Chainlink: Beyond Price Feeds and Data Delivery
Chainlink has established itself as the industry standard oracle solution for DeFi, launching a market-leading number of Price Feeds live in production that are widely used to secure $4B+ in value for DeFi leaders like Synthetix, Aave, yEarn, and more. The need for price feed oracles is obvious, as DeFi is the first smart contract market to truly thrive and nearly all DeFi applications require aggregated price data to secure and settle financial contracts. The market for financial data is massive, with derivatives alone being a near one quadrillion dollar industry that’s almost entirely settled by price feeds, let alone the numerous other capital markets worth tens of trillions of dollars like real estate, commodities, stocks, and more.
However, to say Chainlink is only useful for price feeds is completely overlooking the much broader application and functionality of oracles, similar to those that thought the Internet was only useful for email. Chainlink can extend the connectivity of smart contracts to every off-chain data source and system in existence, as well as perform numerous types of computation on such data before it’s delivered to its destination. There is truly an unbounded amount of data and types of computational services that the Chainlink Network can provide and price feeds are truly just the tip of the iceberg.
The Chainlink iceberg of oracle services consists of several categories:
- Price Feeds — Chainlink’s pre-built decentralized price feeds provide DeFi applications a real-time stream of financial market data, including exchange rates for cryptocurrencies, stablecoins, commodities, indices, stocks, fiat currencies, and other key financial datasets.
- Any Web API — Chainlink oracles are able to connect smart contracts to any open or authenticated API, opening up access to IoT data, bank payments, web APIs, enterprise systems, other blockchains, and virtually any off-chain resource used to create smart contract markets in insurance, supply chain, digital marketing, and various other new industries.
- Verifiable RNG — Chainlink VRF (Verifiable Randomness Function) generates a secure source of on-chain randomness that users can independently verify as fair, unbiased, and tamperproof, leading to gaming applications, NFTs, blockchain lotteries, layer-2 protocols, and more that can reliably secure large amounts of value with RNG inputs.
- Off-chain Computation — Chainlink oracles can perform more advanced off-chain computations, leading to an expansion in oracle services such as scalable Solidity computation, blockchain transaction privacy, oracle data privacy/integrity, transaction order fairness, and more.
- Blockchain Abstraction Layer — Chainlink’s continued integration across all the leading blockchains that exist now and in the future, provides enterprises, governments, and data providers with a single integration gateway to connect applications and sell data to every blockchain network, reducing development costs and preventing vendor lock-in.
Please note that the infographic is merely a representation of the five primary categories of oracle services listed in a progressively more expansive manner. However, many of these features are likely to be developed in stages with overlapping timelines, not to mention there will be numerous features introduced that we simply can’t imagine today, similar to how Uber and Tinder were largely unimaginable to Internet users in 1994.
A Framework for Building Heterogeneous Oracle Networks
Before diving into each category, it’s important to emphasize a few key points about the structure of the Chainlink Network that allows it to offer such a diverse array of oracle services simultaneously. Unlike blockchains, which operate as a single monolithic network with a single consensus mechanism, the Chainlink Network is decentralized, made up of numerous independent oracle networks running the same software but operating entirely independent from one another.
Such a design choice allows Chainlink to scale horizontally, as any number of oracle networks can operate in parallel without dependencies on any other oracle network. Each oracle network can freely define:
- Who and how many independent oracles are involved
- Where oracles source data from and what computation the oracle network performs
- How data is secured and the frequency at which it’s provided on-chain
- And various other important parameters.
It’s this heterogeneous design that allows Chainlink to offer so many varying services and operate natively on any blockchain environment without any cross-dependencies.
A heterogeneous framework means that Chainlink-powered price feeds can be leveraged in a multitude of ways. For example, Chainlink’s current iteration of price feeds are plug-and-play decentralized price oracles bootstrapped by the Chainlink team, but developers are free to build their own price oracles using an entirely different or overlapping set of nodes, data sources, update frequencies, and parameters. Blockchains also have the flexibility to read Chainlink’s existing price feeds on other chains, or build their own unique price feeds directly on their own blockchain. By providing developers across any blockchain with both the ability to seamlessly adopt pre-built oracle networks and the tools to construct their own customized oracle networks, the Chainlink Network provides maximum flexibility to fit any oracle need.
