I spent the past two weeks researching Chainlink and what I discovered was truly shocking. It made me go from bullish to bearish, to bullish yet again. It also makes me believe that the price action of LINK is going to be different from what we’ve seen in the past. Today I’ll share with you everything that I found in this ultimate Chainlink review. I’ll rate this project across six different categories and end with my final verdict.
First, here’s a quick refresher for those who need it. Chainlink was created in 2017 and its primary goal was to solve the oracle problem. This refers to the fact that blockchains cannot access real-world data by themselves, if a Dapp or smart contract needs to plan based on some weather data or sports result, it’s not easy to bring that info onto the blockchain securely and reliably. That’s why they need oracles, which are systems designed to take off-chain data and bring it on-chain in a way that smart contracts can use. Without oracles, blockchains would be super boring because they’d have to stick to on-chain data, and they wouldn’t be able to interact with the outside world.
Fortunately, Chainlink is tackling this problem by creating a decentralized network of oracles. Which is just a fancy way of saying that they’re incentivizing a bunch of computers around the world to provide real-world data to smart contracts. To be specific, these computers retrieve data from various sources, aggregate them, and deliver a single validated data point that smart contracts can use. When someone says the Chainlink network, they’re actually referring to all the different oracles out there that are running the chainlink protocol.
When those oracles follow the rules and supply useful data, they get rewarded in Chainlink’s native token LINK. Oracles, otherwise known as node operators, can also stake LINK if they want to qualify for certain data requests that require a stake, but in general staking LINK is completely optional and the network uses a reputation system to select oracles for a given data request. That’s Chainlink in a nutshell, it’s an infrastructure project that other crypto projects can utilize.
Let’s turn to the first category to evaluate, the core product. I’m super impressed by all the products they offer, like their market and data feeds, which pretty much power all of DeFi. Since DeFi apps need correct price data to do lending, borrowing, insurance, etc., What are better ways to get that info than from a decentralized network of oracles that are incentivized to be prompt and accurate?
Chainlink also has a VRF product which stands for verifiable random function. It supplies a secure source of randomness that crypto projects can tap into. This can be used by blockchain games that want to give their players random outcomes, or NFT collections that want to generate traits randomly.
Another really useful product they offer is called Chainlink keepers, this is a system that helps crypto projects seamlessly automate their smart contracts. For example, Chainlink can trigger a smart contract to execute based on a schedule, some on-chain activity, or maybe even a custom computation. One use case that this enables is “Limit Orders on DEXs” because that’s essentially just waiting for the price of an asset to hit a certain value before executing that trade.
However, I think the product I’m most bullish on is their new cross-chain interoperability protocol or CCIP, this allows people to build cross-chain apps. Instead of deploying the same contract over and over again on different blockchains, you can deploy one cross-chain smart contract that acts like a unified application. For example, if the Ethereum name service was deployed using CCIP, then I could keep ABC.eth on every blockchain instead of having to register different names on different chains, depending on what’s available.
Now, the best part about all this is that Chainlink is blockchain agnostic, so all these products and protocols can run on different blockchains. That’s why in terms of the core product, I’m giving them an 8 out of 10. Huge fan of what they’ve built so far, and I can’t wait to see what they build in the future.
However, you may be wondering, do all these amazing products translate into actual adoption? We’ve seen so many crypto projects that look amazing on paper, but no one uses them in reality, that’s why we gotta turn to my second category to evaluate, the growth and adoption of Chainlink.
If we look at their Q2 2022 metrics, they’re now integrated with 12 different blockchains. They’ve surpassed over 185 million on-chain calls, and they’ve delivered over 3 billion data points on-chain. This is an incredible amount of usage for their products and it’s only going to increase as the Dapp market grows. However, if we zoom out a bit, we see that Chainlink has essentially become a monopoly in its niche. They’re by far the largest oracle project in terms of market cap, total value secured, and the number of crypto projects using them.
For default llama, Chainlink is securing more value than all its competitors combined, but this dominance also has unintended consequences. If anything, ever goes wrong with Chainlink, it poses a threat to all the Dapps that use them. This isn’t just speculation; we saw this happen a few times in the past. In late 2020, when an attacker spammed the network and was able to drain 700 ETH from Chainlink node operators. More recently, during the TERRA/LUNA collapse, a project called Venus Protocol couldn’t get proper data from the Chainlink price feed, and attackers were able to exploit them to the tune of 11 million dollars.
My only wish is that there’d be more competition in this niche, which means more innovation and that means more robust oracles for everyone. That being said, it’s not Chainlink’s fault that they’re so successful. Therefore, I’m giving them a 9 out of 10 when it comes to growth and adoption.
So far, we’ve only talked about the past and present and you may be wondering, what about the future of Chainlink? Well, that’s exactly what I want to evaluate next by looking at their roadmap.
Recently they added this feature called off-chain reporting which is super powerful. It lets oracles combine their data and validate it in a single transaction. This novel approach reduces gas fees by up to 90% which makes things more profitable and more scalable, too. Beyond that, they have a whole slew of upgrades and features coming out as part of Chainlink 2.0. This next step in the evolution of Chainlink takes through existing decentralized oracle networks and unlocks their full potential.
