Acala Network Price Prediction & Overview
The Acala Network recently suffered an exploit resulting in the perpetrators minting US$3 billion worth of aUSD — Acala’s native ecosystem stablecoin. Without going into granular details about the exploit, the team has expertly handled the situation, seeing the aUSD stablecoin regain parity with the US Dollar.
Before the exploit, I had allocated some money to the project via purchasing ACA tokens. I have since increased my capital allocation to the project, and I’ll tell you why in this article.
What is Acala Network and its $ACA token?
Before elaborating on my reasons for purchasing the project’s tokens (and making a price prediction), it’s essential to understand what the project is and aims to achieve.
Acala seeks to be the financial hub of the Polkadot ecosystem. The developers modelled the project after the Maker Network on the Ethereum blockchain, a peer-to-contract lending platform enabling over-collateralised loans by locking Ether in a smart contract and minting Dai, a stablecoin pegged to the US dollar.
Similar to Maker on the Ethereum Network, Acala will deploy three products to secure parachain staking, create cross-chain liquidity, and issue the algorithmic stablecoin, aUSD, collateralised by multi-chain assets.
The network’s utility token, ACA, will power Polkerdot’s DeFi hub via these critical use cases:
- Transaction Fees: the fees or ‘gas’ for smart contract executions on the Acala Network will be in ACA tokens. This use case is only a tiny part of the token’s utility, given that the Polkadot ecosystem seeks to have low-cost transactions, unlike the Ethereum blockchain, which can experience significantly high and sometimes unaffordable transaction fees.
- Governance: ACA token holders can vote, elect council members, and drive the development of the Acala Network.
- Pallet Deployment: This use case has the potential to accrue significant value to the ACA token. Given that the project teams have claimed that the token supply is capped at 1,000,000,000 tokens, as the Polkadot ecosystem grows, projects leveraging the Acala Network may have to secure and stake its ACA token. This deployment model can result in value accrual due to demand-supply dynamics.
Acala users can deposit assets into a Collateralised Debt Position, or CDP, which can accept multiple asset types such as ACA, aUSD, and renBTC, as collateral to mint its stablecoin, aUSD. The Acala Network differs from the defunct Terra UST by ensuring its stablecoin is over-collateralised and does not employ a similar mint-burn mechanism.
If assets in a CDP rapidly lose value and the CDP becomes under-collateralised, the system auction will seize the CDP from the protocol. Then, in a two-stage auction process, the collateral assets will be auctioned publicly for aUSD to stabilise the collateralisation ratio and take a liquidity fee. Any value above these levels will be converted to ACA as system profits and burned to balance the system’s value. Any remaining collateral returns to the users, and the remaining aUSD is burned from the supply. The Acala Network is also creating liquidity from staked DOT by minting L-DOT, which users can deposit as collateral to mint aUSD.
The Polkadot ecosystem could be an asymmetric bet
As I highlighted in my Polkadot 2024 Bull Market Price Prediction article, The Polkadot (DOT) ecosystem has been relatively behind other blockchain ecosystems since its launch in 2017. Recently, the ecosystem has been experiencing growth in the bear market as various projects have launched through its crowd loan and para chain mechanisms.
These projects rival those built on Ethereum (ETH) and aim to overcome some of Ethereum’s shortcomings. Hence, the projects deploying on DOT include various decentralised finance (DeFi) protocols, NFT platforms, data oracles and more.
For instance, research firm Messari has highlighted the significant strength of developer activity through 2021 and Q1 of 2022. Furthermore, after Bitcoin (BTC) and ETH, DOT is the digital asset most held by investment funds, signalling immense faith from investment funds in the ability of the DOT ecosystem and its projects to experience significant growth and attain their visions.
Given the projected growth of the Polkadot ecosystem and Acala’s goal of integrating its aUSD stablecoin into the ecosystem, the Acala Network could see significant TVL growth if this plan comes to fruition.
