What you need to know 🐳 Chainlink is one of the leading decentralised oracle networks, connecting smart contracts to real-world data while guaranteeing their reliability.
Launched in 2017, Chainlink plays a crucial role in the blockchain ecosystem by securing more than $23 billion in assets (October 2024 figures). Several hundred projects use its services across more than 70 networks.
Although its total revenues reached $90 million in 2023, they have been steadily declining since 2021. Chainlink's reliance on providing price feeds, which makes up the majority of its business (98%), could weaken its model in the face of the emergence of innovative and often cheaper competitors.
Overview 🧬 The programmability of blockchains has enabled the creation of applications and protocols that can automatically trigger the execution of smart contracts. These smart contracts often depend on data from the real world. Without this external data, the usefulness of smart contracts would be considerably limited.
The oracle system was therefore created to fill this gap. Their role is to secure, validate and guarantee the reliability of data.
Chainlink has developed its own model for collecting, aggregating and validating data before a smart contract is triggered. For example, projects such as Aave use Chainlink to obtain real-time prices for assets such as ether, in order to provide collateral for loans.
Chainlink's major innovation lies in its ability to guarantee data integrity thanks to its decentralised model. Unlike other systems, Chainlink reduces the risk of data manipulation by relying on multiple independent nodes to validate information.
Financing 💰 Chainlink primarily raised funds through two operations totalling $61 million.
The project first turned to private investors, from whom it raised $29 million in September 2017. The operation was supported by Frameworks Venture, Fundamental Labs, and Nirvana Capital funds.
It also conducted an ICO, also in September 2017, through which it raised $32 million.
Token distribution:
- 28% was allocated to the Chainlink team
Team and community 👾 Sergey Nazarov, co-founder and CEO of Chainlink Labs, is a respected figure in the blockchain industry. He is often seen as the face of the project, with a proactive approach to building strategic partnerships with many DeFi projects and traditional businesses.
He also runs SmartContract, a start-up dedicated to developing and integrating Chainlink as a standard decentralised oracle framework. The company says it works for Google and Oracle, as well as teams at Synthetix, Loopring, Aave, OpenLaw, Conflux or Polkadot.
Chainlink Labs is described as a company that helps developers use Chainlink, while SmartContract has more of a commercial focus.
The other figure in the project is its CTO Steve Ellis, who is also part of SmartContract.
Chainlink has also forged partnerships with expert profiles, technical engineers, professors and other founders or executive committee members in tech. These include Tom Gonser, CEO of Docusign, and Eric Schmidt, former CEO of Google.
Function ⛓️ Chainlink uses a data aggregation system called "Data Feeds", which draws on multiple sources to guarantee the integrity and reliability of the information transmitted to the smart contracts.
The process takes place in three stages (here the example of the price of a crypto):
1 - Service providers such as CoinMarketCap or Coingecko collect the raw data from centralised (CEX) or decentralised (DEX) exchange platforms such as Binance, Coinbase and Uniswap.
2 - Chainlink node operators perform a second aggregation, involving players such as TSystem, Swisscom, ChainLayer, LinkPool and Mycelium. They calculate the median of these values to minimise the risk of error.
3 - Finally, many oracles share their observations via a peer-to-peer network. A consensus algorithm validates this information before it is implemented on-chain.
In 2019, Chainlink launched its first protocol: the ETH/USD Price Feed, secured by three oracle nodes.
The aim of this project is threefold: to guarantee the transparency of the data transferred, ensure its security and promote its interoperability. In the long term, Chainlink aims to develop a multitude of cross-chain services by linking information from real assets such as shares, bonds and funds directly to smart contracts.
The use of this technology is notably found in the following use cases:
Decentralised finance (DeFi): Platforms such as Aave and Synthetix use Chainlink to obtain real-time asset prices, enabling lending at current market values.
Insurance: Chainlink facilitates the creation of insurance contracts by providing real-time data. In the agricultural sector, for example, weather conditions determine whether or not a contract is fulfilled.
