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    Acala and VCs pledge $250 million to Polkadot DeFi Investments

    Some of crypto’s leading venture firms are teaming up to fuel decentralized finance (DeFi) on the Polkadot blockchain network.

    Acala (ACA), a DeFi-focused network built on Polkadot, announced Wednesday it is launching a $250 million “aUSD Ecosystem Fund” to support startups in Polkadot’s budding DeFi ecosystem. Acala says the funding will be granted out specifically to teams building use cases for the Acala dollar (aUSD) – a crypto-backed stablecoin that aims to become the backbone of DeFi on Polkadot and Kusama.

    Over 30 venture firms are invested in the fund, including Hypersphere, Pantera and Jump Crypto. CoinDesk’s owner, Digital Currency Group, is also involved.

    Dan Reecer, Acala’s chief growth officer, described the initiative to CoinDesk as a “group effort” among teams who want to grow Polkadot as a whole.

    In addition to working with venture firms, Acala has enlisted nine of the network’s largest parachains as partners in the aUSD initiative.

    “It’s a way for us to all come together around this common goal of aUSD and helping to establish this kind of foundational liquidity – this foundational kind of tool – enabling the Polkadot economy to begin to grow,” Reecer said.

    Polkadot and stablecoins

    Polkadot has spent the past several years building out infrastructure for a multi-chain crypto ecosystem, whereby different blockchains co-exist with one another to service different use-cases.

    The Polkadot network – a so-called layer 0 blockchain – provides a foundation upon which layer 1 “parachains” like Acala can securely interoperate. Polkadot’s hub-and-spoke model aims to provide a safer alternative to the problem-prone cross-chain “bridges,” that are currently used to send and receive information between wholly independent blockchains.

    Acala, which markets itself as “The DeFi Hub of Polkadot,” was the first parachain to go live on the network. Back in February, Acala launched aUSD to serve as the default stablecoin on Polkadot and its canary network, Kusama.

    Stablecoins like USDC, DAI and aUSD are tokens that employ mechanisms to keep them “pegged” to the price of some other stable asset (like the U.S. dollar).

    The advent of tokens with steady prices is what has enabled DeFi protocols on other blockchains, like Ethereum, to flourish. Activities like lending and borrowing, for instance, become far easier to execute on a blockchain when users can provide less volatile assets – e.g., stablecoins – as collateral.

    aUSD takes after other “crypto-backed” stablecoins like DAI by relying on over-collateralization to maintain its peg. aUSD is issued out to users in the form of an overcollateralized loan, and the amount of collateral required is automatically regulated to keep aUSD trading around $1. aUSD currently accepts collateral in the form of DOT, the native token of Polkadot, Acala’s ACA token and LDOT, a variant of DOT used for liquid staking on Acala.

    Today, aUSD has a circulation of $7 million with $72 million in backing, according to Acala’s official dashboards.

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