Chainlink
Securely connecting different worlds
The advent of Bitcoin has brought new innovation in accounting, storing value, and exchanging value between two or more parties in a non-custodial manner on a ledger that is immutable and transparent. Ethereum, and other programmable blockchains have iterated on this by launching support for programmable smart contracts, transforming the function of a blockchain from a rather one-dimensional environment to allow a bigger range of logic and as such multiplying the use cases.
Stuck in the box
However, smart-contracts in the form of blockchain based events are quite limited to tokenization, exchanging one crypto-asset for another and some hype around digital art in the form of NFTs. This limitation is because blockchains and their smart contracts are isolated on individual blockchains by design and cannot natively connect with the external world for data, computation or other off-chain actions that might be useful to fetch for a smart-contract.
The promise of Chainlink
Chainlink is a decentralized oracle platform that enables smart contracts to reach their full potential by being able to use data from external sources, connecting the separate worlds via their cryptographic middleware solutions. Linking different blockchains, and connecting on-chain events on a blockchain with off-chain events in the real world greatly increases the capabilities of smart contracts compared with isolated smart-contracts living inside one blockchain. The benefits of a hybrid system that uses both data from on and off-chain networks are great and plentiful. It can ensure latency and throughputs that are similar to other web2 systems, offload expensive on-chain events into off-chain oracles, eliminate system boundaries of a single blockchain, and ultimately multiplying the number of use cases for a blockchain to be able to execute.
Application to DeFi
The first realm on which the benefits of Chainlink’s middleware can be seen is in Decentralized Finance. Off to a rocky-start with plenty of hacks by manipulating small source- or even single source price-feeds, many finance protocols on the Ethereum network got exploited for big sums of money in 2019. While the attack vectors between different exploits were not exactly the same, it ultimately revolved manipulating a price of an asset to falsely trigger a certain condition in a smart contract. This can be exchanging one crypto-asset or another at a faulty price point, triggering false liquidations or otherwise exploits where a contract is executed based on faulty data.
Intricate systems that guarantee the data for a smart-contract to be accurate is therefore a very important issue for many potential use cases that want to use smart-contracts to automatically trigger based on certain events, as the contract is only as strong as its weakest link. Since its ICO in 2017 and mainnet launch in 2019, Chainlink has focused on this problem and attempts a set of cryptographic measures and game theoretic incentives to always guarantee an accurate data feed for contracts to integrate.
Growth and potential
Since its launch, Chainlink has slowly taken a commanding market share in the most popular blockchain sectors. Chainlink boasts 1500 integrations of its services over 14 blockchains with a market share ranging between 50 and 95% depending on which sector you look at. In the case of DeFi, 50% of decentralized finance applications are secured by Chainlink’s oracles slowly cementing its status as an industry standard.
The main criticism that little value accrual of the network flows back into the token LINK is being tackled in 2022 by increasing the security of the data networks by launching staking that both increases the crypto economic security of its services as well as give more utility to the platforms native token. We will revisit another time, how exactly decentralized oracle networks attempt to provide this guarantee through a committee of nodes that are incentivised through different methods.
In the Fourstacks risks framework, having integrated Chainlinks services is a big plus for any given decentralized application, as it boosts the security of the smart-contract greatly. In the future we expect the Chainlink network to be used for more than price feeds alone, as connecting separate systems together in a secure way can be used in a multitude of other ways such as bridging assets between blockchains, secure off-chain computation, randomness and more.
