Developers Will Wake Up to the Fact That There's a Toolkit to Build Full-Fledged Customized Chains: Acala's Bette Chen
Bette Chen and Ruitao Su are building Polkadot's financial shard.
Hello Defiers! In this week’s interview I speak with Bette Chen and Ruitao Su, who are building DeFi on Polkadot. While most of DeFi is being built on Etheruem, here is the team creating an entire new financial infrastructure on the decentralized network built by the Web3 Foundations and Parity Technologies —which was founded by Ethereum co-founder Gavin Wood. Their project called Acala, has been mostly known for its stablecoin, but they’re also building staking derivatives —a token that’s a derivative of staked DOT tokens and can be used in DeFi— and a DEX. Each one of these pieces is a huge undertaking on their own, but this ambitious team is making all of them at the same time.
They want to become the go-to financial shard on Polkadot. The goal is for any financial activity that comes to the new network will land on Acala first. Much of their concept is inspired by MakerDAO, though they do aim to improve on it with different liquidation and oracle solutions. They talk about why they decided to build on Polkadot, and not on Ethereum, and walk us through the basics of this new network and its test chain, Kusama. They end with their big vision for the future, where autonomous sovereign digital nations will transact with each through AI, with a decentralized network of inter-operable blockchains as the base layer.
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Camila Russo: Here we are with Bette Chen and Ruitao Su. They're the cofounders of Acala, an exciting new stablecoin platform that's being built on Polkadot. On the Defiant podcast, I generally focus on DeFi projects being built on Ethereum because that's kind of where most of the activity is happening. So, I'm really excited to hear about a project that's being built outside of Ethereum and how they're tackling things. But before we get to that, I'd love to hear about Bette and Ruitao’s backgrounds and how they got started working together and interested in crypto. Bette, do you want to start?
Bette Chen: Yeah, sure. Thank you very much, first of all, Camila, for having us on the show. And also, congratulations on your new book as it’s out, “The Infinite Machine”. I recommend it to anyone who's interested as it’s awesome and inspirational.
CR: Thanks so much!
Down The Rabbit Hole
BC: So, a bit of myself. I'm an engineer by trade. But halfway through my career, I've gone into a bit of the dark side to do product management. And then I think the first time I've come across Bitcoin is way back when quite early, about 2015 or 16. But I think I'm a bit like many others that I just missed idea the first time around because it comes from a source that I didn't think I trusted 100%.
We were building like real-life technology. Two years ago, we started using Polkadot’s Substrate technology to build our own blockchain framework. And that's sort of how the whole story unfolds.
CR: Ruitao, interested to hear about your background?
Ruitao Sui: Yeah, thank you for having us, Camila. So, my name is Ruitao Su, I'm one of the cofounders of Acala network. I've been in the blockchain industry for four-plus, five years. Actually, I first heard about Bitcoin way before that, again, maybe have similar experience like Bette. So, at some stage I was looking at Reddit, I was looking at the Bitcoin whitepaper. At that point, I understand that it’s something like a decentralized sort of currency. I understand the concept. But at that point, it's just very hard for me, I was still young at this stage. Just still very hard for me to understand how this coin could have value accrued.
So, I was thinking that I should actually mine it at some stage. But actually, I end up thinking it's too complicated, too much, so I just leave it for a while. Until maybe like four or five years ago, I join another venture in the blockchain industry and that's where I turned full time on blockchain. Although, Acala network, we’ve been quietly building the Acala network in the past nine-plus months. I think we accomplished a lot.
I've pretty much been an entrepreneur for my whole life. I'm very into cutting edge technology, into new stuff that otherwise wouldn't be possible without technology. And decentralization, the ability of owning your own assets on a blockchain is something that I truly believe. So, that's why we are where we are. By the way, we all live in New Zealand. We are fortunate enough to be able to meet the right set of people, I try to work on something cool. So that's pretty much my background.
“…the ability of owning your own assets on blockchain is something that I truly believe. That's why we are where we are.”
Image: Bette Chen, Ruitao Su, Camila Russo. Video shortly available on The Defiant’s new YouTube channel.
CR: I'd love to hear how you came up with the idea of Acala. I mean, what drove the project in the very early days?
The Early Realization
RS: We went through the ICO hype in 2017, we saw a lot of speculation at that stage. But deep down, we were asking like hey, we do believe that blockchain is going to be useful, it's probably going to apply to a lot of real-life application at some stage. But we were looking at where is the next breakthrough, where is the next sector that blockchain can really have some sort of impact in short term, rather than us speculating on maybe things that will be available in 5-10 years later?
We thought, “hey, finance is probably the first sector, that is going to have some sort of breakthrough on blockchain”. We can see it. We can use it. We can see the user benefit from using finance on blockchain. And I was previously in the finance sector as well, so I understand a little bit of that.