The Progression of Oracle Services Enabled by Chainlink
As a direct result of this high level of generalization and horizontal scalability, the Chainlink Network is able to provide a diverse range of oracle services from relatively simple to much more advanced. We hope to shed a light on these different oracle services and show how Chainlink is already providing several of them today on mainnet to secure real value.
Price Reference Data Feeds
The first and most widely used oracle service the Chainlink Network provides is Price Reference Data Feeds, which power a significant portion of the Decentralized Finance (DeFi) ecosystem. Chainlink’s price feeds are built as a shared public resource funded by multiple projects to lower the per-user costs. These feeds operate under a pull model (synchronous), where price updates are triggered on a regular cadence (deviation threshold and/or heartbeat) to keep the price feeds fresh without requiring users to monitor and initiate updates. Each price feed update is stored within a corresponding on-chain reference contract, enabling smart contracts to fetch the latest (or historical) price point atomically within a single transaction at any time.
All price feed networks are composed of multiple oracle nodes that each fetch market data about a particular asset from multiple off-chain data aggregator APIs (ensuring full market coverage, preventing manipulation, and avoiding API downtime). Each node’s multi-source medianized value is then aggregated together to create a median of medians, resulting in a single tamper-resistant data point available directly on-chain.
While Chainlink’s price feeds for cryptocurrencies on Ethereum are widely known for being the gold standard of oracle networks (above the water line in the iceberg infographic), there are also other forms of price feeds that are either live or likely to launch in the future (below the iceberg waterline). These include price feeds running on other blockchain networks beyond Ethereum (e.g. Cosmos, Polkadot, Ava, etc.), as well as an expansion in the type of market data available on-chain, such as FX rates, commodities prices, interbank interest rates, US equities prices, blockchain gas prices, customized indices, total crypto market cap, and much more. Chainlink has still only scratched the surface of its price feed offering, which should only accelerate once off-chain aggregation is launched.
Any Web API
The next major oracle service that Chainlink already provides, which will only accelerate in usage, is the ability to connect smart contracts to any off-chain web API. The scope of this feature cannot be understated as it not only permits smart contracts to receive data inputs from any off-chain system, but it also allows smart contracts to generate outputs that affect external systems in the real world. These oracle networks typically operate as a push model (asynchronous), where a smart contract makes a direct data request to Chainlink nodes within one transaction, and directly receives a response shortly after within another transaction. This provides a method of getting data delivered on-demand directly to a single smart contract and/or setting up a specific cadence of data delivery customized to the smart contract’s unique data requirements (could set up their own synchronous reference data feed too).
By providing connection to any and all external resources, there is no limit to what a Chainlinked smart contract can be written about. Such extreme flexibility opens the floodgates for all the world’s data and APIs to be accessible on-chain in a secure and reliable manner.
Chainlink inputs may include:
- Weather data
- IoT sensors
- Sport scores
- Gaming results
- Credit ratings
- AML/KYC info
- Election results
Chainlink outputs may include:
- Traditional payment rails
- Interbank transfers
- Enterprise ERP/CRM backends
- Smart locks for rentals
- Transactions on other blockchain networks
The combination of Chainlink’s secure inputs and outputs empowers users to create more advanced decentralized applications. For example, Arbol launched a live application that offers farmers in developing nations a parametric crop insurance solution. Their smart contracts autonomously execute payouts based on real-time weather data delivered by Chainlink oracles regarding the weather conditions of a specific geographic location.
