Chainlink’s Scalability Upgrade Is a Breakthrough for Decentralized Finance

Chainlink’s Scalability Upgrade Is a Breakthrough for Decentralized Finance

By Austin Reihl | Cyberfeed | 28 Feb 2021


Chainlink is launching Off-Chain Reporting (OCR), a scalability upgrade to make more data available on-chain.

 

The OCR solution is a scalability solution that aggregates data off-chain. This scalability upgrade is a breakthrough for the decentralized finance (DeFi) space. With the decentralized oracle provider’s most robust upgrade to date comes new use-cases for smart contracts and an overall increase in throughput equating to 10x more on-chain data. OCR is the network’s first major update since the main net launch in May of 2019.

 

The company says the launch of OCR represents the single most significant upgrade in the history of Chainlink. It will act as the foundation on which it plans to accelerate the launch of further additional oracle networks for DeFi and the smart contract ecosystem as a whole.

 

A Brief History of Chainlink

 

Sergey NazarovCEO and co-founder of Chainlink Labs, said the upgrade would not only benefit the DeFi sector but enable Chainlink to expand beyond price feeds.

 

Chainlink is designed to connect blockchains with real-world data and has carved out an undeniable reputation as the standard for doing so. Since its launch, Chainlink has become the dominant decentralized oracle provider within the decentralized Ethereum (ETH) financial ecosystem, with over 300 projects integrating Chainlink oracles. The startup received the honor of being named one of the 100 most innovative Tech Pioneers of 2020 by the WEF (World Economic Forum). Meanwhile, the LINK token, which reached new highs yet again this month, was one of the best-performing crypto assets in 2020.

 

During the last twelve months, the team behind Chainlink had been working to increase the amount of data it provides on-chain. It has achieved this with the rollout of new features such as decentralized Price Feeds, Proof of Reserve, verifiable randomness, and more. However, Chainlink says that the OCR scalability improvements will accelerate this trend. Chainlink developers anticipate that this increase in on-chain data will enable a new wave of innovation across the smart contract ecosystem, including DeFi, decentralized insurance, and blockchain gaming.

 

The OCR Upgrade

 

The upgrade spent over a year in development and radically overhauls how Chainlink oracles nodes pull data from off-chain events. Before the OCR upgrade, data had to be brought on-chain and then aggregated. Many of you are probably more than familiar with the cost-prohibitive fees a process such as this would incur (known as Ethereum gas). Now, however, the data aggregation relied upon by Chainlink oracles can happen entirely off-chain, reducing node operators costs by up to 90%, as they will no longer have to pay for multiple transactions to bring data on-chain for aggregation. It also dramatically increases the amount of data that the nodes can handle, ultimately stimulating the DeFi ecosystem in its entirety.

 

The announcement stated that the most immediate benefit to the DeFi ecosystem is a tenfold increase of real-world data available to smart contract applications. The solution means that smart contract developers will now have the ability to use newly available datasets across a more diverse variety of assets, real-world events, and blockchains, allowing the service of new industries along with many other innovative use-cases.

 

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OCR has successfully been deployed across the vast majority of Chainlink price-feeds, including the widely used ETH/USD and LINK/USD feeds. The upgrade is currently working towards implementation with all existing and all future price-feed oracle networks in the future. Consequently, the ETH/USD price-feed has achieved a rather broad increase in decentralization of the network.

 

Currently, the network consists of 31 independent and security-reviewed node operators.

 

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The OCR upgrade saw most of its development by Dr. Ari Juels, Chief Scientist at Chainlink Labs, who joined Chainlink as Head of Research and Development this past summer. Next to Juels was Ben Chan (formerly of BitGo), alongside Christian Cachin – a Swiss cryptographer, computer scientist, and ex-head of research at IBM. Together, the trio successfully developed the new OCR upgrade and scalability solution recently implemented by Chainlink.

 

Potential New Use-Cases

 

The team at Chainlink spent the last year focused on rapidly increasing the amount of data it provides on-chain through its price feeds— which it has worked on continually expanding. However, the new OCR upgrade makes for a variety of innovative new use-cases beyond price data. Other services include weather data, trustless and minimized computation for applications to verifiable randomness for gaming, as well as fair-sequencing to combat front-running, along with an improvement to Keepers, a Chainlink application for maintaining smart contracts.

 

Other services provided by Chainlink that will benefit from OCR include Proof of Reserve (PoR), a mechanism for enabling oracles to provide on-demand data about reserve funds, such as those held by stablecoins. For example, POR has already seen implementation by the tUSD stablecoin and crypto-custodial service BitGo.

 

Chainlink anticipates the OCR solution will result in a 10x increase in the real-world data oracles can bring on-chain and thus make available for smart contract applications. The growth of DeFi growth can be linked directly to the rate of data made available on-chain. The significance of a 10x increase in on-chain data likely means another wave of innovation across the DeFi sector, decentralized insurance protocols, and even blockchain-based gaming.

 

Summary

 

As well as increasing the amount of data available on-chain via the launch of new oracle networks, OCR also enhances the Chainlink Network by the increased decentralization of oracle networks to generate additional accuracy, availability, and tamper-proof reliability for Chainlink users. Developers will also gain access to a diverse set of assets: data on real-world events from marketplaces and data from other blockchains, such as Tezos, for instance, and even data from mainstream financial applications – providing the infrastructure for servicing new industries and exciting use cases.

 

The OCR upgrade promises to galvanize smart contract development – a sector that Chainlink CEO Sergey Nazarov has focused on for 12 years. Reduced on-chain network congestion by lessening the load that Chainlink oracles place on high-demand blockchain networks, like Ethereum, can now rapidly provide data to smart contracts, even during blockchain network congestion and extreme market volatility. By aggregating data off-chain, the Chainlink oracle network provides trust minimized computation without requiring each node to pay on-chain transaction fees, drastically improving network efficiency.

 

Nazarov stated that the need for the OCR upgrade is speaking to a growing demand for a reliable provider of high-quality data across the smart contract ecosystem. For Nazarov, however, the most exciting thing is for Chainlink to provide a vital piece of infrastructure in servicing smart-contracts. Unbeknownst to many, he even registered the domain for smartcontracts.com on October 25, 2008, six days before the Bitcoin whitepaper was published.


Austin Reihl
Austin Reihl

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