Decentralized finance (defi) is advertised as something exciting and new but it still isn’t connected to ‘fiat rails’ — a phrase that means normal banks. The CTO at Pendulum, Torsten Stuber, explains that the defi ecosystem can attract more traditional financial partners with enough money in place. That way, people can use this system much more easily.
Unlocking the Benefits of Decentralized Forex Trading with Torsten Stuber
Stuber, who figured out how to connect traditional banking networks with DeFi projects using the Polkadot blockchain, believes making people more aware of the technology is a big step in getting traditional finance institutions working on these kinds of initiatives.
The CTO of Pendulum talked about the benefits and possible risks for decentralized finance when using CBDCs (Central Bank Digital Currencies). They also said that this goes against the core idea of decentralization. The CTO also suggested that having more collateral could help when stable coins detach from their value during tough market situations.
Down below are the answers that Stuber gave to questions asked by CryptokenTop News.
The foreign exchange market is a very big business – it includes more than six trillion dollars! Some people think that decentralized finance, which is also known as defi, can help to improve the way this market works. To help people understand what this means and how it could help businesses or traders, we need to look at whatdefi actually is and how it might work differently than traditional systems.
Torsten Stuber (TS): Decentralized forex trading is a simpler way of doing foreign exchange transactions. It works through blockchain networks with the help of smart contracts and automated market makers (AMMs). This type of trading process should make it easier, more transparent, and accessible for people who want to take part in traditional forex markets.
Decentralized forex trading has some great benefits. Firstly, it cuts costs because you don’t have to hire intermediaries. Secondly, a blockchain records all transactions in an open digital ledger – this means less market cheating and fraud happening. Thirdly, since decentralizedforex platforms are online 24/7 people can trade however and whenever they want and for different places too. Lastly, using blockchain technology to conduct forex trades creates an extra safe space for your money.
Smart contracts are a tool that allow companies to develop special services, like market makers and lending systems. These services can help with making money for businesses and individuals. Pendulum wants to mix traditional finance (like the stock market) with decentralized finance (DeFi). This makes it simpler to use both kinds at the same time.
(BCN): Defi finance has lots of great benefits compared to more traditional banking, but it’s still not connected enough to regular money. Why do you think that is?
Connecting banks with cryptocurrency systems can be challenging and has stopped it from becoming popular. The main challenge is making sure all the regulations are followed. For example, banks have to make sure that their customers follow rules such as Anti-Money Laundering and Know Your Customer checks. This makes it difficult for cryptocurrencies to link up with traditional banking but needs to be done so people can use both the systems together.
What makes Defi hard to use is the lack of liquidity. To have a smooth trading experience and not lose money because of rapidly changing prices, we need a lot of buyers and sellers. It’s difficult to get people from traditional markets who know about money exchanges to try it on the crypto market, so it can be tricky getting enough people involved.
Defi platforms can be difficult to understand, which might stop traditional businesses from using them for trading. To make it easier for everyone, we need people to spread the word about this so that more people know what it is and use it.
Pendulum wants to make a platform that links the world of finance with Defi (a way to make money). They will do this by making sure the rules are followed, increasing the liquid money available, improving technology and teaching people about this. This platform should help people use on-chain forex which is being shared among many financial institutions.
BCN: Can traditional financial companies team up with defi (decentralized finance) platforms without going against the rules? A lot of people think that’s impossible because of how regulated everything has to be. What do you think about this topic?
Traditional banks can use Defi while still following the rules by focusing on a few strategies. One of the most important things to do is talk with people in charge (regulators): talking openly about the changing laws can help you make sure that you are using Defi platforms in ways that are allowed and legal. Talking with regulators can also help influence how Defi is used in the future so it works well within regular financial settings.
Traditional finance companies should take steps to stop money laundering and identify their customers when working with digital finance (Defi) companies. Another way for them to stay secure is to join forces with regulated Defi companies so they can create payment solutions that are right for them.
I suggest that companies spend money on different training programs to help their staff learn more about Defi, the good things it could bring, and any laws connected to it. Knowing this information will make it easier for organizations to make decisions and stay clear of any legal issues.
Central Bank Digital Currencies (CBDCs) are thought to be a better alternative to other types of digital coins. This is because they can keep track of how funds get moved, which could help authorities find criminals more easily. But for those using DeFi, CBDCs come with risks that can’t be overlooked. What do you think are the biggest threats associated with these currencies and how much anonymity or tracking should they provide?
Central Bank Digital Currencies (CBDCs) are both good and bad news for DeFi users. They’re different from decentralized assets because they’re created by central banks – meaning they have to follow a lot of rules and the government can track what you do with them. That could mean more regulations, or a loss in privacy when compared to other cryptocurrencies. Moreover, CBDCs are centralized so putting them on DeFi sites may reduce how much control we have over the platform, taking away from its original ‘decentralized’ nature.
When creating digital currencies, it’s important to find the balance between protecting people’s privacy and making sure it is secure enough to stop wrong activities, like money laundering and tax evasion. The central bank might choose to keep people anonymous or only slightly reveal their identities when doing certain transactions, depending on how much money is involved or if the activity is a high-risk one or not.
Recently, there have been reports of tokens (like stablecoins) that are linked to a particular currency falling in value and even disappearing. These events make people worry about how they can keep these tokens from losing their value if something strange should happen again. So how do we make sure our coins stay safe?
It all depends on the way these tokens are pegged. We especially support tokens that can be easily exchanged with a currency, like one token for one dollar and vice versa. This way, the chance of the token not being backed anymore can be reduced. You can create trust in this system by showing there is enough money available to make sure you can always exchange your tokens for real money.
When it comes to stablecoin structures that are more complex, various techniques can be used to reduce risks. Stablecoins pegged to local fiat currencies should be supported with a collection of different resources, like cash and short-term government bonds. For crypto-collateralized stablecoins, making sure that more collateral is held than the value of the issued stablecoin can help protect the peg if something big happens in the market. This setup helps protect the peg by ensuring that there is enough additional collateral available to manage any changes in desired asset value levels.
Establishing transparency and regularly examining the stablecoin’s resources can help people to trust them more and be sure of their stabilization. This visibility can assist users in observing the token’s steadiness, letting them make wise decisions which results in a steady market overall.
Your company and Getpaid Africa have joined together to make it easy for people to send money back and forth on Pendulum’s defi network and East African currencies. Why did you decide to do this in East Africa?
African and East African markets are very special and make a great partner. People here use digital money services a lot, which gives us a good start to introduce new ways of getting loans easier with Defi Solutions. Also, some African countries have shown they’re friendly to cryptocurrencies and other digital financial services, meaning it will be easier for people to use them without any problems.
Lots of people need new banking options in East Africa. Pendulum and Getpaid.Africa are ready to help some of the people there who don’t have a bank account or can’t access one easily. They want to give them a chance to join the financial world.
East Africans get money sent from other places, too. Pendulum could make it easier for them by cutting down on fees and making transfers faster and more secure.
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