Decentralized liquidity pools are crypto saviors

After the disastrous events regarding cryptocurrency in recent months, industry observers are wondering – does crypto have a future?

Dr. Yan Zhang, CEO of Web3’s original payment aggregator Pelago/Airswift, said it does, and that it all comes down to blockchain-based assets’ original premise: payments.

Zhang told PYMNTS in an interview that “achieving decentralization of the payment process” will help make it more of a “worry-free” experience for the general public, the majority of whom may still be reeling from the public fallout of FTX’s collapse along with other industry implosions.

“We need a decentralized protocol to prevent fraud because when human nature has temptations, it cannot control itself,” Zhang said. “But if you measure everything through computer code, you can get rid of the impact of that impulse.”

As reported by PYMNTS, beyond just human-driven errors, cryptocrime hit a record high of $20.6 billion last year — a figure that represents a “lower bound” estimate.

Is it too late for the Digital Asset Industry?

The collapse of FTX, Zhang said, gave the crypto industry a big warning that centralized exchanges can be incredibly risky and come with the threat of mismanagement.

“In payment situations, consumers don’t care so much, they just pay the seller; but for merchants, the risk is huge,” he said, noting that taking crypto as payment is still challenging for regular merchants and that adding additional risk on top of that doesn’t make for a very attractive proposition.

Zhang said the solution is a decentralized payment aggregator where merchants can withdraw funds from an aggregated, decentralized liquidity pool. That’s why he and his company are building one.

While most crypto payment gateways are centralized, exposing users to the same risks as a platform like FTX did, Zhang said decentralization has risen to the forefront of the payments domain due to key technological advances.

In a traditional, centralized crypto payment process, he said, “if this payment company defaults, all the money is gone. Payment companies have large transaction volumes but very thin profit margins – so if the money is gone, so is the company.”

PYMNTS own research in the report, “Shopping With Cryptocurrency: Tech-Driven Consumers Drive Market Acceptance,” found that 33% of the most tech-savvy consumers specifically purchase cryptocurrencies to use them to transact with merchants, emphasizing that while observers increasingly can see There is still market interest in accepting and using crypto as a payment method.

Hope centered on decentralization

“Instead of using a centralized corporate wallet, we use a liquidity pool to handle the transaction process,” Zhang said. “This removes the risk because the money is already there, and the basic concept is that the gas transaction fee is in some ways offset by the return from the liquidity pool.”

The customer pays, the seller can withdraw, and the liquidity providers get a return from transaction fees, he said. Merchant transaction records will remain fully encrypted.

“Privacy is the No. 1 requirement for this new protocol,” he said.

He added that the name of this liquidity pool is “Pelago”, Italian for “ocean”, and noted that it will be launched with the participation of key merchants and industry partners in what he called “one big ocean”, with account reconciliation. done via smart contract.

Still, Zhang said his experience working with crypto and securely handling billions of transaction volumes has highlighted the importance of a positive user experience. After all, merchants won’t accept crypto as a payment method if it turns out to be a pain for them.

“People can’t wait 30 seconds to confirm a payment,” he said, using paying a restaurant bill as an example and noting that the maximum is really about “two seconds.”

What is he most looking forward to?

“Stepping in to fill the challenges of traditional payment processes and existing ones with this new decentralized protocol,” Zhang said. “We want to bring a really good product to the market to increase confidence in the consumer and the industry. We hope this will become a shining product in the decentralized finance domain and provide a lot of positive impact on the industry.”