Cryptocurrency analyst. Founder and editor at btcpeers.com
The Pandemic has left the world’s economy plunged into a struggle--already for the second time. With the level of workplace layoffs reaching the fever pitch, there’s still an even more critical problem of an avalanche of country debt that severely gnaws the welfare of all global economies, let alone developing ones. Small businesses are among the most exposed to this damage.
Even though, with the claim of the newly-arrived vaccine stroke financial market with a positive boost, it is still projected to be a long way until the global economy gets back in shape. According to some estimates, the pandemic is not prophesied to end before 2021.
This situation would make it even more complicated for the more impoverished areas of the world to accommodate the recurring losses until the problem gets effectively sorted out. At present, there’s only one solution that seems to be giving glimpses of hope – and the name of it is decentralized finance.
Having grown tremendously since the start of the Covid-19 crisis (and having accelerated mainly during summer 2020), DeFi now looks as bright and shiny as ever. In the future, it is anticipated to gain even more traction, thanks to its tremendous monetary potential. Simultaneously, both US presidential elections and the awakening of the pandemic made Bitcoin dominate the news headlines again. In the light of these, it does not seem at all improbable that decentralized financial applications will soon become an indispensable part of our daily routine.
One platform that is actively taking ground is Polkadex. Being a network, it revived the original idea of Bitcoin and applied it to a cryptocurrency exchange, liberating it from centralized custody. Polkadex then takes one step further and merges decentralized exchange with a high-frequency trading platform capable of bearing many transactions within seconds.
Grasping the opportunity, I asked the CEO of Polkadex, Gautham J, to provide his outlook on the Polkadex project’s future. We also brought up questions about decentralized financial technology in the new type of post-Covid economy.
Andrey Sergeenkov: It seems Covid-19 will not set us free until the vaccine liquidates it. However, by the time the medicine gains widespread, the pandemic’s disaster could sink an even more substantial economy share. Would there be any ways to prevent this from happening?
Gautham J: Good question, thanks. I thought of it before, and I still believe now - the only way to bail the economy, if only partially, is by using cross-border frictionless transactions. DeFi seems to manage this task pretty well. I wish that more businesses would turn to the advantages of decentralized currency and blockchain as a part of their lifestyle, especially in challenging times.
Andrey Sergeenkov: How many years do you think it would take for blockchain to gain acceptance on a broad public level – so that you and I start using it, for example?
Gautham J: As far as I’m aware, blockchain is not bad in this respect already – I mean, some of the largest banks like JPMorgan have been using blockchain extensively for quite a while. Recently, PayPal has also shown their interest in making crypto accessible through its platform. However, the changes are so far visible only on an operational level, not to consumers. When it reaches the final element of this chain, it remains only to guess. It will take some time for a full-scale transformation for these large institutions – although, during Covid-19, it could go faster. But what we could do already now is to start using the already decentralized platforms – let alone Polkadex.
Andrey Sergeenkov: Good point! I would ask you to describe Polkadex in a few words – what did it start from, and how did it come to be the platform we see nowadays?
Gautham J: It all started back in 2018 when my friend Deepansh and I worked on a consensus algorithm to scale transaction throughput on a distributed network. This attempt was part of our college project. We initially planned to develop this in a permissioned network, and we were looking to find a fair use case that was scalable. In 2019, we met Vivek through a common friend, who suggested to apply it on a decentralized exchange.
He worked to build one and was struggling to find the right decentralized network to use the idea. Sadly, his first attempt to make it on Bitshares did not succeed due to its centralized gateway structure for bringing in liquidity. These security issues came with an inflexible interface, asset collateralization where you hold smart contract keys to locked assets. It also did not satisfy the trader’s expectations when it came to the user interface.
That’s when I came across Polkadot and Substrate Framework. Whatever we were looking for, this framework had everything. A composable blockchain, not linked directly to the UI, gave us the freedom to create a highly user-friendly and easy-to-use design, allowing future upgrades to the consensus algorithm we were working on.
