Pendulum: The missing link between Fiat and DeFi

The beginning

The idea of Pendulum emerged in early 2021 when SatoshiPay’s tech team was looking for opportunities to connect its cross-border payment service DTransfer to an automated market maker (AMM) that would allow fast, transparent, and cost-efficient currency exchange based on the broad stablecoin ecosystem of Stellar.

  • Cross-chain trust-minimized bridges making a broad basket of fiat-pegged stable tokens available
  • Next-generation smart contract technology
  • An institution-grade compliance layer with privacy features
  • Seamless on/off-ramps for integrations into the local banking network

Spacewalk: The trust-minimized bridge between Stellar and Polkadot

Spacewalk aims to utilize the multitude of fiat stable tokens on the Stellar blockchain and help build the fiat DeFi future on top of the Pendulum chain. Spacewalk introduces the way of flowing stable tokens from Stellar network as it is the first bridge between the Stellar network and the Polkadot/Kusama ecosystems. Based on XCLAIM and interBTC, it is implemented as a Substrate pallet and allows any Substrate-based blockchain to use a direct Stellar bridge. Pendulum has received a grant from the Web3 Foundation for developing Spacewalk and has already delivered the first milestone.

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How Spacewalk bridge works

Let’s take a closer look at the functionalities of the Spacewalk bridge. For simplicity, we will address Spacewalk as the “Spacewalk chain”. The whole process starts with tokens that will be temporarily locked inside Stellar and respective “wrapped tokens” minted 1:1 in the Spacewalk chain. This wrapped asset is supposed to be cryptocurrency-backed. The picture below will provide the information on the process of issuing and redeeming tokens

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  • Step 1: User sends tokens from their Stellar account to a dedicated locking account which makes them temporarily unusable in the Stellar network
  • Step 2: Immediately after step 1 the Spacewalk pallet will mint wrapped tokens and send them to the user’s account inside the Spacewalk chain
  • Step 1: The user burns wrapped tokens in the Spacewalk chain via the Spacewalk pallet
  • Step 2: Shortly after tokens will be unlocked inside Stellar and sent back to the user’s account
Source: link
  • everyone is free to create their own vault (and become an owner of that vault) in a permissionless manner
  • this way the set of vaults can dynamically change and grow
  • any user who wants to issue wrapped tokens can freely pick any vault to lock their Bitcoin
  • any vault owner needs to lock collateral on the Interlay blockchain via the InterBTC pallet with the asset usually being DOT
  • this collateral needs to be locked as long as the vault exists
  • the value of the collateral should be 150% of the value of the Bitcoins locked in the vault (overcollateralized) — InterBTC uses a price oracle to compare Bitcoin and DOT prices
  • if a vault owner misbehaves, then (parts of) their collateral will be slashed and any user who was affected negatively will be refunded through the collateral (collateral value being higher than the locked Bitcoin value ensures full refunds for users even if the vault owner spends all locked tokens)
  1. Stellar supports a wide variety of assets and every Stellar user can freely create their own custom assets
  2. Stellar does not employ Nakamoto consensus but a custom consensus algorithm called Stellar Consensus Protocol. For that reason, it is not possible to infer merely from sequences of block headers which sequence is valid — for Nakamoto consensus, this is simply the sequence with the highest amount of work. On Stellar, block headers must be signed by a quorum of trusted validators to be considered valid.

The Spacewalk vaults solution with multiple assets

Every vault on Spacewalk will be able to support multiple assets. For that purpose, it uses a Stellar feature called trustlines. By setting up trustlines for specific assets on the vault account in Stellar, it can control what assets it supports for bridging. When bridging, the user additionally specifies what asset they intend to issue or redeem. With multiple assets, calculating the collateral value of each vault becomes more complex so the protocol needs to use a price feed oracle. Additionally, it requires another oracle in order to solve the aforementioned oracle problem. Enter Stellar Oracle.

Stellar Oracle

The Stellar Oracle is decentralized and by design at least as secure as the Stellar network itself. It uses special properties of the Stellar Consensus Protocol, a special purpose consensus algorithm used in Stellar. Stellar is a decentralized system of nodes that is organized into tiers with the most significant tier being Tier 1. Every 5 seconds the nodes in a Stellar network vote on finalizing a new block. The Tier 1 nodes predefine a fixed set of quorums, where a quorum is a subset of Tier 1 nodes. The quorums are defined in such a way that between two different quorums there is always at least one Tier 1 node that is in both quorums. Learn more about this process here.

Three milestones for developing Spacewalk

Milestone 1: Definition of the fundamental structure of the project

  • The Spacewalk code repository will consist of the Spacewalk pallet, some off-chain clients to operate vaults and oracles, and a Substrate standalone chain that implements the Spacewalk pallet that is used for testing purposes
  • Integration of multi-asset support: vaults will support multiple assets and a user can issue and redeem different kinds of Stellar assets
  • Usage of a price feed oracle for all assets supported by the vault
  • Determination of the total combined value of all tokens locked in the vault account and comparison of the value of the collateral
  • Adding a mechanism to store and maintain the current configuration of the Tier 1 network, including its public signing keys and the set of Tier 1 quorums

What’s next? Amplitude crowdloan!

What’s next for Pendulum? Amplitude, Pendulum’s sister network, will be participating in the Kusama parachain auction soon.

Pendulum dashboard

Summary

Given that Pendulum is constantly working on new partnerships across the crypto and legacy finance industries with fiat stable token providers, blockchains, bridges, and large fintech businesses, VCs will be invaluable in making new fruitful introductions from their expansive networks.

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Polkadotters | Kusama & Polkadot validators

Polkadotters | Kusama & Polkadot validators

Czech bloggers & community builders. We are validators of Polkadot, Kusama, Darwinia, Crab, Bifrost, HydraDX, StaFi, Centrifuge under the name: POLKADOTTERS