I’ve been researching the Polkadot ecosystem recently and found the aUSD project launched by Acala quite interesting. To be honest, my previous understanding of stablecoins was limited to fiat-backed tokens like USDT and USDC. Only after getting into aUSD did I realize the value of decentralized stablecoins.

Simply put, aUSD is the first truly usable decentralized over-collateralized stablecoin on the Polkadot network. Unlike USDT, which requires trust in a bank account, the entire operating logic of aUSD is implemented on-chain—managing collateral and debt positions through smart contracts. This mechanism is actually inspired by MakerDAO’s DAI on Ethereum, but optimized for Polkadot’s cross-chain capabilities.

I think aUSD’s core advantages can be summarized in three points. First, it has strong cross-chain compatibility. Because Polkadot itself has cross-chain technology, aUSD can circulate seamlessly across various parachains, and can even be used on external blockchains through bridging. Second, it supports multiple types of collateral. Not only DOT—cross-chain assets such as renBTC can also be used as collateral to borrow aUSD, greatly improving the system’s flexibility. Third, risk control is very finely designed, with multiple layers of protection such as the minimum collateral ratio, liquidation ratios, and stability fee rates.

The process of generating aUSD is also not complicated. Users deposit approved assets (such as DOT) into a debt position, the system automatically locks them based on the asset value, and then you can borrow the corresponding value of aUSD. The entire process is handled automatically via CDP (Collateralized Debt Positions). The stability fee is the borrowing interest, and this fee is also an important way to regulate the supply and demand of aUSD.

Why use aUSD? I think there are several scenarios. If you’re bullish on an asset (such as DOT) but need liquidity, rather than selling it, you can collateralize it and borrow aUSD. This lets you keep the upside potential of the asset while also getting liquid capital. In addition, as a low-volatility payment tool, aUSD is especially useful for DeFi trading pairs, liquidity mining, and similar scenarios. And within Polkadot’s cross-chain ecosystem, aUSD can be used across different parachains—something that was unimaginable before.

As for the stability mechanism, Acala has designed it quite comprehensively. First, it controls supply and demand by adjusting the stability fee rate: the higher the borrowing interest rate, the fewer people will borrow, and vice versa. Second, the liquidation mechanism has also been optimized, learning lessons from the Black Swan events in 312 and 519. Acala has reserved 20% of block space within the Substrate framework for operational transactions to ensure that critical system transactions such as liquidations will not be delayed due to network congestion. During liquidation, there are three layers of protection: first, small positions are liquidated directly via the DEX; for large positions, they can be split or handled through auctions; and finally, surplus assets from the Treasury and ACA auctions serve as a backstop.

In the end, aUSD represents a new direction. At a time when stablecoins backed by fiat currencies like USDT are gradually monopolizing the market, we truly need safer and more decentralized options. aUSD is not only Polkadot’s foundational infrastructure, but also a real-world implementation of decentralized finance ideals. For those holding DOT or other assets in the Polkadot ecosystem, aUSD provides a new liquidity solution. Recently, I’ve also been following the aUSD market on Gate.io, and it feels like this direction is worth tracking long term.