What’s more, the trustless transfer of assets means, as an exchange, we don’t have to worry about the security of tokens in the exchange. That led us to rework our project idea and eventually came up with Polkadex that you see now. It is both a highly user-friendly and easy-to-use platform that could soon be comparable to large centralized exchanges out there.
Andrey Sergeenkov: Since you mentioned centralized exchanges, I would like you to draw a parallel between these two platforms. What makes them alike, and what could be named among differences?
Gautham J: Traders have used centralized exchanges not only in crypto but in traditional finance as well. That’s how exchange functions operate ever since trading got digital. You have a clearinghouse responsible for making sure sellers and buyers are settled by the end of the day. You also need to have a bank to hold these assets for you. When bitcoin has already solved the bank’s problem, Polkadex aims to solve the exchange clearinghouse’s problem.
For starters, anyone who trades on Polkadex doesn’t have to give us access to their funds. It works through bridges built to other networks like Polkadot, Ethereum, and Bitcoin. Instead of depositing funds to the exchange to trade, they simply enter through a network like Polkadot and simply connect to our system to place orders. Our order engine matches the trades, and the assets are settled via atomic swaps. Since at no point, Polkadex takes custody of user funds, we solve the traditionally known problem of an exchange getting hacked and losing customer assets. We think Polkadex like technology becoming mainstream will strongly force the regulatory system to change.
Right now, it leans towards having a centralized exchange license even harder and harder to secure and operate. Our mission is to build the perfect recipe for creating a clearinghouse for decentralized networks and offloading the risk to participants rather than concentrating it on one single entity that acts as the mother of all transactions. We can achieve this by making decentralized exchanges as fast and convenient as a centralized one. Technology is out there, and you just need to be ready to put in the hard work.
Andrey Sergeenkov: There are many Decentralized exchanges out there? Why do you think you came up with another one? How is Polkadex different from others?
Gautham J: To start with, none of the present decentralized exchanges supports a fast enough trading engine to run the traditional order book. They also lack liquidity due to this. Many are now experimenting with an off-chain order book. What is the point in building a decentralized exchange if the order book is not publicly verifiable? Hence, all of them have moved to AMM based DEX, based on the success of Uniswap. We don’t see it as the solution; we see it as a compromise. There is a huge technology gap to be filled, and we hope to fill it using existing technology available through Bitcoin, Ethereum & Polkadot. If you can make a traditional exchange run in a decentralized way, you empower the people by lowering costs, improving security, and reducing capital controls. Right now, it is not popular because people don’t find it easy to use DEXes. We need to try and solve that problem.
Andrey Sergeenkov: You are talking about Uniswap? How is Polkadex different from uniswap and other AMM based DEXes?
Gautham J: Swap protocols like uniswap don’t use an order book. So, the pool creates an arbitrage opportunity when the price of the assets swings both ways. It is cited as an advantage that eliminates front running in orderbook DEXes. Polkadex is an orderbook based exchange, but the key difference is that unlike traditional orderbook exchanges that were built on multipurpose blockchains, Polkadex is a solo chain with a dedicated blockchain that functions as a trading engine. That gave us a lot of flexibility to play with the block time, transaction weight, etc.
On top of that, the Substrate framework provides us with the advantage of performing forkless upgrades with every improvement we make in TPS. For instance, if we improve the algorithm to 1000 TPS, we don’t have to go through the expensive process of forking the network to improve the speed of transactions in the exchange. We can simply hot-swap. In addition to this, we have an AMM pool connected to every orderbook, which is probably a “first in the industry.” AMM Pool will feed liquidity to the orderbook, which is not found in traditional DEXes.
We have incentivized endpoints for trading bots and market makers to earn money to bring in liquidity to Polkadex. It is a win-win situation for all. This, coupled with a fully modular interface, gives us the freedom to innovate in UI/UX irrespective of the backend to which it connects. Institutional market making is another feature where you pair your liquidity only with identified people with KYC.
We have also eliminated the frontrunning problem in DEXes by introducing feeless transactions. The feature list is long and exhaustive and has been given a lot of thought before designing it. We have tried to address all of the issues faced by traditional decentralized exchanges. For more details, please await the white paper, which will be released in this quarter, 2020.
