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Intro
Chainlink was built by the parent company SmartContract in 2014 with the goal of creating a new industry around smart contracts and easy-to-use contractual agreements regardless of skill level or expertise. SmartContract raised seed money from San Francisco-based Data Collective, an investment group, before the Chainlink ICO in 2017.
The network currently supports Ethereum, Bitcoin, Binance, and Hyperledger, with over 200 integrations in the pipeline, including 50+ additional blockchains. Some other blockchain projects intending to use Chainlink include Celer, Polkadot, Synthetix, Olympus Labs, Wanchain, Kaleido (ConsenSys), and ZeppelinOS. Chainlink is also crucial to DeFi projects like Kyber Network, AVA, Graph Protocol, Synthetix, and bZx, as they rely on Chainlink’s oracles for ETH price feeds.
As a blockchain-agnostic oracle framework, Chainlink is used by a variety of organizations, ranging from DeFi applications to traditional enterprises. The network is operated by experienced DevOps and security teams such as T-Systems, a subsidiary of Deutsche Telekom, and its performance metadata can be checked at market.link. Chainlink's team is composed of prominent engineers and academics such as Chief Scientist Ari Juels, Chief Research Officer Dahlia Malkhi, and Chief Product Officer Kemal El Moujahid, who are highly regarded in the blockchain oracles field and have developed innovative solutions like DECO, Town Crier, VRF, and Mixicles.
Partnerships have been a tremendous catalyst for LINK in the past, most notably Google, Intel, and Oracle. Chainlink’s real use case is demonstrated by its long list of partners, as well as SWIFT and Google from the traditional business world. Parent company Smart Contract Limited partnered with SWIFT after completing a proof of concept trial in June 2017. Chainlink’s price feeds are secured by nodes operated by enterprise partners such as Deutsche Telekom’s T-systems, data providers, and professional DevOps firms.
SWIFT's use of Chainlink's Cross-Chain Interoperability Protocol (CCIP) in a proof-of-concept was disclosed in Q4 2022. The plan is to enable SWIFT messages to direct on-chain token transfers across the thousands of financial institutions on the SWIFT network. In addition, Two Sigma Securities, one of the major market makers on traditional financial markets, has joined Chainlink as a data supplier to increase the use cases for on-chain smart contract applications
Arguably one of the most important (but often overlooked) factors in a crypto project’s success is the project’s ability to build and sustain a dedicated and fanatic user base. Fortunately for LINK, they have one of the most dedicated and vocal communities in the crypto industry, going by the name “LINK Marines,” a jab at the once equally relentless XRP community that refers to itself as the “XRP Army.” The main LINK Twitter page boasts ~850,000 followers, while the subreddit contains over ~78,000 subscribers. Google Trends results for Chainlink (below) are modest compared to the likes of Bitcoin and Ethereum.
DTCC Pilot
On May 17, the Depository Trust and Clearing Corporation (DTCC), the world's largest securities settlement system, announced the completion of a pilot project in collaboration with Chainlink and major financial institutions such as BNY Mellon and JP Morgan. This initiative builds upon the DTCC Mutual Funds Profile Service I (MFPS I), an industry standard for transmitting Net Asset Value (NAV) data, including fund prices and rates. The project aims to standardize the dissemination of fund information across various blockchains without affecting initial workflow stages, such as fund data calculation.
The Growing Importance of Tokenization
The pilot project is expected to accelerate real-world asset tokenization, a growing industry segment. Tokenized government securities, for instance, have seen a 20-fold increase in assets under management since early 2023, growing from nearly $100 million to almost $2 billion (21co on Dune Analytics). This growth underscores the increasing relevance and potential of blockchain technology in transforming traditional financial systems.
Current and Enhanced DTCC Model
In its current form, the DTCC service manages the daily transmission of price and rate data for numerous mutual fund securities. This NAV model links funds and service providers to distributors, collecting and disseminating relevant data through message queues and file-based methods at regular intervals. The pilot introduces Smart NAV, which enhances the dissemination capabilities of MFPS I by transforming data into a modern structure, wrapping it in a blockchain transaction, and routing it through Chainlink's Cross-Chain Interoperability Protocol (CCIP). This process allows the transmission of fund data across nearly any blockchain, whether private or public. Once transmitted, a CCIP-based smart contract forwards the data to Smart NAV-specific smart contracts, which validate permissions and store data for parties to consume.
Workflow Improvements and Efficiency Gains
The new workflow marks a significant improvement, enabling a more efficient way to share real-time and historical information. It eliminates the need for institutions to connect directly to each blockchain holding tokenized assets, a complex task to manage independently. Chainlink's role is pivotal in creating a seamless cross-chain tokenized environment, which represents a key future development. Currently, tokenized assets span eight networks and are expected to proliferate further.
Monitoring the Pilot Phase
Although the project is in its pilot phase, its potential impact on the nascent tokenization industry warrants close observation. The pilot will demonstrate how blockchain-based systems can standardize and distribute data, reduce market practice disruptions, and simplify access to historical data. These advancements are anticipated to enhance efficiency, automation, and innovation across various financial sectors.
Economic Implications for Chainlink
From Chainlink's perspective, this integration could be crucial for the network's economic growth, given the larger market opportunity for interoperability compared to other products like smart contract automation, verifiable on-chain randomness, and data feeds. To provide context, Chainlink has generated $384 million in revenue from price/data feeds compared to $750,000 from CCIP, primarily because feeds are Chainlink’s oldest and most established product. However, CCIP has the potential to generate much higher revenue, as the total addressable market for tokenization is projected to reach $10 trillion by 2030. A critical factor in achieving this will be the interconnectivity between different counterparties and the seamless onboarding of consumers, who will not need to differentiate between various infrastructure layers.
