Hey folks, if you’ve been following all the different crypto-narratives lately, you’ll know that the tokenization of real world assets (#RWA) has been one of the most popular over the last 6 months, and arguably the one that’s brought us out of the last bear market. In today’s article, I’m going to point out why I think we’re going to be in for a 2nd-round narrative once again fueled-by-#RWAs and why Chainlink ($LINK) will most likely be at the center of it.
Let’s go ahead and dive in shall we?
First of all, what’s the use cases for tokenization?
When it comes to tokenization, a majority of people simply think of overpriced jpegs like NBA Topshots or Tangible’s failed attempts to tokenize real estate — the sexier examples that are easily able to grab people’s attentions through headlines and pop culture references. However if we zoom out a bit and get into the “boring stuff,” tokenization can potentially be incorporated into virtually anything that could benefit from verification through a trustless, decentralized manner via blockchain. The most common that I’ve heard of include:
Product Logistics —whether it is by ground, sea, or air, blockchain tech can offer greater transparency and much more efficiency for accounting and tracking the billions if not trillions of tons of goods that are shipped around the world every year.
Identify Verification — similar to when you use a smart contract to verify who you are when utilizing a DeFi app, there’s no reason why identity can’t be verified in the real world using blockchain tech as well.
Government — it should go without saying that whether purposefully or negligently, government resources and budgets have the potential to be grossly mishandled. Blockchain chain technology could provide an open transparent verifiable way to reduce corruption and waste.
The biggest institutions in the world are now giving the thumbs up to tokenizatioan
Now one might argue that this has been all said and done before…and you’d be right. Companies during the last bull market were trying to build out their own blockhcains, most notably Microsoft’s Azure and Facebook’s Libra — both projects that were retired during the last bear market.
So as we’re ramping up during this bull market, it comes to no surprsie that the leaders of some of the biggest institutions of the world — namely Jamie Dimon of JP Morgan and Larry Fink of Blackrock — have explicitly stated that they support tokenization, or more specifically, using smart contract to move or verify assets.
So now that we know that blockchain technology has its use cases for the real world and has the green light from the world’s largest institutions, what sort of blockchain technology are they going to use?
Enter Chainlink’s CCIP
For many in the cryptospace, the majority of people probably are only familiar with Chainlink for it’s token $LINK, or taken a step further — a price oracle which gives price feeds for a countless number of DeFi applications.
Yes, Chainlink does can provide accurate price feed, but it’d be a vast understatement to simply say that it was only a price oracle. Price feeds are simply just one of the facets that we see on the surface level when we’re trying to get accurate prices in crypto. In reality, Chainlink is better defined as “network of networks,” or an oracle network, where through its Cross Chain Interoperability Protocol (CCIP), allows essentially the transfer of data across ALL blockchains, regardless of whether or not they’re in a different coding language or format. In other words, CCIP can make incompatible systems compatible, creating a global standard for cross-chain services for finances, identify verification, product logistics, and much more.
CCIP’s fundamentals are perfectly suited for when guys like Jamie Dimon and Larry Fink are talking about tokenization — CCIP can connect different asset classes that are normally off-chain, and subsequently make them compatible to things on-chain, offering more security and more transparency, with all the trusted verification that we love about blockchain technology.
Why Chainlink? Why not something else?
To be clear, there are other CCIP-like competitors on the market, but nothing nearly as long-tested or as big as Chainlink. Founded in 2017, Chainlink clearly has the most trust within DeFi, and this holds a lot of weight with institutions and government agencies (more on this later). If you take a look at DefiLlama’s account of Chainlink’s total value secured (TVS), you can see that we’re a long ways off from where were were during the highs of the last bull cycle:
Currently around $20 billion in TVS, we’re only at a 3rd Chainlink’s previous all-time-highs, and this was without the incorporation of massive off-chain real world assets.
