Some Use Cases that LINK enables:
“Derivatives smart contracts deployed on Opium Exchange are connected to Chainlink’s price reference data feeds, reading pricing data at execution of the derivatives contract to calculate payouts. By virtue of Chainlink’s open visualizations of the Price Reference Data oracle networks, traders on Opium Exchange can independently verify the accuracy and on-time delivery of prices at contract maturity.” –Opium + Chainlink integration
Money is the common medium used today to value and exchange assets. Financial products provide different vehicles in which people can maximize the value of their money via different strategies like hedging, speculating, earning interest, collateralizing loans, and more. However, traditional finance is often gated, wherein well-capitalized entities have disproportionate control over the issuance of money and the creation/offering and settlement of financial products. The result is a lack of universal accessibility to certain financial products and the introduction of counterparty risk, where the larger entity has more influence on whether the financial product is fairly honored according to the pre-agreed upon terms.
Blockchains and smart contracts bring deterministic execution to financial products, eliminate moats around financial product creation, and provide tamper-proof for on-chain assets. Chainlink oracles play a critical role in creating advanced smart contracts representing financial products and monetary instruments, particularly those that execute based on market data like FX rates, interest rates, asset prices, indices, and more.
Stablecoins are on-chain tokens that are pegged 1:1 to fiat currency, commonly the US dollar . They provide users with the ability to hold a non-volatile cryptocurrency. While centralized stablecoins are backed by fiat in an off-chain bank account, decentralized stablecoins are commonly overcollateralized by on-chain cryptocurrencies and require price data to maintain full collateralization (e.g. a user’s collateral is worth over 150% the value of their loan).
DeFiDollar is an example of a decentralized meta-stablecoin (a stablecoin backed by multiple stablecoins) that uses Chainlink Price Feeds to track the price of the underlying assets including sUSD, USDT, DAI, and USDC . In the event that one or multiple of these tokens deviate from their 1:1 USD peg, thus causing DUSD to also lose its peg, a rebalance is triggered between the four reserves in order to preserve the dollar parity of DUSD.
Bonds are a financial agreement that enables the raising of short term capital by issuing debt to be paid back at a later date. Traditional bond contracts can be replicated as an automated smart contract through the use of Chainlink oracles, which provide the data required for settlement such as interest rates, debt scores, fiat payments, and more.
Chainlink has already demonstrated such capability with a POC with SWIFT, where oracles were used to aggregate interest rates from five major banks, fetch debt score data from S&P , and generate an interest payment in the form of an ISO20022 SWIFT payment message. As a multi-trillion dollar industry, bringing bonds onto the blockchain can greatly reduce counterparty risk and lower operational costs across the board.
Tokenized Portfolio Management
A unique use case for smart contracts are non-custodial “smart portfolios” that automatically rebalance user portfolios by executing trades on their behalf based on preset conditions. This provides users with advanced financial products that programmatically manage investments based on the current market wide price of specific assets and tokens. These trading strategies can be tokenized, allowing users to transfer and use these tokens within other smart contract applications.
Tokensets is one such example of a protocol that uses Chainlink Price Feeds to generate various “Sets,” tokenized positions that execute trades on the behalf of users. These Sets are based on (TA) metrics such as the or moving averages, designed to catch key price action trends. Additionally, users can use their Set tokens as collateral within other protocols, such as the Aave money market, to gain additional capital efficiency.
As discussed in our recent education piece, tokenized real-world assets are among the most promising use cases for blockchain and smart contract technology. They take real-world assets and represent them on the blockchain as a token. Compared to traditional assets, tokenized assets benefit from global accessibility, permissionless liquidity, on-chain transparency, and reduced transactional friction.
DeFi Money Market (DMM) is a project that represents real-world assets on-chain and allows users to invest in the revenue streams of these assets through mTokens, which pay a stable fixed yield to holders. DMM uses Chainlink oracles to calculate the valuation of its real-world assets, which initially consist of car equity loans, before minting any new mTokens to ensure full collateralization by assets existing off-chain.
Proof of On-Chain Reserve
Wrapped cross-chain assets—cryptocurrencies/tokens native to one blockchain that are locked into a contract and then “unlocked” on another blockchain—are becoming increasingly popular due to their ability to increase the collateral types available within the DeFi ecosystem. However, in order to ensure the integrity of DeFi applications supporting wrapped asset deposits, Proof of Reserve reference contracts can be used to supply data regarding the true collateralization of these on-chain assets.
