network known as kusama. Kusama has tokens that have real value. Once a network is live you can do test versions. Rather than whooping the testnet you can do upgrade. For example, you want to make an upgrade to something in Acala network; you have to do it in Karura. It has its own token called the KAR token.
The last thing to talk about is the Acala tokens.
Uses of Acala Tokens
1. The tokens will be, used for paying those who stake.
2. They can be used to, borrow and take CDPs.
3. Also for paying transaction fees in the network.
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