Various DOT and Kusama ecosystem projects and venture capital firms have come together to ensure aUSD and Acala Network integration into their projects. These include Astar, Moonbeam, Composable Finance, Picasso, Pendulum, Amplitude, Basilisk, and many more. In Q1 2022, Acala, nine DOT parachain teams and several venture funds launched a US$250 million aUSD Ecosystem Fund to support early-stage startups building applications with strong stablecoin use cases on any Polkadot or Kusama parachain.
Furthermore, the network has implemented a buy-back programme where treasury surpluses will be used to buy back ACA to distribute ACA-aUSD LP tokens.
I’m not the type to shill number-go-up Ponzis in crypto wonderland, but the above points make a strong case for ACA value appreciation.
The network’s recovery from an exploit is a testament to the team’s potential
The recent Acala Network exploit is supposed to be an event that counts as a weakness overall. Perhaps I’m a little biased, but I see how the team handled the network’s recovery as a strength instead of a weakness.
Though still drawing criticism from Crypto-Twitter — as always — the team has traced and removed all the erroneously minted aUSD, re-collateralised the currency, re-pegged the stablecoin and released all trace reports and post-mortem roadmaps.
The fact that there wasn’t a Luna-UST style death spiral is a testament to the Acala-aUSD model’s resiliency and team’s commitment and skill.
The Acala core team is small, consisting of about four co-founders and a chief growth officer; this isn’t to say there aren’t other team members, but I’m specifically referring to the core team. The core team members are Bette Chen, Ruitao Su, Bryan Chen, and Dan Reecer, who’re all available on LinkedIn, except for the anonymous co-founder known as 0xThreeBody.
Venture capital backing can provide a financial runway to cushion shocks
Though the general sentiment has turned negative towards VC firms because of aggressive vesting schedules and “dumping tokens on retail”, the silver lining is that promising projects can get an excellent financial runway to weather market downturns. A good financial war chest to weather the bear market winter could mean a project’s survival and bounce-back in the next bull market or extinction
Furthermore, backing from reputable VC firms can signal that a project has a good value proposition and potential, though I’m not saying you should outsource your research and due diligence to VC firms — they, too, can sometimes get it wrong (e.g., Terra Luna VC losses).
Some reputable VC firms invested in Acala Network include Coinbase Ventures, Pantera, Polychain Capital, Parafi, and Hashkey.
Stablecoin regulations could spell trouble for aUSD
The great Terra Luna and UST crash of 2022 has drawn regulatory attention to the stablecoin crypto sector. Though I think this is a good thing in the long term, it may be detrimental to genuine stablecoin projects with superior mechanics to UST in the short term. The Terra Luna fiasco has also created bad optics for algorithmic stablecoins in general. It will be interesting to see how the Acala team navigates the unfavourable optics in the wake of the network’s recent exploit.
Additionally, USDC announced on 28th September 2022 that it will natively offer its USDC stablecoin on the Polkadot network without needing a bridge. This move is a direct threat to aUSD proliferation, and it will be interesting to follow how the development team and the community handle this threat.
How high could the $ACA token go?
This section is the part of the article everyone’s been waiting for, but it’s worth noting that price predictions are highly speculative and can be wrong.
The methodology for calculating the possible price of the Acala Network token relies heavily on the success and price of the DOT ecosystem and its token (Polkadot 2024 Bull Market Price Prediction).
Following my previous Polkadot price predictions, the total crypto market capitalisation could reach US$6 trillion in the next cycle, placing DOT’s market capitalisation at US$120 billion if it retains a 2% market share.
If the Acala Network accrues about 5% of the total value of DOT’s US$120 billion market cap, the fully diluted valuation of the ACA token could have a US$6 price tag.
I believe that speculative buoyancy could lift the token price to about US$20 or even more. Let’s use the NEAR token as an example (with a similar fully diluted token number of 1,000,000,000). The NEAR token reached a peak of about US$20. Similarly, Uniswap’s UNI token reached a price of US$44 in the last cycle with a similar fully diluted token supply. Hence, speculative buoyancy could lead to an overvaluation of a token’s price. Perhaps the same could happen to $ACA.
Disclaimer: The information presented in this article is not financial advice. What you choose to do with the information is solely your responsibility. Cryptocurrencies are unregulated and highly volatile assets, and a greater-than 100% capital loss is possible.