Polkadot bets on the stablecoin pUSD — But can it escape the shadow of aUSD?

Polkadot (DOT) is preparing for the launch of a new stablecoin called pUSD, through RFC-155 proposal. The Polkadot community is viewing pUSD as a key solution to leverage DeFi potential, reduce dependence on USDT/USDC, and enhance the autonomy of the ecosystem.

However, some members of the community express concern that they may repeat past mistakes. pUSD is an over-collateralized stablecoin, fully backed by DOT, deployed on Asset Hub, and utilizing the Honzon protocol developed by Acala. Acala was previously the issuer of aUSD, a stablecoin project that faced serious failures.

Will pUSD be able to avoid the fate of aUSD?

The reuse of Honzon – the technology framework that Acala once relied on to issue aUSD – is raising many concerns. Previous incidents have eroded trust in the Acala team, with some even accusing them of "blaming a hack" without adequately compensating users.

A member of the community shared: "The launch of Acala stablecoin (aUSD) has been a complete disaster and has really made me lose faith in the team. I no longer see myself being able to support their project. What I hope for is a native, reliable, and effective solution. It's disappointing that in this talented Polkadot/Substrate space, no one has built anything better."

The approval rate for the proposal at the time of writing | Source: PolkadotEven supporters of Polkadot's stablecoin launch realize that Honzon and Acala are lessons that cannot be ignored. They suggest that the project should "proceed independently from the Acala team" and call for the Technical Council to be clearly responsible for governance.

Another member noted: "With these assurances, I will be ready to vote IN FAVOR. Without these assurances, the risk of repeating past mistakes is too great."

Too much risk

Putting aside concerns about Honzon and the Acala team, Polkadot's pUSD also faces skepticism from the community. One main reason is the structure that DOT can only be used as collateral.

Although the exact over-collateralization ratio is not yet clear, this could lead to a series of liquidations and create selling pressure on the tokens. Although the pUSD model is safer than Terra's UST because it is over-collateralized, relying solely on DOT as collateral has presented significant risks.

In the past, MakerDAO's DAI also started with collateral being ETH. However, currently, MakerDAO supports Multi-Collateral DAI (MCD), allowing users to collateralize DAI with ETH, WBTC, LINK, UNI, stETH, and even Real World Assets (RWAs) such as US Treasury Bonds.

A user on X commented: "Only backed by DOT, this could trigger liquidation chains and create additional selling pressure on the token. Remember the famous DAI depegging event in 2020, which forced MakerDAO to diversify its collateral assets."

In addition, another user on X pointed out that the Polkadot ecosystem already has more advanced solutions like HOLLAR. Runtime Hydration builds this stablecoin, optimized for appchains and positions it as superior to the old aUSD architecture. Therefore, many argue that instead of repeating a "conventional" EVM model, Polkadot should leverage its unique strengths, thereby creating a stable and secure solution worthy of the ecosystem's potential.

Conclusion

pUSD is certainly a strategic move by Polkadot to unlock the potential of DeFi. If pUSD proves to be safe and gains widespread acceptance within the ecosystem, it could bring significant benefits. However, the shadow of the failure of aUSD continues to raise doubts within the community.

To avoid repeating similar mistakes, Polkadot needs to make an effort to dispel existing concerns. The fact that the supply of DOT is capped at 2.1 billion, as reported by BeInCrypto, may help drive the development of the ecosystem.

Mr. Teacher