Gaming: Chainlink guarantees the integrity of results in blockchain-based games.
According to a 2023 report, Chainlink is emerging as one of the major players in the ecosystem, with over 1,600 projects and more than 1,000 oracle networks deployed.
Use case on Aave:
Aave uses Chainlink's Price Feed to secure collateral guarantees.
The LINK token 🌕 Chainlink has its own token, LINK, ranked 14th in terms of market capitalisation. This token was developed on the Ethereum blockchain.
LINK is used to pay node operators who provide oracle data and services on the network. Payment can also be made with other assets (including those on the targeted blockchain, such as ETH), but a 10% mark-up is applied compared to a LINK payment.
It also functions as an incentive mechanism, where operators can suffer penalties (via a "slashing" system) if they transmit erroneous data. Its role is to incentivise the provision of good quality data and conversely, if expected performance is not achieved, a proportion of the tokens staked by node operators can be taken as a penalty.
The demand for LINK is directly linked to the adoption of the Chainlink network. As more projects use Chainlink to access off-chain data, the demand for the LINK token increases.
Since its launch, the LINK price has risen significantly, with notable spikes during the adoption of Chainlink solutions by major DeFi platforms. At the beginning of October 2024, it was trading at around $11, down 79% from its all-time high of $53 in the spring of 2021.
Anyone can stake the LINK token as a reward for an estimated annual return of 4.3% in October 2024. Staking mainly helps to secure the project's crypto-economy.
The quantity of tokens available has not yet been fully distributed. Currently, more than 60% of LINK, or nearly 630 million tokens, are in circulation. The rest will be distributed gradually in the future.
Ecosystem 🤝Chainlink's ecosystem is vast and offers deep integrations in many areas of blockchain and DeFi. Chainlink plays a crucial role in the operation of several dApps, DeFi protocols, traditional enterprises, and smart contract projects thanks to its reliable and decentralised oracle solutions. Here is an overview of the key elements of this ecosystem:
DeFi (Decentralised Finance)
Chainlink is a central component in many DeFi protocols. By providing reliable and up-to-date data, it enables DeFi applications to execute accurate and secure smart contracts. Here are some examples of DeFi projects using Chainlink:
Aave: An Ethereum-based lending and borrowing protocol that uses Chainlink to obtain reliable asset price data.
Synthetix: A synthetic asset creation protocol, which relies on Chainlink for price feeds to ensure that the value of its synthetic assets accurately reflects that of the underlying assets.
NFTs and gaming
In the NFTs and blockchain gaming sector, Chainlink is used to embed random elements in a transparent and verifiable way, ensuring fairness in draws and rewards. A notable example:
Axie Infinity: This popular blockchain game has integrated Chainlink for its random number generators (RNGs), which are required for certain aspects of the gameplay.
Partnerships with traditional businesses
Chainlink has also penetrated the world of traditional businesses. Several companies are using Chainlink's oracles to obtain reliable data in sectors such as insurance, payments and logistics:
Google Cloud: Uses Chainlink to bring verifiable data to smart contracts based on Google infrastructures.
SWIFT: In September 2022, Chainlink and SWIFT, the interbank payments giant, announced a joint experiment. This aimed to use Chainlink's Cross-Chain Interoperability Protocol (CCIP) to transfer digital assets between multiple blockchains.
Proof of Reserve
Another innovative feature of Chainlink is Proof of Reserve (PoR), which allows platforms to transparently prove that they actually hold the reserves of assets they claim to have. This is particularly used by stablecoin projects and centralised exchange platforms:
BitGo: Integrates Chainlink to ensure the transparency of bitcoin reserves deposited in BitGo's vaults.
21Shares: 21Shares Integrates Chainlink Proof of Reserve to increase the transparency of the Wall Street-listed ARK-21Shares Bitcoin ETF.
Paxos: Integrates Chainlink to ensure transparency of reserves in the vaults of Paxos, issuer of several stablecoins, such as USDP.