Chainlink oracles are also able to connect to and fetch data from other blockchain networks, enabling new use cases such as Proof of Reserve for cross-chain tokens. DeFi applications can use this blockchain data to autonomously verify the true collateralization of nearly $2B of wrapped Bitcoin, including both WBTC and renBTC. Chainlink’s Proof of Reserve model can also expand beyond cross-chain assets and into off-chain collateral such as fiat-backed stablecoins and real-world asset backed tokens.
Chainlink nodes are able to achieve this functionality by having the built-in capabilities to securely handle and store private API keys (via external adapters), extending access beyond open APIs and on to any authenticated, permissioned, or private API. Access to any input and output in the real world removes all barriers when it comes to creating secure end-to-end decentralized applications that replicate or go beyond traditional contracts and business processes.
Verifiable Randomness
Decentralized applications are automated in the sense that they move large amounts of money directly based on the inputs they receive. One of the most critical inputs for many applications that may not be immediately obvious is a tamper-resistant source of randomness, which is derived from a Random Number Generator (RNG). For example, minting a unique in-game artifact or selecting the winner of a lottery requires a source of randomness.
Traditional methods of RNG available to smart contracts are subject to security flaws, such as on-chain randomness solutions like the blockhash being subject to miner attacks or off-chain randomness solutions having to rely on data from a trusted central third party. Both scenarios cannot provide the level of transparency and tamper-resistance required to secure serious amounts of value based directly on their random inputs.
In order to solve this problem, Chainlink developed and launched a computational service run by its oracles called the Verifiable Randomness Function (VRF), which generates a provably fair source of on-chain randomness. Chainlink VRF uses a combination of a user-defined seed and an oracle’s private key to provide smart contracts with randomness data that can be independently verified by users as fair and unbiased via on-chain cryptographic proofs of the computation’s integrity. This proof cannot be manipulated by the oracle node, dApp’s developers, or users, ensuring the highest degree of security possible.
Making verifiable randomness available to smart contracts enables the creation of entirely new categories of decentralized applications. As stated in the recent Chainlink blog post announcing the launch of Chainlink VRF on mainnet, some of the new functionalities include:
Generating non-fungible tokens (NFT) — seeding specific collectible traits, original loot boxes, rare in-game artifacts, and various other unique digital assets
Introducing random elements within gameplay — map generation, critical hits (battling games), matchmaking (multiplayer games), card draw order, and random encounters/events
Ordering for processes — distributing tickets to high-demand events, selecting participants in a popular public sale, and choosing presale winners for luxury items like rare shoes
Random selection of someone — picking a juror for a case, selecting a validator for consensus, drawing a regulated lottery winner, or numerous other selection processes within a protocol or DAO
The unique combination of smart contracts and verifiable randomness is sure to have major effects over time on security and transparency as there now exists unpredictability that can be audited on-chain as being objectively fair, unbiased, and tamperproof.
Additional Off-chain Computations
While Chainlink is widely known for its ability to aggregate and deliver data on-chain, Chainlink can also perform a more advanced set of off-chain computations for smart contracts. Such computations provide smart contracts with robust solutions for achieving scalability, privacy, ordering fairness, data refinement, interoperability, and more. Smart contracts can simply offload more expensive computations to the same off-chain oracle networks already being used for data sourcing and delivery, creating a one-stop-shop for retrieving off-chain data inputs, triggering off-chain outputs, and leveraging additional off-chain computations.
The various off-chain computations that Chainlink oracle networks can provide greatly vary in functionality and purpose. However, each shares the same trait of moving computation off-chain as a means of creating a stronger value proposition for smart contracts.
Off-chain computation services currently being made available through Chainlink oracles include:
- Fair Sequencing Services (FSS) — Order blockchain transactions fairly before they are mined as blocks, effectively leveraging Chainlink oracles to mitigate frontrunning and Miner-Extractable Value (MEV) issues on blockchains, also resulting in lower gas costs.
- Arbitrum Rollups — Operate as validators for layer 2 Rollup chains, allowing Chainlink oracles to execute solidity smart contracts off-chain in a scalable and trust-minimized manner via fraud proofs and staking.
