Acala Interview: Response to Platform Recovery and Future Plans
More than three months have passed since the aUSD incident on August 14, and shortly before, Acala provide an explanation on how and why the incident occurs in a live community broadcast. During this time, the Acala team has taken various measures to recover the platform. PolkaWorld spoke with Acala co-founder Bette to share with us Acala’s recent developments and plans.
PW: You have issued an statement right after the aUSD incident, and shared the whole story behind. What you or ACALA have learned from this incident？
Bette：The first thing I would like to say is that we are very grateful to everyone for their patience and support， which helps us get through this. And we believe . From here on, we can only roll better.
Everyone was humbled during that time, and we talked to a lot of partners , as well as other projects who had been through similar situations, and they all gave us great advice and help, and it was quite a challenge for the Acala Foundation to be able to respond quickly and leverage about $5 million to cover the gap and turn things around in a $3 billion incident. On top of that, we were able to take more initiative in the process to optimize and upgrade the technology at every step , and to leverage a lot of work to track and process the incident.
The biggest lesson we gained is that we need to think about how to continuously improve security and awareness, especially in the blockchain world where cross-chain demands are amplified nowadays. Our technical team is also currently working more on security developments to ensure more tasks and work is done safely and stably.
PW：Some measures have been taken to resume the platform, how are these measures working so far?
Bette: I’ll start this question with the outcoming, as I’m sure you’ve already seen. According to the data on DefiLIama and the Subscan browser for November, Acala ranked number one in the Polkadot ecosystem in terms of the TVL as well as the numbers of XCM transactions.
There are a few points I would like to make about the above data.
The first is the transactions on XCM, as assets of our core products are traded or integrated through XCM on many parachains (including Polkadot main chain of course). For example, aUSD is on Moonbeam, for example LKSM is a collateral asset for kBTC (and LDOT may become a collateral asset for iBTC in the future). Of course there are also many XCM transactions related to our Liquid Staking product, as this is a product that helps users unlock Staking liquidity, and in the current market conditions there is a demand for products that provide liquidity while enjoying the benefits of Staking.
Secondly, Acala’s TVL is still number one in the current market environment. I remember when Acala’s platform was restored, it was actually in three steps. The first step was to level the pool to pre-incident and then turn on the withdrawal feature, allowing people to withdraw from the liquidity pool, protecting LPs from price fluctuations during the suspension. The second step was to turn on the aUSD debt position management, which also allowed people to manage their debt positions and protect their assets from price fluctuations during the suspension period, and allowed users who were close to losing their positions to withdraw them, ensuring the safety of their assets. The last step was to turn on all the features, such as trading in DEX with oracle feeds, etc. After the three steps, it’s true that the TVL has decreased to some extent due to the demand squeezed during the suspension, but as the parachain with the most native DeFi applications in the Polkadot ecosystem, plus the product is also the most essential basic product in DeFi, Acala’s product also meets the needs of Polkadot and Acala users to some extent, despite the market downturn.
The last ，but not least . decentralized open platforms have some advantages over closed door centralized platforms, everyone can see the current state of the entire protocol on the chain without us screaming about security on Twitter, because all data is available on the chain, whether it is the status of aUSD collateral or the state of core assets, it can be checked on Subscan. Rather than many centralized platforms that need to prove their innocence but cannot gain real trust from their users.
PW: I think a lot of people have questions about aUSD, what is the anchoring logic for this? Can you talk about the anchoring between aUSD and $1?
Bette: First of all, do you know where does the value of aUSD come from? The value of aUSD in product design is actually determined by the collateral that underpins it. Basically every aUSD in circulation has a full amount of collateral behind it, which means that if an aUSD holder wants to get back 100% or more of the collateral assets, then he needs to pay back every aUSD he borrowed to the position first which ensures that aUSD is now fully collateralized, backed by assets and has a real value. So aUSD does not create a bank run. Of course, our risk partners, experts like Gauntlet, are now more focused on providing advice on parameters to balance market volatility risk with capital efficiency. In this sense, aUSD is very different from other types of stablecoins, and especially from algorithmic stablecoins.