Cloud and IoT services
Chainlink also extends to the Internet of Things (IoT) and cloud services, connecting physical and digital systems with smart contracts. This includes:
Amazon Web Services (AWS): Chainlink integration enables AWS systems to interact with blockchains, facilitating the automation of certain logistics processes.
DHL: Is experimenting with Chainlink to obtain real-time data in logistics and transport to create smart contracts based on specific events, such as the delivery of goods.
Multi-chain ecosystem
Chainlink also extends to blockchain networks outside Ethereum. Its oracles are compatible with a wide variety of blockchains, offering decentralised services across different platforms:
BNB Chain: Integrates Chainlink to access trusted price feeds.
Polygon: Uses Chainlink to enhance its DeFi capabilities and integrate accurate data.
Solana: Chainlink deploys its services on Solana, strengthening that blockchain's DeFi ecosystem.
Insurance systems
Chainlink is also being used in applications that aim to automate and improve insurance and payment systems, including with:
Arbol: A climate insurance platform that uses Chainlink to integrate weather data into smart contracts.
Diversification: CCIP 💯 Chainlink's CCIP (Cross-Chain Interoperability Protocol), launched in 2023, facilitates secure communication and interaction between different blockchains. By enabling smart contracts to exchange data or assets across multiple chains, CCIP solves one of the main challenges of the blockchain ecosystem: interoperability.
This protocol enables developers to create decentralised multi-chain applications, where contracts deployed on different blockchains interact without complexity, opening up new possibilities for DeFi and beyond.
CCIP relies on the robustness of Chainlink's decentralised oracles to guarantee the integrity of cross-chain transactions and prevent replay attacks - a form of identity theft.
This protocol fosters the emergence of truly interoperable decentralised finance, where borrowing, token swaps and governance can operate simultaneously across multiple chains. This advance promises to become a key element of the blockchain infrastructure, meeting the growing need for interoperability while maintaining a high level of security and reliability.
However, the approach has limitations: a small number of integrated networks (only EVM chains, including Ethereum, Optimism, Arbitrum, Polygon, Base, etc.) and higher transfer costs than other interoperability solutions such as general message passing infrastructures (Wormhole, Layer Zero or Hyperlane).
However, it seems to offer better security than traditional bridges.
We have devoted a full feature to the various proposals for resolving blockchain interoperability issues.
Regulation ⚖️ The European framework for crypto-assets does not pose any particular problems for Arbitrum. However, there are still uncertainties in the US, as the project has raised funds in exchange for its token from US venture capital funds.
This could requalify the project as an illegal issuance of financial securities, especially as its start-up, Chainlink Labs, still plays a significant role in development.
To avoid possible prosecution in the United States, Chainlink has every interest in speeding up its decentralisation.
Competition ⚔️ Chainlink is the leader in oracles and is involved in securing $23 billion in assets spread across various blockhains (44% market share). Here's a list of its main competitors and how they stand out:
WINKLink (13% market share)
WINKLink differs from Chainlink in its focus on the TRON ecosystem, its specialisation in decentralised gaming and betting-related applications, and its closer integration with DeFi dApps on TRON. Chainlink, on the other hand, is a much broader and widely adopted network of multi-chain oracles, which plays a key role in blockchain interoperability and in a variety of sectors ranging from decentralised finance to traditional businesses. WINKLink was securing $6.5 billion in assets as of October 2024.
Chronicle (13% market share)
Chronicle, originally developed for MakerDAO and Spark - two major DeFi players - has the core function of providing accurate asset prices. This accuracy is crucial for MakerDAO to maintain the stability of its stablecoin DAI. Although projects outside this ecosystem, such as Euler, are beginning to use it, their adoption remains limited. By October 2024, Chronicle was securing assets worth $6.5 billion.