- Mixicles — Create on-chain privacy by monitoring the execution of a smart contract and triggering its settlement on a mixer based on that input, effectively using Chainlink oracles to decorrelate the contract's inputs from its outputs.
- DECO — Generate zero-knowledge proofs (ZKPs) on off-chain data, enabling users to prove sensitive facts about TLS web sessions to Chainlink oracles without revealing the data or requiring server-side modifications.
- Town Crier — Utilize a trusted execution environment (Intel SGX) to process data in a black box computing environment, providing Chainlink oracles with the ability to offer a wide variety of secure, high-throughput, and confidential computations (even to the oracle itself).
By expanding beyond data inputs, Chainlink oracles offer smart contracts a wide range of new capabilities that allow for increasingly more advanced smart contract applications. In the near future, it is not unlikely that we will see the majority of a smart contract’s execution occurring off-chain while using the blockchain as a settlement and dispute layer as needed, resulting in minimized costs, increased throughput, and new privacy options. Furthering this goal is Chainlink’s upcoming off-chain aggregation capability using threshold signatures and P2P networking between oracle nodes, substantially reducing the costs of decentralized oracle computation.
Additionally, the creation of privacy-preserving smart contracts and oracles will allow larger enterprises and institutions who cannot expose their sensitive data or business logic on-chain (even in an encrypted form) the opportunity to finally begin utilizing decentralized technology in a manner that is legally compliant and business-friendly. This opens up a completely new class of smart contracts that require privacy, which is orders of magnitude larger than anything currently being run on blockchains today. In essence, off-chain computation is a little understood, yet incredibly powerful native feature of Chainlink oracles that will open up many multi-trillion dollar markets to smart contract innovation.
Blockchain Abstraction Layer
The Chainlink Network not only provides smart contracts with the ability to access any off-chain data resource but its blockchain agnostic properties mean that it can be used by enterprises and data providers as a single gateway to interact with any blockchain and DLT network.
This means enterprises can monetize their existing APIs across all blockchains through one middleware client, minimizing integration work and empowering enterprises and data providers to focus on their core blockchain strategy rather than rebuilding infrastructure. It also enables traditional Web 2.0 firms and enterprises to start building more comprehensive blockchain products that interoperate across numerous chains, as they no longer need to commit to any specific blockchain due to Chainlink's future-proof nature and ability to seamlessly integrate new blockchains as they appear.
Importantly, utilizing Chainlink as a blockchain abstraction layer doesn’t require enterprises or data providers to make any modifications to their backend systems or business model. Through the creation of a single modular external adapter, Chainlink nodes are immediately able to connect that firm’s APIs to any and all blockchain networks. Additionally, firms that see value in the growing smart contract economy and want to prepare for the future are able to operate their own Chainlink node directly. Doing so gives them access to direct data selling to smart contracts and increased security features such as cryptographically signed data, which provides smart contracts definitive proof that data came straight from the claimed source.
Conclusion
While some may only see Chainlink as a means of getting price feeds, appearances can be deceiving as there is far more below the surface than meets the eye. Chainlink’s expansive set of capabilities requires us to rethink how we define blockchain oracles, as they are clearly more useful than simple data transfer. In the same vein, we must reimagine just how expressive oracles are in terms of the data and services they can provide, likely being the greatest catalyst to building more advanced smart contract applications that go far beyond what we think is possible today.
Chainlink is a highly flexible and generalized oracle solution that is able to offer a broad range of oracle services in parallel. These oracle services include offering a steady stream of price feeds, connecting smart contracts to any Web API, generating provably fair on-chain randomness, performing more advanced forms of off-chain computation, providing enterprises, governments, and data providers with a single blockchain abstraction layer, and countless other services we have yet to imagine.
Akin to the Internet’s impact on computers, Chainlink is bound to transform the value of blockchains and smart contracts in a similar manner. The result will be a rearchitecting of society’s entire economic and contractual foundations, moving away from brand and subjective guarantees, and towards technologically enforced definitive truth on the data, terms, computation underpinning all value transfers.
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