Understanding Pendulum: How the DeFi Protocol Bridges the Gap Between DeFi and Fiat Currency?
Due to the existence of Pendulum, TradFi's fiat services can be integrated with DeFi applications.Written by: Kadeem Clarke
Compiled by: Deep Tide TechFlow
The decentralized finance (DeFi) ecosystem has been expanding at an astonishing rate, showing no signs of slowing down. According to data from DeFiLama, the total value locked currently exceeds $48 billion, with innovative DeFi products emerging continuously, ranging from farms and liquidity pools to decentralized investment protocols, prediction markets, and crypto lending.
Major DeFi protocols have been thriving, with collateral yields reaching double digits. Over the past month, the DeFi ecosystem has added approximately $8.4 billion since the cycle low on January 1st.
What would it be like to enter the world of FiatFi (Fiat + DeFi) and use fiat currency in DeFi applications?
While many blockchains support FiatFi, some are better suited than others. Pendulum stands out as the ideal blockchain because it provides solutions for scaling on-chain fiat use cases and integrating fiat within the DeFi ecosystem.
Learn about Pendulum: How DeFi Protocols Bridge the Gap Between DeFi and Fiat?
Pendulum is a blockchain network that connects the DeFi world with traditional financial systems. It meets the growing demand for fiat in DeFi by providing trusted, compliant tokens pegged to major fiat currencies.
The Pendulum protocol was created by SatoshiPay, a fintech company with a long history in the blockchain space dating back to 2014.
Pendulum is expected to launch by the end of February 2023!
Built on Substrate
Parity Technologies created a blockchain framework known as Substrate. This framework is used to build Polkadot.
Substrate has many advantages, including native compatibility with the Polkadot chain, cross-language support, built-in upgrade coordination for forkless upgrades, determinism (for fast consensus), and a collection of pre-built but adaptable components (known as "Pallets").
Cross-Chain Bridge to Stellar
The cross-chain bridge from Pendulum Chain to the Stellar network is a crucial component.
The Stellar ecosystem is an excellent environment for integrating DeFi with the current financial system: there are currently over 15 different world currencies available as fiat tokens on Stellar, providing compatible deposit and withdrawal channels with traditional finance.
By connecting Stellar with DeFi through Pendulum, the fiat banking system can be linked with DeFi products and services.
Pendulum's Vision - The Fiat Internet for Everyone
Pendulum aims to create a blockchain with fiat-optimized smart contracts that will serve as the missing link between fiat and DeFi.
By developing on-chain utilities for many different fiat currencies and fintech services, an open and inclusive financial future can be established. dApps can fully integrate traditional financial services such as foreign exchange, trade finance, or savings accounts.
To ultimately open up DeFi use cases for a wide range of fiat currencies, Pendulum will play an important role as a component of Web3 infrastructure. The ultimate goal is to create an open financial future that transcends borders and promotes economic inclusion.
Pendulum aims to be a one-stop hub for the fiat internet. Innovations brought by Pendulum include:
Trust-minimized cross-chain bridges.
A network optimized for a basket of fiat-pegged stablecoins.
Next-generation smart contract technology.
An opt-in compliance layer with privacy features.
Seamless deposit and withdrawal standards for integration with local banking networks.
Learn about Pendulum: How DeFi Protocols Bridge the Gap Between DeFi and Fiat?
Features of Pendulum
Cross-Chain Bridge
Depending on the nature of the target network, connections across various ecosystems require multiple solutions: in some cases, cross-chain bridges specific to certain networks are needed. In other cases, direct integration into multi-chain bridges, or even the DotSama (Kusama and Polkadot ecosystem) through cross-chain messaging protocol relay chains.
Spacewalk will connect Pendulum and all Substrate-based networks with various fiat stablecoins on the Stellar blockchain.
The Spacewalk roadmap indicates that Pendulum will eventually link to other DeFi ecosystems, including Ethereum, Cosmos, and more.
Thus, fiat currencies and fintech services will gain as many Web3 blockchain opportunities as possible. Pendulum can utilize WASM technology and benefit from the high performance of WebAssembly smart contracts, thanks to Polkadot.
Use Cases and Opportunities
By combining the DeFi ecosystem with Stellar's extensive fiat token offerings, a wealth of opportunities is created for users of DeFi products, traditional fiat infrastructure, and users of Stellar, Ethereum, and Polkadot.
Connecting the Forex Market with DeFi
In 2023, the value of the global foreign exchange market is expected to reach $1,934,500,000, or $1.93 trillion. The average daily trading volume has increased by 14% over the past three years, rising from $6.6 trillion in 2019 to $7.5 trillion now.
Thanks to Stellar's more than 15 fiat tokens, local integration into established banking infrastructure, Pendulum's smart contract capabilities, and bridges with Ethereum and Polkadot, the DeFi ecosystem will gain significant forex liquidity.
Automated Market Makers (AMM)
The demand for scalable liquidity pools for fiat often coincides with the high demand for fiat-DeFi bridges.
With the implementation of AMM smart contracts on Pendulum, rapid and efficient exchanges of fiat tokens will benefit cross-border remittances like DTransfer from fast, transparent, and affordable currency exchange processes.
Fiat token holders can utilize their funds on Pendulum by contributing to lending pools or providing liquidity for AMMs.