Andrey Sergeenkov: And, in the light of the renewed wave of the pandemic, how would you assess your chances of the successful launch of Polkadex? Is Covid-19 going to disrupt it in any way?
Gautham J: In one way or another - yes. Pandemic is not good for anyone. If you think the global crisis is good for crypto, we beg to differ. People not able to network, and the hunger to preserve capital is not the right time to innovate.
I know for sure, there is a growing trend where investors see crypto and blockchain assets as a legitimate asset. It is very different from 2017 because if you do your due diligence, there are still very good and promising projects out there. Defi, for example, has completely changed the way we can utilize smart contracts and blockchain for creating financial services and products which were unthinkable in the past. Polkadex is an example of this.
Also, since the start of Covid-19, many people have demonstrated their interest in digital assets. And I assume this trend is not going to fade out. Many novices are exploring the functionality of blockchain. They actively engage in the trade of digital assets to get back their share of profits they previously gained from the stock market. My impression is that the trust in decentralized assets increases, the more people want to get involved. Obviously, this is going to help us.
Andrey Sergeenkov: I see that you keep your spirit high. What would be the plan of Polkadex within the timeline of a few upcoming years?
Gautham J: The plan is to embrace as many markets under our net as possible. However, before we do that, we need to prepare the technology for handling the expectations we have set for ourselves.
There are a couple of moving parts with us, especially the parachain auction and the connected effort. That needs to be seen and prepare our engine to bridge with other liquidity providers. Once we launch our testnet in Q4 2020, we will roll out our mainnet in Q1 2021 and initiate a token sale in Q1-Q2 2021.
Subsequently, work towards bringing in as much liquidity as possible through parachain and other related bridges. We then plan to introduce additional services each quarter, such as margin lending and futures options. Parallelly, we will be developing our R&D on our in-house consensus algorithm code named Pebble, which will be a game-changer by allowing us to transact at the speed of 20,000 TPS. We expect 2022 to be the year of scaling up.
Andrey Sergeenkov: That’s an ambitious goal, and I hope the success will accompany you on every step. I’m interested to learn about your token and its planned release date. When is this supposed to take place?
Gautham J: We plan to conduct our ICO in the first or second quarter of the next year. Polkadex will release its token that will be available for purchase through our platform. More details will subsequently follow – keep up to date with our official announcements.
Andrey Sergeenkov: How would you describe the future ahead of the DeFi ecosystem? And what role will Polkadex play in driving it forward?
Gautham J: DeFi, in the present state and form, is only the tip of the iceberg. It will only grow in size from here, though with its own set of challenges. There are many geographical territories where DeFi could be an invaluable tool to establish links with the global economy – and I’m talking about economic barriers and political barriers.
DeFi will set people free from the oppression of the governments and apply its potential in taking away unnecessary intermediaries for offering financial services in established markets. As we have mentioned before, bitcoin revolutionized the banking system, but a lot more needs to be done to bring this innovation into the people’s hands.
DeFi will play a crucial role in that. Polkadex, for instance, is helping the exchange of currencies decentralized. At some point, clearinghouses will be decentralized, and Polkadex aims to play a significant role to demonstrate how this could be done.
Andrey Sergeenkov: And at last – what advice would you give to those who are making their first steps in the DeFi and crypto world?
Gautham J: Anyone who is taking the first steps in the crypto world should first get to know bitcoin. Bitcoin has all the building blocks on which other decentralized applications were built on.
Before you get into DeFi, it is essential to understand how Bitcoin works. You first need to grasp how Bitcoin gave us the ability to commoditize “value and trust.” If you see this concept, understanding DeFi shouldn’t be hard. There are lots of exciting projects underway-while, even more are yet to see the light.
Jumping there on time is essential, and you are very likely to be successful, and in a few years, your position may also multiply many times. However, none of this should be at the expense of knowledge. You need to study projects and do your due diligence before investing in any crypto project. Time is precious, so start today!
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