Two protocols using Chainlink to power Proof of Reserve reference feeds include BitGo’s WBTC and Ren Protocol’s renBTC , representing over 90% of the wrapped Bitcoin on Ethereum and representing billions in USD value. These Proof of Reserve reference feeds provide DeFi protocols with the data they need to autonomously verify collateral reserves and swiftly protect user funds during an undercollateralization event. Proof of Reserve reference feeds can also be used to track the collateralization of assets beyond cross-chain tokens includes stablecoins and real-world , further increasing the collateral available within DeFi.
Proof of Off-Chain Reserve
Bringing real-world assets onto the blockchain provides a large potential to expand the economic activity of DeFi, as seen with the adoption of fiat-backed stablecoins. However, this requires the underlying collateral to be held by a central custodian , disconnecting the on-chain tokenized representation from the actual off-chain asset itself. Through Chainlink Proof of Reserve, smart contacts are able to autonomously audit the collateralization of real-world asset backed tokens, protecting users during black swan events.
An example of this is the TUSD Proof of Reserve reference feed that provides DeFi applications with data regarding the true amount of US dollars backing the stablecoin TUSD held by TrustToken’s off-chain escrowed bank accounts as reviewed by Armanino, an independent top 25 auditing firm in the United States. This collateralization data can be checked against the total amount of circulating TUSD tokens on various blockchains, as reported by the complementary TUSD Proof of Supply feed, to determine the collateralization of TrustToken’s tokenized USD.
Decentralized exchanges (DEXs) are on-chain trading venues that allow users to trade cryptocurrencies without taking custody of those assets or giving out personal information to a centralized institution. As DEXs grow in popularity, the desire for traditional trading strategies and advanced features currently available on traditional centralized exchanges grows in importance.
0x Relayer Bamboo Relay is an example of a decentralized exchange that uses Chainlink Price Feeds to power stop-loss order functionalities—conditional trading functions based on the price action of an asset. With aggregated market data from Chainlink, each trader’s stop-loss order will only be executed when the market-wide price of the asset surpasses a certain predefined threshold, preventing market manipulation attacks from falsely executing trades.
Many protocols rely on some form of staking—the locking of cryptocurrency collateral into a smart contract—in order to secure their crypto-economic networks. Staked collateral might help signal where rewards should be proportionally distributed, or it can be “slashed”—programmatically taken under certain conditions as a means of disincentivizing malicious behaviors.
For instance, AdEx requires its validator nodes to stake collateral and maintain high availability. AdEx uses Chainlink oracles to monitor node uptime and trigger the slashing of collateral should any node fall below the uptime requirements. This ensures that only high-quality node operators participate in the network, which in turn enhances the security of the entire platform.
Rebasing is a new financial primitive within DeFi that involves the act of adjusting the supply of a token as a means to maintain its peg to a specific reference asset, such as the US dollar . If the price of the token is above its peg during the rebase, then more tokens are minted and given proportionally to all token holders with the goal of lowering the per token price. Conversely, if the price of the token is below the peg, then a certain percentage of each holder’s tokens are burned to raise the per token price.
Ampleforth is an example of a protocol that uses Chainlink Price Feeds to power its native rebasing functionality. The total supply of AMPL is rebased on a daily basis to track the current Consumer Price Index ( CPI ) rate, an index from the Bureau of Economic Analysis on the current value of the adjusted 2019 US dollar . Both the of AMPL and the CPI index is provided to the Ampleforth protocol by Chainlink oracles.
Yield Farming is a new financial primitive within the DeFi ecosystem that is used to bootstrap liquidity and facilitate the fair distribution of a protocol’s governance tokens. In most yield farming applications, users who provide liquidity to the protocol are granted a reward in the form of the protocol’s native governance token, serving as a growth subsidy.
Two protocols using Chainlink oracles for their Yield Farming mechanism are Plasm and StrongBlock. Plasm uses Chainlink price oracles to determine the amount of value users have locked into the protocol and distribute rewards accordingly, while StrongBlock calculates the USD value locked in Community pools at the end of every 24 hours.
I'm thinking about selling my car as I am up on the equity on it and then investing the proceeds into LINK. Might list it on Facebook Marketplace now. I don't really need it since we're working from home.