LCDOT Adds Functionality to Locked Crowdloan DOT Tokens by Unlocking Full Liquidity To Leverage DeFi Use Cases.
TLDR:
- LCDOT is a token provided to Acala Crowdloan participants for their staked DOT tokens on a 1:1 basis.
- Users can fully utilize and leverage their DOT tokens utility, thanks to LCDOT, avoiding the common restrictions prevalent in locked tokens over the staking period.
- Without LCDOT, users cannot claim their staked DOT.
- Users can utilize LCDOT benefits through trading, providing liquidity, and using LCDOT as collateral to mint aUSD.
- Liquidity mining for LCDOT is live and several rewards pools are available.
To better understand the dynamics of LCDOT and its importance to the Acala ecosystem, a greater knowledge of Polkadot Crowdloans is necessary.
In preparation for the parachain slot auctions, parachain teams receive DOT contributions in a crowdloan — a model which invites supporters to strengthen each team’s bid to launch on Polkadot’s multi-chain network. By directly contributing to a crowdloan, not only can a participant support a parachain’s path to launch, but they can also qualify for various rewards offered by each team’s crowdloan event. However, supporters must also agree to a two-year lock on their DOT assets, as any contributed DOT is locked in a contract on Polkadot’s Relay Chain and never touched by the parachain teams.
LCDOT plays a crucial role in Acala’s ecosystem of expanded liquidity. Through a multi-faceted approach, Acala institutes normalized freedom for DeFi activities and enables crowdloan participants to enjoy the full benefits of their DOT tokens while providing support to Acala.
What is LCDOT?
After contributing to the Acala Crowdloan, participants received a derivative token, LCDOT, which represents their Crowdloan contribution. The number of LCDOT received was equivalent to 1:1 to their DOT contributed. LCDOT is akin to a receipt from Acala acknowledging user contribution to the crowdloan, but with the usual liquidity as would apply to their locked crowdloan DOT tokens. Upon completion of the parachain lease (two years), LCDOT enables users to claim their locked DOT after the Crowdloan lock-up period.
Bette Chan, Acala Co-Founder, explains what is LCDOT in the video below:
But what is the Acala Crowdloan? And why is it so important?
Acala Crowdloan Played a Key Role in our Parachain Success
Blockchain platforms had a common trilemma involving speed, security, and decentralization. The Polkadot network provided a solution to scalability — without compromising network safety and the ethos of blockchain — by introducing parachains.
The Polkadot Relay Chain ensures speed, security, and decentralization for connected parachains while each slot enables interoperable cross-chain functionality for projects with a successful lease.
With a robust platform, flexibility, and Substrate modular attributes, Polkadot was the perfect foundation to match Acala’s ambitious goals. Successful parachain slot winners are granted a 96-week lease; however, bidding projects must deposit a minimum of DOT tokens to win parachain access. This required interested projects to stake DOT, an efficient method to filter out ill-prepared, fraudulent, or non-committed blockchain networks.
LCDOT Use Cases and Benefits
LCDOT is a prime example of facilitating users’ additional DeFi activities. By creating extra dimensions for locked DOT tokens, LCDOT provides added functionality for assets that would’ve been underutilized during the lock-up period. But how does LCDOT influence token utilization? Users can engage in the following use cases with their LCDOT tokens:
Trading LCDOT
LCDOT/DOT and additional LCDOT swap pairs will be available for users who want to swap their LCDOT for tokens on the Acala Swap. Despite being derivative tokens, LCDOT still holds the value according to market determinants.
Liquidity Mining Incentive Program
Users can provide LCDOT liquidity in pools supporting LCDOT trading pairs to earn trading fees and additional rewards. For example, for the LCDOT/DOT reward pool, LCDOT holders can provide their LCDOT to earn liquidity mining incentives.
Collateral to Mint aUSD
aUSD is Acala’s collateralized stablecoin and aims to be the de facto Polkadot stablecoin. Users can collateralize their LCDOT tokens to mint aUSD. After receiving aUSD, users can provide liquidity to aUSD trading pairs to earn from trading fees or use the aUSD to purchase other tokens.
Acala Crowdloan participants were rewarded LCDOT on a 1:1 basis following the parachain auction conclusion. However, given the two year lead time before redemption, LCDOT is trading below 1 DOT (currently ~1.3 LCDOT:DOT). But when we reach the redemption period, 1 LCDOT will be redeemable for exactly 1 DOT.
LCDOT Enables Otherwise Locked Utility
LCDOT allows users to utilize their token’s locked liquidity fully and presents an option for traders to grow their portfolios via cheaper DOT tokens.
For example, an LCDOT holder may want to liquidate their LCDOT, thus creating a selling opportunity. Conversely, a trader, who doesn’t mind the lock-up period, may want to obtain DOT at a discounted price, thus creating a buying opportunity. During an active market, traders will find reasons to trade.
For a guide on adding LCDOT liquidity to Acala Swap, visit:
https://guide.acalaapps.wiki/acala-swap/lp-guide
Acala’s Liquidity Mining Program: 1 Million ACA in Rewards
As a celebration of Acala’s economy initiation, the Acala Foundation is allocating 1 million ACA tokens to the Acala Kickoff Rewards Program. The incentive program will run for six months from its launch on February 10, 2022. Liquidity providers will have the chance to earn ACA rewards for introductory reward pools such as LCDOT/DOT, LCDOT/aUSD, and ACA/aUSD.
To learn more about the Liquidity Mining Program and how you can become involved, please read this article.
About Acala
Acala is an Ethereum-compatible smart contract platform optimized for DeFi and scaling DApps to Polkadot. The blockchain has built-in DeFi protocols for application developers to leverage, including a decentralized stablecoin (Acala Dollar — aUSD), a trustless staking derivative (liquid DOT — LDOT), and a decentralized exchange.
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Discover Three Use Cases for Liquid Crowdloan DOT (LCDOT) was originally published in Acala on Medium, where people are continuing the conversation by highlighting and responding to this story.
