Acala and Chainlink Collaborate to Power DeFi on Polkadot
Acala, the decentralized stablecoin and staking liquidity platform, and Chainlink, the market-leading decentralized oracle service, are collaborating to provide robust and reliable price feeds to DeFi applications on any blockchain connected to Polkadot.
Data validity within a blockchain, such as sending a token from one account to another, is enforced by a blockchain’s consensus mechanism. However, external (aka ‘real-life’ or ‘off-chain’) data needs to be transmitted onto a blockchain via a trusted mechanism. Reliably ensuring the delivery and validity of this external data so it can be trusted within on-chain applications is the challenge of oracles.
For example, Acala’s stablecoin protocol needs the real-time price of collateralized assets, e.g. DOT, BTC, and ETH. These prices are used to determine whether an Acala dollar (aUSD) loan has enough collateral to satisfy the network’s collateralization ratio requirements; if not then it will trigger liquidation. Since price discovery happens across many different centralized and decentralized exchanges, oracles are needed to aggregate these off-chain prices and deliver it on-chain to Acala.
Acala’s Oracle Design
Reliable, cost-effective, and efficient oracles are critical to the stability and security of the Acala Network. Acala has designed its oracle infrastructure to meet these demands through the implementation of the following features:
- Multiple Providers: The oracle module accepts data feeds from multiple nodes and data providers, and the aggregator combines the data to a single price.
- Quality of Service: Oracle operations are classified as high-priority transactions with a favorable fee schedule and DDoS attack protection, e.g. allow 1 call per block from each authorized provider to reduce delay, ensure reliability, and maintain cost-efficiency.
- Progressive Decentralization: Initially, oracle providers will be authorized and whitelisted to maximize security and predictability, while gradually shifting to be more permissionless and trustless over time.
The challenge of providing reliable and accurate oracles, even those for stablecoins, cannot be solved by Acala alone. Thus the Acala team is constantly looking for the best oracle solutions.
Chainlink is currently the de-facto standard as a go-to oracle service provider for many other leading blockchains and DeFi Dapps. The successful Chainlink integration with a Substrate-based blockchain is a significant milestone, as it opens a path for chains like the Acala Network to integrate with Chainlink.
Chainlink is the only decentralized oracle network currently providing pricing data to numerous live applications. It’s Price Reference Contracts cover nearly 30 DeFi trading pairs (BTC/USD, GPB/USD, XAU/USD, etc), which are collectively responsible for nearly $200M in USD value. While other oracles are sourcing market prices from a few exchange APIs or free APIs/trial plans, Chainlink nodes source from premium APIs, specifically high-quality data aggregators such as BraveNewCoin, which provides market data to Bloomberg terminals.
Chainlink also uses security reviewed and Sybil resistant node operators in its decentralized oracle networks, mostly run by leading blockchain DevOps and security teams. Their node operator pool will serve as a great foundation for selecting Acala’s whitelisted nodes, as many of them plan to support Polkadot. Each Price Reference Contracts has between 7–21 nodes and at least 7 different data sources, which collectively secure a single price feed.
“We are excited to work with Chainlink, the most advanced and proven oracle solution across the blockchain landscape. The collaboration with Chainlink will help us further enhance the security and integrity of Acala’s stablecoin protocol via its secure oracle mechanism, high-quality data, and provably reliable node operators.” — Ruitao Su, Co-Founder of Acala.
Exploring Integration with Chainlink
The Acala Network features two protocols, a decentralized cross-chain stablecoin protocol, and a tokenized staking liquidity protocol. Combined, they will serve as building blocks of Polkadot’s DeFi ecosystem.
With the ability to use assets from multiple blockchains, e.g., BTC, ETH, and DOT, as collateral, the stable Acala Dollar (aUSD) can achieve a high supply ceiling, while enabling borderless and low-cost value transfers across all connected blockchains. Meanwhile, its trustless staking liquidity protocol allows staked assets (e.g., DOTs) to be used as collateral, receiving fungible & liquid derivative assets (L-DOTs) in return. Thus, users can continue to stake their DOT and earn staking rewards without sacrificing the security of the Polkadot network, while also receiving L-DOT to trade and use within other DeFi services, such as collateral for aUSD.
On Ethereum, applications can request price feeds via Chainlink’s Oracle Contract, which triggers Chainlink’s off-chain decentralized oracle network to process and return requested data. On Polkadot, due to its heterogeneous sharding mechanism and Substrate’s flexible and composable blockchain framework, there are several integration pathways that Acala can explore to best leverage Chainlink’s technology stack:
- Chainlink as a parachain: Chainlink’s oracle network can be implemented as a Substrate-based blockchain connected to the Polkadot network. The oracle chain can become a preferred oracle provider to the Acala Network, and provide data feeds using Polkadot’s Cross-chain Message Passing (XCMP) scheme.
- Chainlink as runtime modules: Acala can implement Chainlink’s modules directly on the Acala Network, either to use Chainlink’s existing service as a preferred oracle provider and/or to use its oracle framework to build customized oracle networks to extend and strengthen Acala’s oracle infrastructure.
The two teams are working on a proof-of-concept to explore these possibilities. Acala will launch its canary network, Karura, as a parachain on Kusama before Acala’s mainnet launch on Polkadot. Acala anticipates continuous improvement and evolution of oracle mechanism design and governance.
Acala is a first-of-its-kind decentralized finance consortium with a vision to create cross-chain open finance infrastructure for the Polkadot ecosystem. The Acala Network is a dual-protocol network: a decentralized cross-chain capable multi-collateralized stablecoin protocol, Honzon, and a trustless tokenized staking liquidity protocol, Homa. Acala aims to bring stability and liquidity to the crypto world and beyond.
Acala’s codebase, stablecoin functionalities, decentralized exchange, on-chain governance, the proof-of-liveness environment can be experienced today on Mandala Network, Acala’s test network where developers and users can test drive and experiment with new features.
If you’re a developer and want to connect your smart contract to existing data and infrastructure outside the underlying blockchain, reach out to us here! We can help you quickly and securely launch your data-enabled application or Chainlink Price Reference Data Contract on mainnet today. You can also visit the developer documentation or join the technical discussion on Discord. Learn more by visiting the Chainlink website or follow us on Twitter or Reddit.
Chainlink is a decentralized oracle network that enables smart contracts to securely access off-chain data feeds, web APIs, and traditional bank payments. It is well known for providing highly secure and reliable oracles to large enterprises (Google, Oracle, and SWIFT) and leading smart contract development teams such as Polkadot/Substrate, Synthetix, Loopring, Aave, OpenLaw, Conflux, and many
Note: chainlinkecosystem.com does not claim any ownership of this content, all credit to Acala, view official announcement.