We were saying, if we want to start a new venture, we want to put something on top of blockchain, it's actually way before when DeFi was in a super hype status. We were thinking that if you want to build something and if you want to build something cool, then it’s going to be finance related. And I'm fortunate enough to connect into finance, have some sort of advisory from some of the finance experts. We look at where this sort of stuff is available and can be applied on the blockchain. We look at all the existing solutions out there and we will also look for a new type of layer one and this is how we explore the possibility of Ethereum, Cosmos and Polkadot and ultimately we choose to build it on top of Polkadot.
CR: Why did you choose to build it on top of Polkadot?
Building on Polkadot
RS: I will chip in some of my ideas and Bette will chip in some of hers. So, I think we are not single-chain maximalists. We believe that in the future, there will be many connecting blockchains. Ethereum, it's great. It took us here, it let us see what is possible. They already have a super mature ecosystem running on top of it. And we have a look at Cosmos, it's very similar to Polkadot as well. And then we looked at Polkadot.
“… we are not single-chain maximalists. We believe that in the future, there will be many connecting blockchains.”
I think the difference between Cosmos and Polkadot is that on Polkadot, because we are building something that requires very high security, for example, we're building something like a stablecoin, you require a very secure network. On Polkadot, you're able to tap into the shared security model. And that's pretty much one of the reasons that we think Polkadot is more viable for our project.
For some projects, it might be more viable to do it on Cosmos, for some projects, it might be more viable to do it on Ethereum. It's just like our unique characteristics of the project, we think that Polkadot is the best fit. It gives us the ability to have a customized chain without sacrificing any sort of security. We don't actually have to go shopping for a lot of validators in a token to push up the security. I think that's one thing that we think it’s like Polkadot is more viable for us to took off.
CR: Bette, what do you think?
BC: Yeah, I think, specifically for Acala, we are building a finance infrastructure. So, we are the finance shard in Polkadot. If you think about anything that will come into Polkadot, in terms of financial activities, probably the platform you should land on first will be Acala. And then of course, having a finance infrastructure, the first few couple of things you will think of or start to build or provide to other people as one, is stablecoin.
And that's why, for the last few months, we were mostly known as just a stablecoin project, because the team was actually mostly engineers. We actually built a concrete product before we actually go out and tell people what the next step is actually, it is a shard, it is a blockchain on its own and it provides to financial infrastructure. And that said, we are able to build a stablecoin as well as a staking a derivative on a proof-of-stake network for DeFi to actually start to be popular and a lot more innovative.
Having that context, so Acala is the finance infrastructure, then Polkadot is actually the infrastructure for infrastructure. So, I think it doesn't do justice to say Polkadot is Layer 1. I were to say Polkadot is the Layer 0, because each individual chain like ourselves, like each individual shard or what they call Parachain is the Layer 1 because we are a full-fledged blockchain that, you can actually build a chain logic, you can have your own governance and then you have your own domain specific optimization that you do.
For us, it's finance. We have a stablecoin, we have Dex and we have staking derivative, and then we start also having other teams come and build other stuff like bridges and applications. So, you can see a finance vertical stack happening on top of Polkadot and we actually foresee there will be many of these verticals that happen in the next few months, for example, like gaming; for example, maybe also social networking verticals that will happen on Polkadot.
Polkadot is more like in the universe that it provides all the roads that communicate, connects all the little islands and it also provides the overall national security that governs the whole universe. And then our little islands will actually be in that universe and provide a service that we are very good, very specialized in. That's sort of like how I see it.
“Polkadot is more like in the universe that it provides all the roads that communicate, like connects all the little islands and it also provides the overall national security that governs the whole universe.”
All of those things said, they're not just on paper. For Polkadot, they've got two networks, Kusama and Polkadot, is already running, so the governance and upgrade and all of that is actually implemented. It's pretty cool what they've been able to do.
As I mentioned, we've known the technology since about two years ago. That was the time that Polkadot hasn't come out, they only have the underlying technology blockchain framework called Substrate. This is a toolkit that you can take and you can start your own blockchain in 10 minutes. Even like myself, I'm not, in developing every day, I can still do that in 10 minutes.
And then to customize a blockchain for your special purpose like finance, it takes three to six months. Rather than three years later you still haven't gone live. That is the difference. It’s only now that people are starting to realize. And then, as soon as more developers wake up to the fact that now you've got a full-fledged toolkit for you to build, then innovation will come very quickly. Because even in Polkadot right now, there are 100 teams already building those verticals and you will see the innovation come out.
“As soon as more developers wake up to the fact that now you've got a full-fledged toolkit for you to build, then innovation will come very quickly.
Another cool thing is what Ruitao was pointing out and people didn't realize, to start a chain, is quite a lot work. So not only the engineering effort I mentioned, now you have a toolkit that you can do it very quickly and very professionally.
Another thing is finance, economics. Because to secure your chain, you need tremendous effort to bootstrap. Bitcoin and Ethereum have done a great job. It’s unprecedented, right? And then I hardly see any other chain followed that can actually get to the same level. It’s because it's hard, the economics is hard. Polkadot is able to help all the chains like ourselves to bootstrap, because it already provides over a billion-dollar valuation market cap and that is the security level that Polkadot is able to provide to the teams. And then we're able to tap into that on day one, rather than actually individually we grab the capital and then build our own security. I think that actually just dilutes the effort. I think those are quite key things especially for early startups to realize, this is a place that you can build and actually, go to market quite easily.