The team was like “Okay these oracles can deliver data all day every day but there’s so much more they can do.” For example, they could protect confidential data, sequence transactions in a fair manner, or even power decentralized identity systems. All these services are desperately needed by smart contracts and Dapps, so I expect them to get used like crazy once they’re released. They’re also adding more staking features to the mix like “Super-linear Staking”, which makes it quadratically harder for attackers to successfully attack the Chainlink network.
All of this is super promising but the main problem here is that there are no clear dates for when each of these is going to be released. They say that version 0.1 of the staking upgrade will be released by the end of this year but for everything else, it’s still unclear when we should expect to see them. That’s why for the future roadmap I’m giving them a 7 out of 10. Everything looks promising but you know how things go, some of them may take years to be released, and others may just never come.
Now, it’s time for the fun stuff, let’s talk about the token and evaluate the utility of LINK. Right now, LINK is used to reward oracles when they supply data to smart contracts, that’s the main utility. Oracle operators can also choose to stake LINK but that’s largely optional, if we look at the data, we see that most of the circulating LINK tokens are being used for speculation rather than rewarding node operators. That’s not a good look when most of your token activity is represented by something else other than your primary use case. This may be why some people argue that the Chainlink network can run just fine without the LINK token.
Honestly, I think this whole thing is just unfortunate because Chainlink is generating so much economic value for other crypto projects, but very little of that is being captured by their LINK token. On the other hand, they do have Chainlink staking on the horizon and this new feature may fix a lot of those issues. Like they’re going to make oracle operators stake LINK and penalize them if they deliver inaccurate data. They’re also going to let the community participate by giving us rewards if we alert the network that some oracle is misbehaving. Then, they’re going to change the oracle selection process to consider how much LINK in oracle has stated in addition to the existing reputation system. All this extra utility could do wonders for the price of LINK because people will actually need the token to use the network to its fullest. All things considered, I give them a 5 out of 10 when it comes to the token utility because it’s just not good right now, but there is hope for the future.
There’s something else we’ve got to evaluate when it comes to the token, and that’s the token distribution. During the Chainlink ICO, they issued 1 billion LINK tokens. 30% of that was allocated to the team while 35% was for node operators. So, from the very beginning, the team controlled a massive amount of the circulating supply. If we look at Etherscan today, we see that the top 100 wallets hold roughly 75% of the LINK’s supply. That is crazily centralized, and it gives the team and the whales the ability to force issues when it comes to governance.
Some people are also upset because they’ve seen the team’s wallet selling LINK relentlessly over the past two years. They accuse the team of dumping on retail without doing anything useful with the proceeds. Whether or not that’s a fair take, we should keep in mind that 53% of the token supply is still yet to hit circulation, so there could be a lot more selling pressure for years to come.
I want to note that it’s hard to tell what’s true about this because the team isn’t exactly transparent about their token selling activity, so a lot of the debate around this topic remains speculation. But at the end of the day, Chainlink is centralized, and they even have 4 of 9 multi-sig configurations that give four signers the power to update every oracle in their network by force if necessary. This is extreme power that I hope does not get compromised, or it would put the entire DeFi world at risk.
Some defenders have said that this is necessary because Chainlink is a critical public utility, and this centralized setup gives them the ability to respond to threats as quickly as possible. As for the LINK selling, defenders point out that the team is using it for their community grants program, or to pay for their large team. They’re not just using it to buy their founders’ private jets like Ripple.
I do want to know that this selling does increase the number of tokens that the team owns. They went from 30% down to 15% so it’s getting more decentralized in that sense, but most of that has gone to other whales.
Since the supply of LINK owned by the top one percent of addresses has been steadily climbing, in terms of token distribution I rate them a 4 out of 10. It’s not the worst offender out there but it has a lot of room for improvement.
Now, this article wouldn’t be complete without mentioning the infamous LINK Marines so let’s do exactly that and evaluate its community. Chainlink’s community members are called the LINK Marines, they are extremely enthusiastic about this project. I see them everywhere on Twitter posting memes, spreading the gospel, and just having a good time with each other. The good part about this is that an engaged community is extremely beneficial for a project. Just look at how far DOGE and she were able to go with just a loyal and enthusiastic fan base.
However, the dark side of this is that LINK Marines are notorious for harassing critics of Chainlink. Anyone who dares speak negative things about Chainlink gets threatened or bullied by an army of LINK Marines. They’ve even attacked famous builders that I respect, such as Hayden Adams of Uniswap, Rune Christensen of MakerDAO, and Nate Hindman of Bancor.
I know this behavior is not unique to the Chainlink community, but I don’t like it in general. I’m rating them a 6 out of 10. When it comes to community, I love the passion, but they have to manage criticism more maturely.
It’s time for my final verdict. It was pretty hard for me to land on a final number because it shifted up and down so many times as I did my research. It started high at like a 9 out of 10 when I saw the amazing products they built, and their impressive adoption numbers, but then researching their token utility and distribution made me sour a little bit, and my rating dropped down to 6 or 7 out of 10. But then I kept digging and I discovered all their upcoming changes that will likely fix many of my concerns. Therefore, I raised it back up to an 8 out of 10, and that’s my final answer.
