Summary
The Pendulum parachain announces the launch of a novel Forex AMM on the network, specially designed for stablecoins. The AMM is designed to minimize impermanent loss and slippage, by utilizing a mix of pool-based and off-chain pricing. This is a result of a close collaboration between Pendulum and Nabla Finance.
Overview
Since the launch of the Spacewalk Bridge, the first dApp to launch on the Pendulum ecosystem is the Forex AMM, powered by Vortex Finance. The innovative design allows for single-sided liquidity provisioning and minimizes impermanent loss for liquidity providers. This architecture is designed to make the AMM ideal for on-chain forex transactions.
The AMM consists of the Swap pools and the Backstop pool.
All swaps are routed through swap pools, while the backstop pool works as a security measure, ensuring safety for LPers.
Initial Specification
Assets supported (Swap Pools)
- USDC (Asset Hub)
- EURC.s (via Stellar)
- axlUSDC (via Moonbeam)
- DOT
Assets Supported (Backstop Pool)
- USDC (Asset Hub)
Initial Limits / Caps (Swap Pools)
- USDC (Asset Hub) — 15,000
- EURC.s (via Stellar) — 13,500
- axlUSDC (via Moonbeam) — 15,000
- DOT — 3500
Initial Limits / Caps (Backstop Pool)
- USDC (Asset Hub) — 30,000
Swap Fees
- USDC (Asset Hub) — 0.15%
- EURC.s (via Stellar) — 0.15%
- axlUSDC (via Moonbeam) — 0.15%
- DOT — 0.25%
Explore the Forex AMM here.
How the Forex AMM Works
Traditional constant function market makers (e.g. Uniswap) work well for long-tail assets but are costly for forex markets, which rely on off-chain activities. To solve this, a specialized market-making technology was developed, offering low-risk, single-sided liquidity and significantly reduced slippage compared to traditional AMMs. This technology, developed by Nabla Finance, allows Pendulum’s forex AMM to function as a Proactive Market Maker (PMM).
Liquidity providers benefit from single-sided liquidity with minimal impermanent loss, while traders can enjoy a low cost of just 0.05%-0.10%, even for trades north of $100k, making it an ideal solution for forex. Read this article for a deep-dive explanation of how the AMM works.
Pendulum’s partner, Nabla Finance, originally developed this technology. Discover more about Nabla’s journey through this interview with their co-founder.
Possibilities
Our objective for the Forex AMM (powered by Vortex Finance) is to attract substantial amount of Forex liquidity into DeFi, enabling new use cases on-chain, such as:
- Cross-border payments: Since most cross-border payments require exchanging one currency for another, which is a substantial part of the overall cost, reducing this through an AMM optimised for forex would bring efficiency and speed to cross-border payments.
- Currency hedging: is a risk mitigation technique that involves protecting against exchange rate fluctuations to stabilize costs or profits, and it’s essential for businesses operating globally, importers/exporters, and investors with foreign assets. The forex AMM’s single-sided liquidity feature allows businesses to hedge specific currencies without extra exposure, ensuring cost-effective and reliable risk management.
- Simplified bookkeeping: Currency fluctuations can complicate bookkeeping, leading to discrepancies and financial uncertainty for businesses managing multiple currencies. Forex AMMs help by providing stable and predictable exchange rates with low fees and minimal slippage, reducing the impact of currency volatility on financial records.
- New arbitrage opportunities: Forex AMMs that integrate off-chain prices create unique arbitrage opportunities compared to other DEXs, which rely solely on on-chain pool pricing. By constantly aligning prices with external forex markets, these AMMs present price discrepancies that arbitrageurs can exploit. Traders can profit by capitalizing on differences between the AMM’s rates and those of other DEXs or off-chain markets. The proactive market-making approach, with its low slippage and tight spreads, makes it easier to execute these trades efficiently.
Join the Pendulum social platforms today to contribute to building the future of decentralized Forex (DeFo)!
Reward Program
To garner and incentivize support from the Pendulum community, a two-month reward program will be launched soon with a total reward of up to 100,000 PEN tokens. Stay tuned!
Why On-chain Forex?
Forex is the world’s largest financial market, with a daily trading volume of $6.6 trillion. However, bringing Forex onto the blockchain-based DeFi ecosystem requires further infrastructure development. By channeling a significant portion of Forex liquidity into DeFi, new opportunities for integration with traditional finance will arise. In this context, Pendulum, a blockchain infrastructure designed for fiat-based financial services, has been created, with one of its flagship dApps being the Forex Automated Market Maker (AMM). Read more here to learn more about the barriers that exist in getting Forex on-chain.
About Vortex
The Ultimate Crypto to Fiat FX Solution. Dual utility with a Stablecoin Link and Forex-Optimized DEX. Developed by SatoshiPay.
Website | Twitter | Youtube | Telegram
About Pendulum
Building the missing link between fiat and DeFi through a fiat-optimized smart contract blockchain based on Polkadot’s Substrate. Allowing traditional finance fiat services to integrate with DeFi applications such as specialized forex AMMs, lending protocols, or yield farming opportunities. Developed by SatoshiPay.
Keep your eyes on the Pendulum!
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