LiteBit

Written by Robert Steinadler 4 months ago

Polkadots parachains: Acala, Moonbeam, and its companion network Moonriver 

With the parachain auctions concluding more and more projects are starting on Polkadot. Acala and Moonbeam are two of the first and most anticipated parachains that have launched on Polkadot only recently. Moonriver on the other hand is Moonbeam’s sister network on Kusama. What do they offer and how do they function?

What is Acala Network?

The Acala network aims to play an important role in Polkadots DeFi ecosystem. The protocol offers a broad variety of products and services, among them, staking, lending, and borrowing. Acala is a so-called parachain. Each parachain can serve a specific task while the network is secured by Polkadots relay chain, which in return allows Polkadot and its parachain to scale on a massive level.

Acala is focused on financial applications and is making use of two protocols called Homa and Honzon. Homa is a staking liquidity protocol and Honzon is a stablecoin protocol. The Acala network also has an automated market maker (AMM) a decentralized exchange (DEX) and is governed by its community. The ACA token is the native token of Acala and serves in both roles as a utility and governance token.

The Honzon Stablecoin Protocol

Honzon makes use of the so-called Acala Network Dollar (aUSD). While the aUSD token is pegged at a 1:1 ratio to the US-Dollar, the peg is not achieved by an actual US-Dollar deposit. The protocol achieves the peg very similar to MakerDAO on Ethereum.

When users deposit crypto assets like DOT or others, they open a collateralized debt position that follows a process:

  1. The deposit: When depositing the crypto into the protocol the asset is locked as collateral within a CDP.
  1. Open the CDP and borrow: The user borrows a specific amount of aUSD. It cannot exceed the value of the amount that was deposited in step 1. The collateral is locked until the loan is paid back in aUSD.
  1. Repaying the loan: When closing the CDP the user must pay back the outstanding balance that is owed and pay a small fee. Unlike the loan, the fee can be paid either in ACA or aUSD.
  1. CDP is closed: After both the loan and the fee are settled the collateral is paid back.

The Honzon protocol has a CDP engine and is able to manage risks, e.g. liquidate collaterals in case they drop in value and cannot back the outstanding loans anymore.

The Homa Protocol

Staked assets are usually illiquid, meaning that they cannot be used for other purposes while they are being staked. Homa is a decentralized staking protocol that solves this problem by issuing tokens that can be used in other DeFi applications and protocols. These tokens are called L-assets. If a user stakes DOT with Homa he will receive L-DOT in return, which has certain advantages:

  1. L-DOT is tradeable and liquid across all chains on Polkadot.
  1. L-DOT can be redeemed at any time for DOT
  1. ACA and L-DOT holders govern the protocol
  1. An algorithm adjusts the staking strategy

The ACA token

The ACA token is the native asset to the Acala Network and serves a variety of purposes and use-cases. ACA can be used to pay fees, which includes stability fees on Honzon and transactions fees within the network.

ACA has a deflationary design, meaning that tokens that are used for platform fees will be burned, effectively reducing the total supply over time. At the same time, ACA is also the governance token of the platform adding additional value to it. It is Acala’s goal is to move from centralized on-chain governance to a decentralized and community-driven approach. Putting the ACA holders in the position to decide how the network will be developed in the future through referendums.

What is Moonbeam Network?

Moonbeam Network strives to provide compatibility with Ethereum and allow developers to deploy existing Solidity smart contracts. It offers a full Ethereum Virtual Machine (EVM) implementation and a Web3-compatible API as well as bridges to the Ethereum network.

While Moonbeam is a parachain on Polkadot it shares a large part of its vision. The idea is to connect all chains with each other effectively making Polkadot chain agnostic. Moonbeam’s focus is on applications that need to exist on more than one blockchain by offering cross-chain smart contract functionality. Moonbeams key features are:

  • It has a native cross-chain integration by building on the Polkadot network.
  • Token holders can participate in on-chain governance.
  • Fully compatible with the Substrate toolset and ecosystem.
  • A full EVM implementation allowing easy migration of existing smart contracts that are based on Solidity.

What can be achieved with Moonbeam?

Cross-chain functionality is becoming increasingly important as already existing technology on other blockchains shows. Moonbeam offers a broad variety of advantages for existing Ethereum-based projects, projects that are part of the Polkadot ecosystem, and dApp developers:

  • Existing workload can be moved off Ethereum’s Layer 1 with only little changes.
  • Applications can exist simultaneously on both Moonbeam and Ethereum.
  • The reach of existing applications can be extended outside of Ethereum, since Polkadot will connect several different chains.
  • Moonbeam extends Polkadots Substrate functionality by allowing more complex financial transactions.
  • New applications can use parachain features to their own advantage while at the same time not being limited to an audience on one blockchain.

The Glimmer token

Moonbeam has its own native utility token that is called Glimmer (GLMR). Glimmer can be used to pay transaction and smart contract fees. Token holders can also earn passive income by staking their GLMR tokens by delegating them.

GLMR token holders are also entitled to take part in Moonbeams on-chain governance, adding another use for the token. Glimmer has an uncapped token supply and a yearly 5 % inflation rate. With 1,5 % going to the parachain bond reserve and 1 % incentivizing the collator nodes. The remaining 2,5 % are going to the stakers.

But there are also deflationary aspects. For each time a smart contract is executed users and developers have to pay a fee. A total of 80 % of those fees is instantly burned and another 20 % is allocated to Moonbeams on-chain treasury.

What is Moonriver?

Moonriver is a companion network to Moonbeam that runs on top of Kusama, which is Polkadot’s canary network. As such Moonriver serves the same purpose and new updates and changes are shipped first on Moonriver and after careful evaluations, they might become a part of Moonbeam. That being said, Moonriver is considered early-stage software, and many aspects are experimental.

It allows users to get early access to features and products that will become available on Moonbeam and respectively on Polkadot. At the same time, Moonriver is a fully productive environment with use-cases and incentives. Moonriver is led by its community with the native Moonriver token (MOVR) being its native utility and governance token. Like Moonriver itself MOVR mirrors the functionality of Glimmer.

Trade anytime, anywhere

Boost your trading impact and reaction time in over 70+ cryptocurrencies via instant access to your portfolio with the LiteBit app.

App StoreGoogle Play Store
App StoreGoogle Play Store
download-app