In this post, I will walk you through how Chainlink is used. I will show you which apps and companies are using Chainlink and the extent of its usage.
Chainlink usage in numbers
Chainlink’s external data sources are the most widely used resource across blockchains.
In total Chainlink has enabled more than 9 trillion dollars’ worth of transactions – that is transactions that have relied on a Chainlink oracle. Most often this will be one of Chainlink’s price feeds.
The total value secured i.e. deposits in the market that are secured by Chainlink oracles is $21 Billion based on market prices at the time of writing.
12 ways in which Chainlink is being used today
In my research, I was impressed to see the extent to which Chainlink is being used today. I will share the most prominent examples below.
However, I also want to highlight that Chainlink has done loads of pilot projects and proof of concepts which you can read about here.
What I have come to realize is that Chainlink is going to become the connector between any type of information and blockchains.
The scope of their work is truly amazing and I am convinced that Chainlink is going to play an important role in the future of blockchain technology.
Let’s take a look at the use cases.
1. Price feeds
The most popular Chainlink data feeds are its price feeds.
Here are some examples of how different protocols use Chainlink price feeds:
Lending and borrowing
Some of the first decentralized apps were Aave, Compound, and Liquidity. These are autonomous apps that do not rely on a central intermediary.
Yes, someone writes the code for them but they can work as is on their own without anyone needing to mediate.
For example, say you want to borrow $1,000. You can deposit $2,000 worth of ETH on Compound and take out $1,000 in USDT as a loan.
The whole process happens automatically and is encoded in the smart contracts of the app.
However, to know the value of the collateral you are depositing Compound needs to get access to the price. Chainlink nodes provide this off-chain data in exchange for a fee paid in the form of LINK tokens.
Other DeFi usage
Other types of dApps that use Chainlink are decentralized stablecoins like DeFiDollar and Fei, futures protocols such as Lyra and MCDEX, and options protocols such as Opyn and Thales each of which needs access to off-chain sources of price data to function.
Bamboo Relay is another example of a defi app using a Chainlink price feed.
Bamboo Relay is a decentralized exchange that allows you to place limit orders. It is able to monitor prices and trigger trading orders by checking the Chainlink price feed for the trading pair.
SWIFT proof of concept
The Society for Worldwide Interbank Financial Telecommunication (SWIFT) is a company that facilitates payments between banks worldwide.
Chainlink partnered with them on a proof of concept them where its oracles provided them with bond interest rates and debt score data and created an ISO20022 SWIFT payment message for interest payment.
This could be the first step in bringing bonds onto the blockchain.
2. Proof of reserves
Each blockchain network has its own coin and that coin cannot move to another blockchain. The way that apps get around this is they issue a wrapped token.
So for example, if you have built an exchange for tokens on the Ethereum blockchain you could have a wrapped version of Bitcoin.
Bitcoin is not a part of the Ethereum network. But wBTC is a token on the Ethereum network that represents BTC on the Bitcoin Network. For this to work a central intermediary need to hold BTC and issue wBTC. Each WBTC needs to be redeemable for one BTC.
In the case of wrapped Bitcoin, this entity is BitGo. Bitgo can prove that it has the required amount of Bitcoin in reserve by sharing its wallet address where it keeps the reserve Bitcoin.
By providing this data to Chainlink other apps can use this information to know that the wBTC on their platform still has value.
See what is wrapping in crypto for more.
Chainlink supports Proof of Reserves for real-world assets as well.
For example, TUSD is a stablecoin that holds 1 real dollar in an escrow bank account for every dollar it issues. An independent auditing firm called Armanino reviews the amount in the bank account and provides this data feed to Chainlink. This way anyone can use this information to know that 1 USD backs each TUSD 1:1.
Synthetix pays fees to stakers in proportion to how much they have staked, their governance participation, and other metrics.
Chainlink monitors these conditions off-chain and automates the process of making payouts to individual addresses.
Similarly, Pickle Finance uses automation to monitor gas fees and optimize its operations.
4. Yield Farming
This refers to the practice of investing in a coin because it will reward you in more of its coin i.e. it will provide you with a yield.
Strong block is an example where the amount of crypto in USD value you invest determines your reward. You can find out more about Strongblock here.
Chainlink operates a Cross-Chain Interoperability Protocol (CCIP) which means you can send and receive tokens across blockchains.
While there are many such bridges they tend to get hacked left right and center. The CCIP is already seeing usage by important players such as AAVE and Synthetix.
Plus they have also run an experiment with SWIFT.
CCIP has not been hacked to date and claims to be more secure. In total cross-chain applications have seen $2.5Bn stolen from them.
Read How Does Chainlink CCIP Work to know more.
6. Node uptime
In Proof-of-Stake blockchains, validators need to put up collateral in the form of a native token.
If they try to cheat or their node is not available their collateral is slashed.
