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Acala’s Interprotocol aUSD Distribution Scheme (IADS) Has Launched, Increasing Stablecoin Liquidity & Efficiency for Polkadot and Kusama

TL:DR

  • Interprotocol aUSD Distribution Scheme (IADS — pronounced “eye-ads”) is live, and protocol-to-protocol aUSD minting has started
  • IADS is a new form of aUSD issuance, in addition to collateralized debt positions (CDPs)
  • IADS is not for users, it is a scheme that requires protocol-to-protocol collaboration (e.g. aUSD protocol and Taiga protocol’s 3pool)
  • Protocols in the Dotsama (Polkadot and Kusama) ecosystem can access aUSD liquidity efficiently via IADS
  • IADS reduces slippage for users (improves aUSD trading efficiency) by increasing liquidity of aUSD, and strengthens the $1 peg

The Interprotocol aUSD Distribution Scheme (IADS) is live! The aUSD protocol has minted aUSD that was deposited into the Taiga 3-pool via IADS to improve liquidity efficiency and further strengthen the aUSD $1 price peg. 3USD, the LP token from the aUSD-USDT-USDC 3pool, collateralizes the newly minted aUSD.

Protocols and parachains within Polkadot and Kusama, who require access to the ecosystem’s native stablecoin, aUSD, can use IADS to mint aUSD and bootstrap liquidity for operational functionality and more. Get in touch with your contacts on the Acala team or submit this form if you’re interested in getting liquidity for your protocol via IADS.

What is IADS?

Since its inception, aUSD has expanded consistently and organically. New parachain and DApp launches across the Polkadot ecosystem have contributed to the increasing number of aUSD use cases. With expanding aUSD demand across Polkadot and Kusama, the tension between increasing aUSD demand and need for expanded aUSD in circulation inspired the IADS proposal.

IADS creates a protocol-to-protocol credit issuer to enable direct deposit of aUSD liquidity into another protocol (initially with a stableswap 3pool), using the LP token as backing for the aUSD issued.

IADS enables a protocol-distributor network for aUSD liquidity

IADS creates a distribution network for aUSD on Acala, Karura, and other parachains. The connections allow aUSD to support remote trading venues on other parachains via cross-consensus messaging (XCM) and local trading venues like Taiga’s stableswap 3-pool on Karura. There is no stability fee (interest rate) charged in IADS; however, the aUSD protocol will collect trading fees from the stableswap as a liquidity provider, which will go into the aUSD “Honzon” Treasury.

IADS Benefits to Users

  • More liquidity, less slippage: IADS makes aUSD more liquid across the Polkadot and Kusama ecosystem, reducing slippage in trades, improving efficiency and reducing costs for users
  • On/off ramps: IADS improves liquidity of pairs with USDC and USDT, improving on/off ramp experience with these fiat-backed stablecoins
  • More arbitrage opportunities, stronger peg: IADS increases the reach of aUSD, expanding the stablecoin into new trading venues, which increases the number of arbitrage opportunities on aUSD. Increased arbitrage leads to a stronger, tighter peg with $1.

IADS Benefits to the Acala Protocols & Polkadot Ecosystem

  • Increased aUSD ecosystem liquidity: Serves the Acala and Karura trading venues and other parachains via XCM, growing a protocol-distributor network for aUSD to deploy liquidity to protocols or parachains requiring Polkadot’s native stablecoin.
  • Accelerating aUSD issuance and liquidity growth: Expands aUSD issuance methods, adding a new growth driver for aUSD
  • Strengthened aUSD $1 peg: IADS allows aUSD to expand more quickly into more trading venues, bringing more arbitrage opportunities to strengthen the peg
  • Polkadot and Kusama aUSD Distributors: Strengthens liquidity bootstrapping of all Polkadot and Kusama chains by enabling new protocols to gain aUSD liquidity without the prior need for collateral in a CDP. Get in touch with your contacts on the Acala team or submit this form if your protocol would like to be an aUSD distributor via IADS.

IADS Risks

To start, Acala along with Gauntlet, have set up an initial debt ceiling of 100K aUSD, which is conservative but reasonable, considering the risk exposure for IADS. The 3USD exploratory deposit amount takes into consideration the overall debt ceiling and can be adjusted by governance. For example, if the exploratory deposit is $100k, it would be 0.3% of total debt ceiling on Karura, and 3.2% of outstanding aUSD debt. The risks include:

  • Unbalanced pool: there could be premium or slippage when redeeming aUSD from stable pools. However, as the three are all stablecoins, the insolvency risk due to unbalanced liquidity is low.
  • Non-aUSD stablecoin risk: with fiat-backed stablecoins, there is centralization and depeg risk associated. If they are bridged assets, then there are inherit bridge protocol risks as well. The exposure is proportional to the liquidity mix in the pool. E.g. if USDT makes up 20% of the pool, then the aUSD protocol will need to absorb bad debt = 20% of liquidity deposited if USDT is exploited.
  • Taiga protocol risk: if the protocol is exploited, it’s possible to lose the deposit. There are on-chain mechanisms to pause part or all protocol operations to reduce attack impact.

Learn more

Acala co-founder Bette Chen recently did a 45 minute overview and Q&A session with the community where she did a deep dive on IADS. Watch here to learn more:

What to expect

Polkadot and Kusama are expanding with each parachain addition, and through integrations, aUSD demand expands as well. The Taiga 3pool initiates IADS by becoming the first aUSD protocol-to-protocol distributor, helping grow aUSD liquidity.

Acala will accommodate more protocols to increase aUSD circulation as demand and utility continue to increase. The strengthening effect of IADS on the aUSD peg will contribute to aUSD’s continued development, attracting suitable protocols that find aUSD practical for their respective economies and use cases. IADS is sure to inspire new aUSD-related products, and we look forward to building alongside these teams.

$250M aUSD Ecosystem Fund

If you are a developer interested in building a project that drives yield or utility of the aUSD stablecoin on Acala or any other parachain, apply for funding from the $250 aUSD Ecosystem Fund. The aUSD Ecosystem Fund is part of the broader Acala Ecosystem Program, which offers liquidity for new projects, Acala Foundation Grants, engineering support, and other support to ensure the success of the aUSD ecosystem.

Build on Acala

If you’re a team looking to build on Acala’s EVM+, integrate the aUSD stablecoin, get funding from the $250 million aUSD Ecosystem Fund, or receive support from Acala Grants, please get in touch with our team to chat about how we can support you.

About Acala

Acala is a decentralized finance network powering the aUSD ecosystem. The core product, Acala USD (aUSD), is a decentralized, multi-collateral, crypto-backed stablecoin serving as the native stablecoin of the Polkadot ecosystem. Acala’s Ethereum-compatible blockchain has built-in DeFi protocols for application developers to leverage, including a trustless staking derivative (liquid DOT — LDOT), a decentralized exchange, and the EVM+, a hybrid EVM offering fully Ethereum-compatible development environment plus full compatibility with Substrate.

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Dan Reecer

Dan Reecer

Chief Growth Officer @ Acala and Karura. Previously launched Polkadot and Kusama @ Web3 Foundation.