Secondly some people may be very concerned about the peg or market price of aUSD. What is the market price? First of all every aUSD is over-collateralized , which is its solid value and guarantee. But aUSD is also traded on the market and will also have a fluctuating trading price. So when trading in an Acala-like DeX (and of course there are DeXs on Moonbeam), the market price presented is the current value of the aUSD, which is subject to market conditions ， supply and demand, and other factors. aUSD is never completely fixed at one point (nor is DAI). So aUSD will always fluctuate, depending on the supply and demand in the market (especially since we are currently in a special situation). Under normal circumstances, aUSD may fluctuate in different patterns or at different price levels.
But right now we are in a special situation in many ways，inculding macro market factors. So in our case, the millions of aUSD error minted in circulation right now are all collateralized, ensuring that the value behind all the aUSD is backed. However, this also leads to an incomplete balance between supply and demand, and it will take time for the market to digest and return to a balanced state. And at the same time, the cryptocurrency markets and macroeconomics are in turmoil at the moment. Therefore, I believe rational people would expect the natural pegging process to take some time under these circumstances, and this is a reasonable expectation since every aUSD in circulation is now fully collateralized.
The fundamentals of aUSD are now robust and verifiable on-chain. Even if you still don’t believe what I’m saying, then you can just look at the data on the chain and see. Also, this could be a good opportunity to get aUSD at low cost to pay off debt positions or arbitrage as aUSD will eventually peg, but of course, this is not financial advice, do your own research. The above is about the aUSD peg, it will eventually peg naturally but it will take time .
PW：Since Luna’s UST stablecoin crash, many regions are concerned about the regulation of stablecoins. aUSD will face regulation as well , what kind of preparation does Acala have for regulation?
Bette: As explained in the question earlier, aUSD is fundamentally different from UST. aUSD is a over-collateralized stablecoin, and each aUSD is backed by a full amount of collateral. Therefore, there will not be a run like that. Regulation is definitely coming, but technically we are prepared and flexible enough to accommodate this, and our protocol has the opportunity to integrate with institutional financial systems, so we will continue to explore and upgrade.
Secondly, at other levels of regulation, the Acala team has been working hard, both a US technology bank, and with Coinbase’s Alluvial on its Institutional Staking product, which means that it is recognized by formal institutions at the regulatory level. But the market is always changing, so the regulation will also change with the times, and we will also work more on compliance.
PW：How is Acala EVM+ progressing? The community is buzzing right now that the emergencing Move public chain could pose a threat for EVM chains, what;s your perspective?
Bette: Acala EVM+ is already live, but Acala is an Appchain, not a General EVM, and is not on the same track as application chains like Polygon, etc. Acala EVM+ is more about enabling native protocols and improving the user experience.
For example, the Tapio synthetic asset tDOT in the Acala DeFi building blocks, its protocol and integration with Acala are done in the Substrate layer to acheive the unique functions.
So the main purpose of EVM is to serve Acala Appchain, we are also keeping up with the development of polkadot technology, after that we will also support wasm contracts. For Acala Appchain, no matter what the contract is, as long as it can better empower the protocol and optimize the user and terminal integration experience, it is a good virtual machine and we will support it.
As for Move threatening EVM, I don’t think so, because as a development language that has gone through many cycles, EVM is still the preferred choice of contract developers. Although the current EVM has a lot of flaws. It’s not going to past the threat. But we’ll see how Move is adopted and compare it with the EVM chain from many practical latitudes.
PW：FTX fallout ripples through crypto industry ,Is there a connection between Acala and FTX/Alameda, and will the FTX incident affect Acala?
Bette: FTX has no direct impact on Acala, although Alameda is involved in Acala, they only have a very small share and have no impact at all. But what I would say is that this event actually has a profound impact on everyone in our industry.
First of all, compliance will be the trend, non-compliant centralized platforms will lose the trust of users and the legitimacy of their business
Secondly, openness, transparency, decentralization, and verifiability on the chain will become the main criteria for judging value.