Their collateral is at stake so to speak. These protocols can use Chainlink to monitor node uptime and trigger the slashing when nodes fall below the required uptime. AdEx is just one example of a protocol that uses such a feed.
Rebasing is a way to adjust the supply of a token to keep its value tied to a reference, such as the US dollar.
When the token’s price goes above this reference, more tokens are minted to bring the price down. If the price is below the reference, a portion of everyone’s tokens is burnt(removed) to increase the price.
An example of a rebasing protocol that uses Chainlink is Ampleforth.
Every day, the total supply of Ampleforth’s token (AMPL) changes based on the current Consumer Price Index (CPI) rate, which is like a measure of inflation.
Chainlink Oracles provides Ampleforth with the average price of AMPL and the CPI index to make sure everything stays in financial harmony.
8. Collateral levels
In borrowing and lending protocols, smart contracts can’t trigger liquidations when the collateral falls below a threshold. They need an external trigger to start liquidating collateral.
That trigger comes from Chainlink Automation which monitors the collateralization ratio of users. AAVE is just one example of a protocol that uses this type of automation
9. Payment systems
Chainlink integrates APIs of external data providers such as PayPal so that smart contracts can be compatible with those. Not everyone wants to get paid in crypto. In addition, some merchants may prefer a different currency to what the customer wants to pay in. Chainlink price feeds help facilitate this process.
10. Gaming and NFTs
When you play a crypto casino game you want to make sure that the game is fair and that users win the proportion of time that the casino claims. Similarly, when a game issues a rare NFT you want to be sure of its rarity. For this to happen your app needs to be able to generate random numbers. Fortunately, you can prove rarity and randomness through code. Chainlink provides a Verifiable Randomness Function (VRF) that can prove whether a game is fair or not.
Aavegotchi, Ether Legends, and Axie Infinity are just some examples of games that use Chainlink’s VRF.
By the way, if casinos are your thing I have ranked the best Dogecoin casinos here.
Multiple decentralized protocols allow you to wager on the outcome of an event whether it’s a sports event, political election outcome, and more.
In the world of crypto, these platforms are known as prediction markets and naturally, they need off-chain resources to trigger a win or loss.
Entropyfi and yieldwars are just two examples of apps that use Chainlink.
Insurance policyholders have an incentive to lie to make their claim and insurance providers are incentivized the delay payments, add loads of small print and exceptions, and raise overall premiums for inefficiencies on both sides.
Deterministic smart contracts that are fed data by Chainlink are much more objective.
For example, Arbol is a crop insurance provider that automates payouts based on smart contracts and weather data feeds from the Chainlink NOAA node.
NOAA is the National Oceanic and Atmospheric Administration in the US and has set up a node to provide Chainlink with data.
Another example is Etherisc which pays out insurers in case of a flight delay.
You can find more case studies made by Chainlink here
Chainlink node operators
It’s also impressive to see who is providing what data. Here are just some providers:
- Amazon web services facilitate setting up a node for anyone who wants to provide a data feed from external sources
- Google Cloud has numerous public data sets and APIs that it makes available to Chainlink. More on this here
- Associated Press provides news information such as election results
- Accuweather for weather data
- Bloomberg for stock market data
- CoinGecko for crypto price data
What is Chainlink?
Chainlink is a decentralized oracle network that connects blockchains to the outside world. Steve Ellis and Sergey Nazarov founded Chainlink in 2014 after they raised capital through an initial coin offering.
Imagine the Chainlink network as a super-smart bridge for computer programs. It helps these programs, called smart contracts, to talk to the real world and get useful information. These smart contracts are like digital agreements that live on the internet, and they need data from the real world to do their job properly. They don’t know the state of the world or market conditions so they need to connect to a third party to make these types of data requests.
Now, here’s where Chainlink comes in. It’s like the brainy middleman that connects these digital contracts to real-world data, making sure they’re always in the loop. Chainlink ensures that the information coming in is reliable and can be trusted so that the contracts can execute their tasks accurately. To do this rather than connect to one source Chainlink connects to a network of nodes (computers) to ensure accurate data. These nodes can provide both data and off-chain computation.
Chainlink’s native token is called LINK. This is an ERC-20 token that keeps the Chainlink engine running smoothly. LINK tokens are used to pay the folks who provide the real-world data – we call them oracles. These oracles are like messengers, delivering the info from the real world to the smart contracts. You can get LINK by buying it or staking it.
So, in a nutshell, Chainlink is like the wise wizard making sure that the digital contracts in the online realm have the real-world knowledge they need to work their magic.
To learn more about Chainlink check out what is Chainlink crypto?
This article will walk you through all there is to know about mining Chainlink.
The first thing you need to know is that you can’t mine on Chainlink. Unlike Bitcoin, Chainlink doesn’t use a Proof-of-Work consensus mechanism. This means you can’t set up an ASIC miner or GPU to solve a cryptographic puzzle and earn a reward. Read more.