CR: To summarize why Polkadot was so interesting to you. One, you're able to bootstrap security from a bigger, Layer 0 with Polkadot. Two, you're able to really customize your own blockchain using the Substrate framework, which makes development really easy. And you're able to create your own financial shard over which different financial applications can be built beyond the initial stablecoin application which you're building now.
BC: That’s very much to the point.
Double Network Project
CR: Before touching on these points, I want to understand where in the process you're at right now. Because you mentioned the Kusama network which has been the Polkadot test network so far and have you been actually building on Kusama and testing Acala there and then is the plan to shift that to the live Polkadot chain?
BC: People say Kusama is the test net. It doesn't quite justify the role for Kusama. I think, it's a network already has like $19 million value. And the intention for that is the Polkadot mainnet will put a fraction of its value onto the Kusama network so that the network itself can actually test in real life with real incentives for its governance and also for other applications on top of it as well. Kusama is a real mainnet, it just has lesser value than Polkadot mainnet. And also, like another aspect to that is some of the applications or some of the chains may not eventually land on Polkadot, they might just live on Kusama forever. So that's their universe.
CR: Oh, got it. But your goal is to live on Polkadot, or on both?
BC: We’ll be on both. Acala, we are the financial infrastructure. It doesn't matter if you are a slightly lower value universe or very high-security network, we will need to be there to provide the financial services. But also it's quite critical for Acala network to actually test in the same sense as Polkadot testing on Kusama that we can test with real incentive with slightly less cost. We'll be connecting to Kusama and launch on Kusama first with real stablecoin backed by Kusama token, KSM. And we will also be providing staking service for Kusama as well using our staking derivatives. And so, the same sort of functionality, but then once they’re stable, it will be launched on Polkadot shortly after that. So, we’ll be two network project.
RS: There's some background information I would like to add here regarding Kusama and Polkadot. I think the key thing to know is actually Kusama and Polkadot is almost identical in terms of the code basis, the structure. The only difference between Kusama and Polkadot is that Kusama has lesser value and it has faster governance turn around. So that's why it's called Canary network and that's why it's a value staging test net. It's one of a new concept as well.
Think about that you have a test that has no value and then you want to progress towards and test net with value with same incentive and you’re less risky and then a faster turnaround environment and that's Kusama. And then at some point, you need to deploy on the Polkadot mainnet, which is bank rate security and the actual mainnet. And by having two networks running side by side, we have a valid staging environment for our network as well.
If we're going to roll out some policy changes regarding the financial parameters, which might be risky, we can test that on Kusama, see how the market reacts, see how the trader reacts and give us more confidence in growing out that in once Acala grows to a very high-value shard in Polkadot. They give us some sort of confidence that we can actually test that before we go out to the main real stuff.
BC: And both ecosystems are very vibrant. There's a Kusama hackathon going on right now as we speak. It goes for six weeks. I think there's already how many people like 350 or plus already building in it.
CR: Very cool. I'd like to get more into the inner workings of Acala. I guess, first, can you explain where the name comes from?
The Immovable God
RS: I will just roughly say where the name comes from and Bette has much a better idea of explaining why there’s different networks callled different things. Acala is one of the deities in the Japanese culture, it is being considered as the immovable God and that's where we would like our stablecoin price to be, like PAX US dollar immovable, very stable. And I mean, there's actually a whole background story regarding that we name our network with a different shard of direction from that deity. Bette can look in with like, information regarding like, why we name the network that way.
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“We are also working with, this hasn't been announced, can we actually say this? We are actually working with REN Project, so they are bringing REN BTC onto Acala network.”
Black Thursday Lessons
“We look at that and see, how can we actually do better? How can we protect our users, just in case Black Thursday happens again? And I'm sure it will happen (…) we're able to have a more efficient liquidation process. So, we have a decentralized exchange that will be used as liquidity in the liquidation event.”
“But actually, fundamentally, what we are trying to develop is infrastructure that allows continuous evolution and improvement. I think that is the sort of the core of this whole industry. It's going to change all the time. There's no way that you deploy one contract and it's going to live there for 1,000 years.”
“… it's critical for us to provide some sort of facility to allow liquidity to come out of this native token without compromising security. So, that's the whole premise.”
“Our ultimate goal is to make sure this is truly decentralized. And by definition of truly decentralized is even if at the company or even as a team member, the founding team members stop working, or leaving or for some reason, stop intervening the project, this project can still survive can still mature and grow on its own.”
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About the founder: I’m Camila Russo, a financial journalist writing a book on Ethereum with Harper Collins. (Pre-order The Infinite Machine here). I was previously at Bloomberg News in New York, Madrid and Buenos Aires covering markets. I’ve extensively covered crypto and finance, and now I’m diving into DeFi, the intersection of the two.