In addition, hype tactics such as Airdrop and bubble-making yield farming to show the “false” development of prosperity will lose its effectiveness, and more attention will be paid to the real value creation and value dissemination.
Finally, don’t think everyone is pulling out of the investment, institutions (Institution), etc., but more clear about the next direction, and the preferred track ready to enter, capital and product applications will follow
PW: What is the focus of Acala recently? Is there any progress in tech and product?
Bette: We have three directions in which we are working on .
The first is that several technical capabilities of the Acala chain have received a lot of appreciation and recognition through this accident, which is why we were able to recover from a major accident, while most projects are the opposite. We will further innovate and improve security, especially cross-chain security, as well as enhance accident warning, isolation and on-chain recovery capabilities, which will be a watershed in the next Cycle and will be Acala’s strength as an application chain.
The second direction is the innovation of Native DeFi, creating Polkadot cross-chain native DeFi products, such as our close cooperation and integration with Tapio, solving the problems of DOT mobility differentiation and UX availability friendliness, and creating products such as tDOT. I would like to add that Tapio, the team that launched tDOT, recently received a $4 million investment led by Polychain, with participation from well-known funds such as Arrington, Hypersphere, Spartan, etc. Tapio is a synthetic asset protocol that is deeply involved in the Acala ecosystem, and their development will bring new momentum to the development of Acala’s DeFi ecosystem. The third direction is Institutional DeFi.
The third direction is Institutional DeFi (Institutional x DeFi), the era of pure airdrop mining is over, the next era will be the creation of real value and dissemination of real value, then we will make the innovation of DeFi into a solution for Institutional Grade, our technology stack can add compliance and business needs components to empower institutions, this will also be a new starting point for future widespread adoption. The fact that individual users of Institutions will use compliant and secured applications with backend assets and business logic provided by Acala that are not only transparent, open, but also monitorable and supervisable in real time will be a huge advantage for such Institutions that integrate with us, especially with the FTX incident and the general awareness of the black box s of centralized platforms. Our Institution liquid Staking solution with partners such as Alluvial x Coinbase x Kraken will be launched in the second quarter of next year, and the resulting LSDOT derivatives will become a new derivative asset in the Polkadot/Acala ecosystem, continuing to empower pure DeFi protocols and users, creating a virtuous circle: DeFi is the export of innovation and products, Institution DeFi (hyfi) is the widely adopted empowerment, and the liquidity generated is sustainably injected into DeFi. .
PW: Finally, can you share with us Acala’s next plans?
Bette: We will have a series of technical product launches and introductions, as well as online workshops, including cross-chain UX, substrate multi-chain testing tools, XCM cross-chain asset management and security tools, and so on. Developers and technical students are welcome to pay attention and participate in these workshops.
We have a cross-chain use case cooperation with Talisman and Tapio’s tDOT, and will launch a native one-click DOT product for Polkadot, which maximizes real revenue and provides liquidity for users, and will also have a good UX and SDK, so that Polkadot can attract more users and developers. We hope to do our part as community contributors to be one of the catalysts for Polkadot to be widely used.
The next thing I want to introduce is that we are also working with our Cosmos partner Kujira to improve the liquidation mechanism so that assets can be processed more efficiently to protect holders, and so that more users can participate and profit from it. For example, Kujira’s liquidation pool democratizes the ability of ordinary users to participate in the liquidation of collateral. We are currently working with them on the integration of Substrate and EVM+, as well as the integration testing of their smart contracts, and hope to launch this new product early next year.
The last partnership I would like to mention is that Ledger Wallet officially supports ACA transfers and includes other assets on the Acala platform such as aUSD, LDOT and tDOT as well as assets on the Karura platform such as KAR, aUSD, LKSM and taiKSM. users can also use Ledger devices with applications on the Acala and Karura platforms such as the Liquid Staking feature (LDOT) or the DOT synthetic asset developed by Tapio — tDOT. — This is a substantial breakthrough for users with high asset security requirements.
Of course, there are still many collaborations and developments that have not been announced, and we will announce them on Acala’s official Twitter account as soon as the details are confirmed.
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