The Acala network uses Polkadot's Substrate framework and will act as a Polkadot parachain. It will host the Homa liqidui staking protocol and the Honzon stablecoin generation protocol. Acala will accept a variety of assets, such as ACA, aUSD, and yuan, as collateral to mint its stablecoin, aUSD. The network also features a palette of Ethereum Virtual Machine (EVM) substrates, allowing Acala to be compatible with Ethereum and support smart contracts written in Solidity. Before launching on Polkadot, Acala will launch a lookalike chain called Karura as a parachain on Polkadot's sister chain, Kusama.
Acala will launch on the Polkadot network with Crowdloan to bid for parachain leases. Polkadot rewards one of a limited number of parachains based on bidding at a candle auction. The auction has a randomly set duration, which will require the bidder to continuously increase the amount of DOT wagered to win. Crowdloan is a Polkadot process that will allow potential users to bid for DOT contributions on behalf of the organization by locking their DOT to the network for the duration of the parachain lease (six to 24 months). Acala will perform a Crowdloan and reward participants with a corresponding amount of ACA to incentivize participation and distribute its native token supply.
The User will access the Honzon Protocol to deposit assets into a Collateralized Debt Position or CDP. To mine stablecoin aUSD, they need to borrow one USD. The CDP engine manages the risk of the position based on the protocol's collateral and liquidation rates. CDP and Debit modules accumulate user aUSD balance and accrued interest. The protocol will accept collateral from multiple blockchains. Acala has partnered with Chainlink to create miracles that will provide asset price data for the Honzon protocol from Acala parachain. The stability of aUSD networks is maintained in the Honzon CDP module and the system's auction mechanism. If the assets of the CDP rapidly depreciate and the CDP becomes short of collateral, the system auction will seize the Honzon Protocol CDP. Then, following a two-step auction process, the collateral will be publicly auctioned for one USD to stabilize the collateral ratio and collect a liquidity fee. Any value above these levels will be converted to ACA as system profit and burned to balance the system value. Any remaining collateral will be returned to the user and the remaining aUSD will be burned from the supply.
Acala designed Homa to generate liquidity from locked DOT capital. Polkadot's Nominated Proof-of-Stake model will require locking parachains, or DOT staking to assign parachain-secured chain validators to the Polkadot relay chain. In turn, Polkadot security covers all applications in the Acala parachain. DOT staking will earn variable return, or APY, paid out in DOT on redemption. Homa Protocol will be a decentralized staking pool that mines and distributes LDOT in exchange for user DOT staked on Acala parachain. Users will be able to deposit their LDOT as collateral in Honzon to mint one USD.
Use of Native tokens in the ecosystem:
ACA can be used to pay network transaction fees, stability fees as interest on aUSD loans when using Honzon, and penalty fees during liquidation.