As we explored in our introductory post on Chainlink, smart contract technology is creating new and exciting ways for people to exchange value and information without the need for a trusted intermediary, securing billions of dollars' worth of value across dozens of asset-classes.
From art, to web pages, to real estate, to insurance, assets are becoming digitized and decentralized at scale, enabling anyone with an internet connection to participate in their ownership. Smart contracts are the core piece of infrastructure facilitating this process, but they need a reliable way to connect to the outside world (the "oracle problem").
Chainlink (LINK) gives smart contracts a tamper-proof, decentralized way to interact with external data sources and systems, acting as an open-source “middleware” that protects them against data manipulation and downtime. Here are five sectors that rely on Chainlink's decentralized oracle network today.
Stablecoins are cryptocurrencies that aim to hold a fixed exchange rate against other currencies and assets like the US dollar, cryptocurrencies, or precious metals. Some of the most popular stablecoins include USDT and USDC, which aim to trade at 1:1 against the US dollar, backed by dollars held in bank accounts.
In order to keep their peg, stablecoins need an accurate way to track the value of their underlying asset. The Chainlink network offers decentralized price feeds of all major assets, enabling stablecoins to maintain the integrity of their reserve ratios in real-time.
On-chain Reserve Monitoring
Cryptocurrencies that are based on one blockchain can be ported over to other blockchains if they are “wrapped” — locked in a vault in their native blockchain, and then represented 1:1 in a token that circulates on the other blockchain. Wrapped Bitcoin (WBTC) is the most popular ported token, with tens of thousands of BTC locked in a reserve on the Bitcoin blockchain, circulating on the Ethereum blockchain as the WBTC ERC-20 token.
Chainlink actively monitors the reserves on both blockchains to make sure all the WBTC tokens stay fully collateralized at all times, opening up the liquidity of cryptocurrencies beyond their own ecosystem.
Unlike in traditional finance, decentralized finance (DeFi) enables anyone with an internet connection to borrow, lend, and earn interest using almost any type of asset. The global DeFi market has exploded in the last 12 months, with the amount of capital deposited into DeFi platforms having increased from $600m in March 2020, to over $38 billion today.
For these systems to function without central authorities that moderate collateral levels, interest rates and currency values, they can use a decentralized oracle solution like Chainlink to access reliable market data.
One of the most popular buzzwords within DeFi is “yield farming” — the process of depositing crypto assets into liquidity pools and earning interest on them. Yet in the past, bad actors have used price feeds as an attack vector to exploit protocols that pool together assets, as if they can manipulate the data feeding into the pools, they can change the outcomes of how and where they distribute funds.
Several DeFi protocols are using Chainlink to provide tamper-proof price feeds and track the value of deposits, ensuring users receive the correct amount of yield, and remain protected from losses.
Supply chain was one of the earliest industries to begin experimenting with smart contract systems, using the technology to record the movement of goods on an immutable decentralized ledger where all information remains open and transparent, updated in real-time.
As goods progress through their various stages of journey and move from one location to another, smart contracts need to interact with external data sources like APIs, IoT sensors, and data feeds. Chainlink oracles can connect smart contracts to these sources in a decentralized, tamper-proof way.
As seen above, Chainlink is accelerating the usage case of smart contracts with its tamper-proof middleware network, enabling the technology to supplant intermediaries in finance, insurance, healthcare, supply chain, and ultimately realize many of the original promises of blockchain technology.