Conversely one of Chainlink’s newer competitors, Pyth Network, also has pretty solid tech but it only has around $2.19 billion in TVS, with an all time high of approximately $3.61 billion — roughly just a little more than 1/10th of Chainlink’s.
Pyth TVS https://defillama.com/oracles/Pyth
Without the proven track record and the proven ability to scale, it’s pretty doubtful that Blackrock and JP Morgan, who are in charge of some of largest assets in the world, would trust a company that hasn’t gone through what Chainlink has. In other words, networks like Pyth might have shinier bells and whistles, but if you’re entrusting the security of potentially quadrillions of dollars, the most important factor might be that it just doesn’t break when you need it.
Chainlink Integrations through Bear and Bull
With a combination of good tech and good marketing, Chainlink continues to announce new partnerships and integrations — all enhancing Chainlink’s network effects and potential utilization. Most notable was probably an announcement last September from the Depository Trust and Clearing Corporation (DTCC) that detailed a partnership with Chainlink that could potentially incorporate CCIP with SWIFT transactions via blockchain:
If you’re unfamiliar with SWIFT (Society for Worldwide Interbank Financial Telecommunications), this most likely means that you’ve probably haven’t had to make an overseas money transfer — it’s the general standard of how international wires or transactions are conducted. SWIFT has served its purpose for when it was first put together in the 1970s, but compared to the blockchain, SWIFT transfers at their fastest could still take up to a day (if not several days) and they can be quite costly.
SWIFT wire transfers are also estimated to handle around $5 trillion dollars a day, or nearly $2 quadrillion dollars a year. As I mentioned earlier, by comparison Chainlink currently secures roughly $20 billion dollars a day, a mere 0.4% compared to SWIFT’s daily global volume.
Moving beyond 2023, we’re barely 3 weeks into 2024 and we’ve already heard some major integrations and partnerships that will undoubtedly only enhance Chainlink’s utilization and networks effects even further. The two I’m most excited about include:
★ Integration of Circle’s Cross-Chain Transfer Protocol (CCTP) to “provide users with a secure and reliable way to transfer USDC across chains.” A significant step as this may lay the groundwork for all monetary transfers across the world.
★ Integration with UMA (a.k.a. #HuevosRancheros) still not yet officially announced, the UMA team has been cooking up something tastier than spicy eggs and sausage — a big partnership with Chainlink that doesn’t involve oSnap.
Great, so Chainlink is going to take over the world! Where’s $LINK come in?
The primary reasons why $LINK marines are so bullish on Chainlink’s future is that the token itself has two primary use cases —
(1) $LINK is the only medium in which one can pay for a Chainlink oracle
(2) $LINK node operators must provide $LINK as collateral, which is put at risk if they get slashed for doing something malicious
In other words, if Chainlink is even able to get 1 percent of annual SWIFT transactional volume to be secured through CCIP, this would lead to more than $18 trillion in TVS, a size that’s more than 900 times greater than what it’s securing now.
In full transparency, two months ago if you’d had asked me to get involved with $LINK, I would have simply told you no — that the gas fees on Ethereum Mainnet suck (they still kinda suck), and that $LINK was an outdated token from an outdated project.
Learning now that Chainlink’s history not only gives it added value for institutional adoption, it seems likely that eventually, Chainlink and CCIP will be the most likely choice that financial and non-financial institutions choose to integrate towards most financial (and even non-financial) transactions in the future. Could the hype around $LINK just be another crypto-bull market fad? Possibly, but I’m convinced that the world is going towards tokenization, and I don’t know of a better protocol primed for mass integration than Chainlink.
Once again, thanks for taking the time to read this and be sure to follow me on twitter (https://twitter.com/CryptosWith) to get all my latest updates.
Also, looking for a gift for your Crypto-loving/hating friend? Give them a REKT journal to cheer them up!
Disclaimer: And as a final reminder, this is not financial advice and this is for educational and entertainment purposes only. Please as always, do your own research and find what investments are best for you. Cheers everyone!