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Upcoming decentralized finance protocol Pendulum is the latest project on Polkadot to secure a parachain slot, and it’s doing it in a record-breaking manner by securing the fastest ever crowdloan in Polkadot history. The loan was fully funded in just 90 minutes and could prove to be a game changer for DeFi and its integration with traditional financial services like Forex.
Parachains are independent blockchains connected to Polkadot’s main relay chain, a unique mechanism that allows them to share resources and security while maintaining their functionality and features. The number of parachains is limited, so projects wanting one must secure a crowdloan by raising funds from the wider Polkadot community.
Pendulum’s record-breaking crowdloan campaign means the project can work toward its ambitious goals. It is a blockchain that aims to offer composable fiat services to bring traditional “fintech” companies into the world of DeFi. Its vision is to serve as the missing link between DeFi and fiat currencies by providing a fiat-optimized smart contract network.
By creating an on-chain utility for the world’s major fiat currencies, Pendulum believes it can pave the way for a more open, equitable and inclusive financial future for the world. It allows traditional financial services like forex, trade finance and savings accounts to seamlessly integrate with DeFi applications like lending protocols, yield farming and specialized automated forex market makers. By doing so, Pendulum promises to unlock new DeFi use cases for every major fiat currency by becoming the “internet of fiat.”
A pivotal year for Polkadot
It’s an ambitious dream that matches Polkadot’s potential. Polkadot is widely regarded as the most viable smart contract blockchain alternative to Ethereum, which hosts most of the world’s dapps but is plagued by slow transaction speeds, high fees, and other inefficiencies. After a momentous year of ups and downs, Polkadot enters 2023 when it launched its first parachain auctions, leading to a number of promising projects going live. However, the excitement of launching projects like Moonbeam, Acala, Centrifuge and Clover Finance was soon overshadowed by the advent of a brutal crypto winter, which saw the price of Polkadot’s native cryptocurrency DOT plummet from an all-time high of $54.98 in November 2021 crushing low of less than $5 per coin.
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At the same time, Polkadot has endured a slew of other troubles during crypto’s “annus horribilis,” with its flagship project Acala falling victim to a major hack and the collapse of a proposed multi-million dollar sponsorship deal with Barcelona leading to yet another more negative press.
With 2022 now behind us, the new year could well prove pivotal for Polkadot, and the pressure is on for one of the most promising blockchain projects to start fulfilling its promises. Polkadot needs to reward the trust of its investors and start delivering real value to its users, or risk slipping into obscurity like so many other once-vaunted projects have done in the past.
This is why Pendulum is getting so much attention from the polkadot community. Unlike most other Polkadot initiatives, Pendulum has perhaps the most revolutionary potential with its ambitions to bring TradFi to the world of DeFi. Most promising is Pendulum’s goal of becoming the “blockchain for forex,” a multi-trillion-dollar industry that benefits from decentralization.
What Blockchain Brings to Forex
Traditional forex is traded on centralized networks run by dealers, banks, brokers and other market makers. It is an international web of networks that enables 24-hour forex trading around the world, with multiple sessions opening and closing around the world.
Forex has grown into a huge industry, but the market is challenging. Perhaps the biggest problem is that there is no single, centralized body overseeing the regulation of the forex market, making it a particularly risky proposition for even the most seasoned financial traders.
By moving to blockchain, Forex gains many advantages, the most important of which could be much faster transaction speeds and lower trading fees. Banks and other financial institutions that facilitate forex trading are notorious for charging high fees to process international transactions. A World Bank report suggests that switching from forex to blockchain could result in savings of $16 million a year in transaction fees.
A blockchain network like Pendulum promises to all but eliminate forex trading fees by eliminating the concept of intermediaries and brokers. Instead, all forex transactions would be conducted in a peer-to-peer manner, governed by smart contracts that automatically process transactions when certain conditions are met.
Other benefits that blockchain could bring to the forex industry include transparency and security. Since blockchain is a public ledger, transactions can be viewed by anyone. This would help unravel the network of brokers and market makers that dominate today’s forex markets and consolidate all trades onto open, fully transparent platforms. Additionally, blockchains are immutable, meaning they cannot be tampered with by hackers, and they can also maintain privacy by hashing data, eliminating cybercrime risks.
pendulum seems to be on the road to success
Several players have attempted to create dedicated blockchain platforms for the Forex industry, but developing such a platform is a complicated task. One of the most interesting early initiatives was Vanguard’s partnership with Symbiont to develop a post-trade automation platform for forex transactions. But even though Vanguard launched a proof-of-concept in 2021 alongside big players like State Street, BNY Mellon, and Franklin Templeton, Vanguard has yet to come up with the finished product.
It is difficult to develop a blockchain system with easily accessible rules and configurations that can be adapted to the complex forex market. Other projects working toward this goal include Core-FX, which is partnering with HSBC and Wells Fargo to process FX trades using real currencies and real accounts powered by a decentralized network.
Another project that has potential is Ripple, the creator of the XRP cryptocurrency, which was developed for international bank-to-bank transaction processing but has yet to make a name for itself in the forex market.
Therefore, the closest approach to forex trading on the blockchain is found in DeFi protocols like Curve Finance, Uniswap, Balancer, and Aave, which support trading in fiat-pegged cryptocurrencies like USDC.
Pendulum, on the other hand, has stated its intention to enable decentralized forex on a global scale and has already laid the groundwork for it. Most recently, it announced an upcoming technical integration with the Stellar blockchain. The so-called Spacewalk Bridge is intended to ensure compatibility between Stellar and all Polkadot Parachains, including Pendulum. Once the bridge is operational, Pendulum will be able to provide DeFi utilities for a range of fiat stablecoins and provide a faster, more transparent and reliable forex experience than any previous blockchain platform.
Pendulum is therefore in a strong position to become TradFi’s first real-world pilot for executive forex transactions on a decentralized blockchain. When that happens, don’t be surprised that Pendulum will play a key role in shaping the next generation of DeFi.
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