As the leading project of decentralized oracles, Chainlink has developed rapidly, with total guarantees (TVS) exceeding US$57 billion. It released version 2.0 of its white paper last year, showing the vigorous development of its ecosystem. However, the market performance of LINK tokens is worrying. Once in the top ten by market capitalization, it is now barely in the 20s, and the price has dropped nearly 75% from its highest point. This phenomenon is similar to the trends of many DeFi blue chips such as UNI, AAVE, etc., which makes people feel regretful.
Despite this, as an oracle in Web 3, Chainlink’s potential and value are still widely optimistic. Next, we will delve into the fundamentals of LINK and its future application scenarios.
Fundamental analysis of LINK
1. The market leader of oracle machines: As the leader of oracle machines, Chainlink occupies 90% of the market share. This advantage makes it unique in the highly competitive blockchain ecosystem. To date, Chainlink has provided data support for more than 1,000 protocols and protected on-chain assets worth nearly $57 billion.
2. Release of the 2.0 version of the white paper: Last year, LINK released the 2.0 version of the white paper, demonstrating its ambitions. The oracle function is only one aspect, and more application scenarios will be covered in the future to meet the growing market demand.
3. Cooperation with well-known institutions: Chainlink has cooperated with well-known institutions such as AccuWeather and the Associated Press for data verification, which not only enhances its market credibility but also lays a solid foundation for future development. Former Google CEO Eric Schmidt and Diem co-founder Christian Catalini also serve as strategic advisors to Chainlink Labs, further enhancing their expertise.
The necessity of oracles
So, what exactly is an oracle? Why do we need it?
Oracles are an indispensable part of blockchain technology because blockchain cannot directly obtain data outside the chain and in reality. Oracles provide reliable data sources, including random numbers, lending prices, financial derivatives prices, stable currency exchange rates, insurance data, etc. Through various mechanisms, oracles protect the security of data and ensure its accuracy and reliability.
Application scenarios of LINK oracle
1. Obtain information such as token prices: DeFi and oracles are natural partners. Many DeFi lending projects use oracles to obtain real-time token prices. For example, Maker's US dollar stable currency DAI can obtain the real-time exchange rate of DAI through an oracle, thereby maintaining its value stability.
2. VRF random number generation: Chainlink’s random number generation service (VRF) uses the on-chain cryptographic proof mechanism to generate verifiable random numbers. In the future, more and more game finance (GamFi) and NFT projects will require this feature. Users can prove that the random numbers are fair because neither gamers, developers, nor third parties can tamper with or manipulate the generated random numbers.
3. Off-chain computing: Off-chain computing is a blockchain expansion method that has not yet received widespread attention, and many projects have begun to explore it. In the future, off-chain computing may become the third solution for blockchain expansion, and Chainlink has a natural advantage in this regard.
4. Automatic maintenance of smart contract services: Chainlink’s Keepers service has been launched, which can automatically maintain the triggering clearing function of smart contracts. In addition, the white paper also mentions decentralized identity (DID) services. In the future, Chainlink may even begin to provide cross-chain bridging services due to its natural ability to access all chains.
5. Obtain real-world data: Decentralized insurance products trust codes more than traditional insurance companies. For example, the flight delay insurance and hurricane insurance launched by Etherisc can use oracles to obtain data on whether flights are delayed to determine whether claim conditions are triggered.
Chainlink’s value capture mechanism
1. Usage scenarios of LINK token: As the native token of Chainlink, LINK token’s main value comes from two usage scenarios in the Chainlink system: First, users need to use LINK tokens to pay nodes to obtain off-chain information. ; Second, nodes need to pledge LINK tokens to prove their credibility. If they deliberately provide wrong information, they will be punished.
2. Launch of LINK staking function: Chainlink co-founder Sergey Nazarov said that the oracle network is a new type of consensus and it is difficult to easily copy the staking function of other protocols. The on-chain staking feature will be officially launched in 2022, allowing LINK holders to secure the network and earn rewards by locking part of LINK into the protocol, which will further enhance demand for LINK.
The future of cross-chain interoperability
With the development of multi-chains, Chainlink has been connected to multiple public chains, unlocking huge value for global DeFi and traditional finance. The launch of cross-chain functions will greatly promote the circulation of assets on the chain and protect their safety.
In 2021, Chainlink has connected to multiple top L1 and L2 blockchains, including Arbitrum, Avalanche, BNB Chain, Ethereum, etc., showing its expansion potential.
In summary: Chainlink, as a leader in oracles in Web 3, will surely gain more recognition from the market over time. As blockchain technology continues to develop, Chainlink's future will be brighter and it will become one of the cornerstones of the Web 3 era.