Decentralized Forex - Amber AMM
Once DeFi can utilize local currencies such as euros, Mexican pesos, and Turkish lira, traditional finance can consider the benefits it can offer to global customers.
The launch of Pendulum's mainnet marks the exciting beginning of dApp development within the ecosystem. Projects, developers, and builders have already begun discussions with the Pendulum ecosystem funding program. The Amplitude Grants Program is similar. Amber AMM will be one of the first dApps to operate on Pendulum. PMM (Proactive Market Maker) may be a more suitable term to describe Amber.
Learn about Pendulum: How DeFi Protocols Bridge the Gap Between DeFi and Fiat?
Barriers to On-Chain Forex
Although on-chain forex is a perfect and direct use case for DeFi, it has yet to play any meaningful role in cryptocurrency.
There are several reasons for this, including:
Friction in deposits and withdrawals.
Legal and compliance issues.
Limited supply of stable tokens.
High costs of forex trading through AMMs.
The cryptocurrency industry is working closely with regulators to address compliance, stable tokens, and deposit and withdrawal issues. For example, Pendulum is developing a fiat-optimized blockchain to tackle all three issues. However, technological innovation is needed to address the high cost of forex trading on AMMs.
The transaction costs of off-chain forex trading are very low, with transaction costs for popular currency pairs like the dollar and euro typically lower than those for less common currency pairs like the dollar and Brazilian real.
Solutions
Amber is a brand new, efficient PMM (Proactive Market Maker) designed to approve forex liquidity on DeFi. Amber's architecture provides low-risk unilateral liquidity while also offering automated market making.
With swap liquidity, Amber aims to reduce the cost of a $100,000 trade to between 0.05% and 0.10%. Due to its ability to operate with significantly lower slippage and fees than other AMM designs, Amber can tap into new sources of liquidity (such as the forex market).
Tokenomics of Pendulum (PEN)
Pendulum's native token will be PEN. The utilities of PEN include governance, collateral, and serving as the gas token for transactions on Pendulum.
Overview of Economics
Name: PEN
Relay Chain: Polkadot
Supply Structure: Inflationary
Total Supply: 200,000,000
Initial Circulation: 15,200,000
Genesis Supply: 160,000,000
The distribution maintains a balance between Pendulum's early supporters and the community, with an average ratio of 50/50.
Community Distribution
Staking rewards for directly staking PEN (28%) and staking rewards for Staking Spacewalk Bridge (12%) are included in the community allocation.
Learn about Pendulum: How DeFi Protocols Bridge the Gap Between DeFi and Fiat?
Uses of PEN
Gas
Just as DOT powers Polkadot and ETH powers Ethereum, the PEN token will power network transactions. When using the protocol, there will be transaction fees that must be paid in PEN. The sustainable business model of the blockchain is defined by the transaction fees that enter the treasury.
Staking
Holders will have the opportunity to stake PEN. To earn rewards, token holders can delegate their tokens to collectors. Staking to secure the network will encourage external collectors to operate high-performance nodes, which will contribute to decentralized infrastructure.
Governance
To guide the project's direction, the PEN community can participate in on-chain governance. Holders can influence the network's development by proposing governance votes and voting.
On-chain governance will use a secondary voting mechanism to ensure that relatively small holders have more voting power and to prevent a single holder from voting multiple times on a single proposal.
Team
The long-term success of a project ultimately depends on the caliber of its team.
SatoshiPay CEO Alex Wilke has 6 years of experience with SatoshiPay and 18 years of operational experience.
CSO Dr. Aaron Linder leads the project's vision.
CTO Dr. Torsten Stüber, a PhD in computer science, is responsible for overseeing the technical team.
Founder and Chairman Meinhard Benn has been a blockchain programmer since 2011, guiding the project with his high level of oversight.
Another early cryptocurrency adopter, current Chairman of CoinShares Daniel Masters, is a board member of SatoshiPay.
CMO Daniel Kisluk, former VP of Marketing at BeInCrypto, leads the blockchain positioning that connects DeFi and TradFi ecosystems.
And they already have strong partnerships:
Learn about Pendulum: How DeFi Protocols Bridge the Gap Between DeFi and Fiat?
Roadmap
Learn about Pendulum: How DeFi Protocols Bridge the Gap Between DeFi and Fiat?
Pendulum's 2023 roadmap will bring many advancements.
The launch of Pendulum on the Polkadot ecosystem in February 2023 is the next anticipated event for Pendulum.
This release will include a token generation event. Once launched on the Polkadot network, Pendulum will introduce several innovative solutions, including trust-minimized cross-chain bridges (Spacewalk), support for more types of fiat-pegged stablecoins, cutting-edge smart contracts, native-level compliance and privacy layers, and integration with local banking channels for fiat deposits and withdrawals.
The launch of Spacewalk is another exciting advancement on Pendulum's roadmap following the Amber launch.
Conclusion
With the existence of Pendulum, TradFi's fiat services can be integrated with DeFi applications.
The protocol has undoubtedly been growing, progressing, and innovating within the Polkadot and DeFi ecosystems.
Vision: An internet of fiat for everyone. According to the roadmap, Pendulum brings many developments and solutions this year, so we should keep a close eye on them.