Pyth (9% market share)
Pyth is a decentralised oracle network focused primarily on providing real-time financial data, such as prices of stock market assets, commodities, and cryptocurrencies (whereas Chainlink is generalist). It is backed by financial institutions and market players, including exchanges and high-frequency trading companies. Pyth specialises in providing ultra-accurate, low-latency data for DeFi protocols that require instant prices for highly volatile assets. By October 2024, Pyth was securing assets worth $4.7 billion.
Redstone (5% market share)
Redstone is also a generalist oracle network but takes an innovative approach in terms of architecture with its "Data Availability Layer" model. Unlike Chainlink, where data is integrated directly into smart contracts via node operators, Redstone uses a decentralised model in which data is only stored temporarily off-chain. Users can integrate them directly when they are needed in a transaction on the blockchain, reducing costs and enabling a larger amount of data to be processed quickly. This model offers greater flexibility and lower costs for users who don't want to constantly pay for continuous data streams.
Risks and limitations 😨 Chainlink, although a leader in the field of decentralised oracles, is facing several challenges posed by competitors bringing targeted innovations.
Chainlink has a reputation for being more expensive than Redstone, which, thanks to its off-chain temporary storage model, offers significant flexibility and cost reduction for users. This approach is particularly attractive for DeFi projects that do not require continuous data streams, allowing them to save on costs.
Chainlink's very generalist aspect can also be a disadvantage against specialist competitors such as Pyth. The latter has focused on providing real-time financial data with ultra-low latency, thanks to its strong partnerships with financial institutions, stock exchanges and high-frequency trading companies (Jane Street, Wintermute, Binance, etc.). This makes it a preferred solution for DeFi protocols requiring ultra-precise pricing in sectors such as trading and traditional financial assets.
To date, Chainlink shows no growth: its revenue level has been steadily declining since 2021. Moreover, 98% of its business comes from providing price data.
The development of its CCIP interoperability solution offers interesting potential, but its revenues are still negligible (less than $700,000 in the first nine months of 2024).
Roadmap 🗺️ Chainlink's roadmap focuses on several key areas: the development of asset tokenisation with solutions such as the Chainlink Digital Assets Sandbox to accelerate innovation in financial institutions.
The evolution of the Cross-Chain Interoperability Protocol (CCIP) includes integration with more blockchains and tokens, as well as technical improvements to facilitate its adoption.
Other priorities include expanding Data Streams to other blockchains and improving Chainlink Functions (which simplifies the management of a node).
Where can you buy the LINK token? 🛒 The LINK token is available on almost all exchange platforms, whether centralised or decentralised.
The Big Whale's opinion 🐳 Chainlink is a key player in the decentralised oracle ecosystem, securing over $23 billion in assets and playing a central role in DeFi.
The project is widely adopted in the blockchain ecosystem, with more than 1,600 projects and integrations on over 70 networks, including Ethereum, Binance Smart Chain, Polygon and Solana. This mass adoption reinforces its reliability and credibility against competitors with more limited reach.
Chainlink offers a proven decentralised model, using a network of independent nodes to validate data from a variety of sources. This approach guarantees enhanced security, minimising the risks of data manipulation or oracle failure.
Chainlink's integration makes it a relevant player in the development of tokenisation, connecting real assets (stocks, bonds, commodities) to blockchains via reliable and secure data. Tools such as Chainlink's Digital Assets Sandbox make it easier for financial institutions to experiment with and adopt asset tokenisation in a secure environment.
However, despite its leading position, Chainlink faces major challenges. Its reliance on price streams, accounting for 98% of its revenues, limits its ability to diversify its services.
In addition, its revenues have been declining since 2021, and its solutions are perceived as expensive compared to competitors such as Redstone, which offers a more flexible and cost-effective architecture thanks to its off-chain temporary storage model. Pyth, meanwhile, stands out for its specialisation in real-time financial data and could well increase its market share.
In the face of these competitors with more specialised or less expensive models, Chainlink needs to rethink its strategy. To remain competitive, the company will need to cut costs, strengthen its innovations - notably with its CCIP protocol - and broaden its use cases beyond simple price feeds to diversify its revenues.
