Pendulum’s co-founder says WEF can’t stop crypto innovation and adoption

In an exclusive interview with Finbold, Alexander Wilke, co-founder of Pendulum, a public blockchain that connects traditional finance with decentralized finance (DeFi), has argued that influential global organizations such as the World Economic Forum (WEF) cannot hamper the growth of the crypto sector. Wilke highlighted how the crypto industry, through use cases such as DeFi, is poised to disrupt the financial landscape.

On the other hand, with Bitcoin (BTC) prices trying to rally after significant losses in 2022, the co-founder explained how the price of the first cryptocurrency is correlated with macroeconomic factors such as inflation and central bank interest rates. In fact, he also talked about the short-term and long-term impact of events like bankruptcies in the crypto space.

Furthermore, Wilke delved into the progress of the Pendulum roadmap and the main challenges faced in the design and development of building a decentralized and secure blockchain infrastructure. Finally, he shared Pendulum’s plans to ensure there is seamless integration with banking networks in 2023 and beyond.

1. Pendulum is a public blockchain that connects traditional finance with DeFi. For starters, can you give our readers an example of an important real-world use of your technology?

“Pendulum’s first key use is to serve businesses in making instant cross-border payments, including currency exchange (fx).

For example, we have spoken to a company in Mexico, which regularly imports goods from Brazil. They usually pay their supplier via a classic bank transfer which costs them several 2-3% in fees and will take approx. 1-2 weeks. One day the money didn’t arrive for 2 weeks and they had to call their bank with a very high manual effort to finally find out that the money got stuck at a US bank and it took extra time to unlock it. This lack of transparency is the main problem for these businesses.

In this line, the development of decentralized automated market makers (AMMs), along with constant increasing adoption of fully secured fiat stablecoins, can solve the main pain points of cross-border payments, reduce costs to below 0.1%, speed up transaction times to a few seconds, as well as reduce counterparty and settlement risk.”

2. What is the main reason behind your decision to choose the path towards the convergence of forex and DeFi?

“On-chain costs are much lower because new design AMMs can allocate fiat liquidity and are more capital efficient, resulting in lower slippage and fees for the currency compared to traditional infrastructure. Due to stablecoin standards and the open architecture of DeFi applications, any user can contribute to the liquidity of various currencies, allowing much higher fiat liquidity aggregation.

The finality of the transaction on modern public proof-of-stake (PoS) blockchains usually takes a few seconds, and an exchange transaction is secured by the AMM smart contract that executes the transaction as a payment-for-payment (PvP). This architecture protects the user’s funds and ensures that the sending of tokens is only permitted and executed.

When the second currency of the trading pair is received, settlement and counterparty risk are resolved by a smart contract that can only execute public, auditable software code running on public infrastructure. Alongside these direct benefits for the user, on-chain fx implements a level of transparency not seen before. All reserves, all exchange rates, liquidity and trades are visible and controllable while the user’s privacy is protected. Everyone wins as we bring more fiat and stablecoin use cases on-chain.”

3. According to Pendulum’s roadmap, it is estimated that Q1 2023 will be a solid period for the project as you plan to launch the mainnet. Is everything going according to plan? What was the most difficult and challenging part of launching Pendulum and why?

“Pendulum’s blockchain development started in 2021, and the team’s blockchain development experience dates back to 2016 when we already interacted with stablecoins on the Stellar blockchain. I think we have a very solid plan and product development in place to meet our goals in Q1 2023 and for 2023 in general.

One of the main challenges is building a decentralized and secure blockchain infrastructure from scratch and deploying it. With the shared security and decentralization we inherit as a Polkadot parachain, Pendulum starts at a very high level, even better than some of the top tier-1 blockchain projects. Additionally, fortunately, we have a very active community that helps us run nodes and collectors.

Another challenge is our bridge from Stellar to Pendulum, bringing high-quality fiat stablecoins into the Polkadot ecosystem. Bridges are always a safety challenge, and we had to choose carefully how we handle bridge safety. With Spacewalk, we found a solution that comes with a decentralized vault architecture to secure the bridged assets. This decentralized concept is much more resistant to attackers and has just passed an external audit.”

4. When it comes to the myriad of regulatory issues that DeFi platforms have to contend with, could you perhaps elaborate on Pendulum’s approach to compliance and regulation?

“Pendulum acts as an infrastructure that works with partners for stablecoins that are compatible in their region. It will try to stay away from experimental algorithmic stablecoins and rather include widely adopted stablecoins or CBDCs. We follow the regulatory landscape quite closely and are particularly concerned about to develop a public infrastructure that offers the tools needed for financial institutions or companies to enter DeFi.

For example, we are looking at partnerships with DID providers (eg KILT) that aim for reusable KYC data to preserve user privacy. Another focus area on this topic is privacy. We are talking to privacy technology providers who can offer decentralized transactional privacy while staying compliant with auditors and respecting user data ownership. All our compliance initiatives are aimed at wider adoption by users and especially businesses by reducing their risk.”

5. How will Pendulum ensure that on and off requirements for integrations with local banking networks are completely seamless?

“Pendulum will standardize the interfaces on and off the ramp. We bring a lot of experience and help from the Stellar ecosystem that has been building it for years, and we aim to further reduce friction, especially with more custom smart contracts and deep wallet integrations. An additional factor is the seamless interoperability between blockchains on Polkadot that helps us integrate assets from Tether and Circle into Pendulum.”

6. Considerable recent attention has been paid to the issue of liquidity in the crypto sector; how does Pendulum tackle this problem in DeFi?

“Initial liquidity on Pendulum will be provided by partners and the community, and the blockchain will also have an initial reward program for liquidity providers to achieve the minimum liquidity required for the platform to perform cross-border payments efficiently.

Pendulum puts a real use case on the chain, and we see evidence of ever-increasing stablecoin transaction volumes and users, regardless of other crypto markets or asset prices. In this situation, the main differentiation to other projects is that we can actually achieve a sustainable ecosystem and liquidity growth, which reduces the reward of further adoption.”

7. Prominent investors such as Anthony Scaramucci see the World Economic Forum’s pessimistic position on cryptocurrencies as bullish for the crypto space in general. Do you think the WEF has or will have that much of an impact on cryptocurrency prices?

“A pessimistic attitude towards cryptocurrency prices and being bullish for the crypto space are two different things for me. I believe, when I look at the advantages of DeFi in terms of transparency, settlement risk and efficiency, that the crypto space is disrupting the financial industry already today, and will continue to do so in the future.

More and more use cases will be adopted and more intermediaries will be automated by smart contracts, which can potentially deliver a better service than their centralized counterparts.

This cannot be stopped by anyone having a different opinion, including the WEF. In my opinion, a resistance to the overall DeFi growth can only happen when people are not familiar with DeFi or defend their currently disrupted business.

On being bullish on crypto prices, everything seems to have an impact. Large organizations that have the trust of the population can have a negative impact. A bigger impact, I think, are events like the bankruptcies of some centralized exchanges or crypto projects that may have been questionable from the beginning. Both will only have a short-term impact and only slow down adoption as the strategic benefits of DeFi remain significant.”

8. Last but not least, after the big losses the cryptocurrency market had in 2022, with Bitcoin losing over 60% of its value, do you think the BTC price will have a bullish resurgence through 2023?

“If you ask me for speculative opinion without giving investment advice, I have to say that I see a correlation between BTC price with inflation and central bank interest rates going up and down, so let’s hope for a change there.

Also, I think the news flow around centralized crypto exchanges going bankrupt and users and companies losing money was not helpful in 2022. So let’s take a more active role here and try to trade on DEXs with transparent reserves instead.”

Thanks for the conversation, Alexander!