Chainlink is now evolving into a total blockchain beast!

In this deep dive, we'll explore Chainlink's transformation from a "public good" into a thriving business focused on profits.

They're expanding services, exploring new opportunities in cross-chain communication, and partnering with financial giants like SWIFT.

This shift from patron saint to profit powerhouse unlocks Chainlink's true potential. 

Now that Chainlink is revving to turbocharge its utility and revenue, could this be the perfect time to bet on LINK? 

Let's get into it...

TLDR 

• Chainlink is a crucial Oracle network in the world of DeFi, facilitating access to off-chain data securely for blockchain networks.
• Chainlink's diversification into various services, monetisation, potential revenue sharing, and cross-chain communication makes it an attractive investment opportunity.
• Chainlink's transformation towards revenue generation and LINK token staking provides a sustainable model for token holders.
• Using a conservative valuation methodology, we arrive at a potential LINK valuation of $26.5 billion.
• Criteria that could invalidate the thesis include Chainlink losing its dominant position or not implementing the revenue-sharing strategy.

 

Disclaimer: Not financial or investment advice. You are responsible for any capital-related decisions you make, and only you are accountable for the results. “One Glance” by Cryptonary sometimes uses the R:R trading tool to help you quickly understand our analysis. They are not signals, and they are not financial advice. Any capital-related decision you make is your responsibility and yours only.

Chainlink is the cornerstone of DeFi 

Chainlink is the most widely used Oracle network for powering hybrid smart contracts. It enables any blockchain to access off-chain data and computations securely.

But what exactly is an oracle? 

An oracle is a bridge that connects real-world data to blockchain networks. 

Blockchains are essentially self-contained ecosystems.

But here's the thing - DeFi apps need outside info to really be useful. Like price data, interest rates, sports scores, you name it.

Real-world stuff that exists off the blockchain. Without it, DeFi apps are missing crucial ingredients and won’t be really useful to anyone.

This is where Chainlink comes to the rescue! It's like a bridge between blockchain and non-blockchain data.

Chainlink is that middleware piece that lets smart contracts tap into external data securely. It's the secret sauce that makes DeFi apps work their magic!

See, Chainlink has these "oracles", which are basically APIs that feed real-world info into any blockchain. So, DeFi apps can pull data like market prices or sports results directly into the smart contract logic. It's brilliant! Chainlink unlocked a whole new wave of next-gen smart contract apps. 

But you probably knew all that already, so why bring up Chainlink now? 

While Chainlink has been one of the most important protocols in the DeFi ecosystem, it has always acted more as a public good than a business. Chainlink kept the whole ecosystem running but wasn't worried about profits.

But that's changing...this year, Chainlink wanna get PAID! And that's big news if you're an investor.

They're expanding services, striking partnerships, and cooking up ways to reward LINK hodlers. Chainlink is levelling up fast!

Let us break it down...

Turning from a public good to a sustainable business 

The outlook on Chainlink has improved in three key ways over the year. This change leads us to believe that the product and token have finally become attractive to investors.

We are talking about diversification into different services, monetisation, potential revenue sharing, and their move into cross-chain communication.

Diversifying services away from just data feeds 

While Chainlink's core product has gained a strong foothold in the DeFi sector due to widespread adoption, it's important to note that the underlying infrastructure that powers Chainlink's connections between dApps and off-chain data can serve as a versatile platform.

Since most decentralised applications already use Chainlink and are familiar with the technology, it is extremely well-positioned to become one of the key infrastructure providers in various domains, making it a highly diverse protocol.

Here are some noteworthy examples showcasing both the potential revenue streams these products offer and the value they bring

Proof of Reserve

Service: Chainlink provides Enhanced Asset Verification through automated audits based on cryptographic truth, ensuring the integrity and accuracy of reserve assets.

Revenue Model: Chainlink can generate revenue by charging fees for automated audits and verification services.

Value: This service enhances trust in decentralised finance (DeFi) by reducing the risk of fraud or mismanagement of reserve assets, making it a crucial component of the DeFi ecosystem.

Privacy-Preserving Data (DECO) 

Service: Chainlink's DECO Network ensures data privacy by maintaining sensitive information off-chain while providing cryptographic verification on-chain.

Revenue Model: Chainlink can charge organisations for implementing DECO Network solutions or facilitating private transactions.

Value: DECO Network creates privacy-preserving computational environments suitable for applications like private digital identity and financial data protection, enhancing data privacy and security.

Fair Sequencing (FSS) 

Service: Fair Sequencing Services (FSS) is a blockchain technology designed to address the Miner Extractable Value (MEV) issue. This issue occurs when miners or validators manipulate the order of transactions in a crypto network for financial gain.

Value: FSS enhances the fairness and security of transaction ordering in blockchain networks, reducing the potential for front-running and unfair practices. This service benefits blockchain networks, DeFi platforms, and users by providing trust-minimized transaction sequencing.

Revenue Model: FSS may generate revenue by licensing the technology to blockchain networks, DeFi projects, or other platforms prioritising fair transaction ordering. It can charge fees for its implementation and use, contributing to sustainability and development.

Off-Chain Computation

Service: Chainlink offers essential computational functionalities supporting automated DeFi trading, liquidity management, rewards distribution, dynamic NFTs, and gaming. It also envisions becoming a powerful general compute and storage services provider for decentralised applications (dApps).

Revenue Model: Chainlink can earn fees for providing computational services to DeFi platforms, NFT marketplaces, and gaming applications.

Value: This service enhances the functionality of decentralised applications, supporting various activities and transitioning dApps from centralised cloud infrastructure to a fully decentralised architecture

Enterprise Integration

Service: Chainlink offers tailored solutions, consulting services, and integration support to facilitate the seamless integration of blockchain technology into various enterprise applications and processes.

Revenue Model: Chainlink can earn revenue by providing enterprise-specific integration solutions and support services.

Value: Chainlink's expertise and solutions enhance business processes and enable innovative blockchain applications, appealing to enterprises looking to leverage blockchain technology for competitive advantages.

Solving liquidity fragmentation: The next major revenue opportunity

While all the products that Chainlink offers are impressive and will undoubtedly add value to the protocol by addressing challenges faced by decentralised applications and enterprises, they may not be as groundbreaking as Chainlink's initial introduction of blockchain oracles. 

However, one issue remains particularly significant and presents the most promising opportunity for Chainlink to excel: liquidity fragmentation. 

This problem arises due to the lack of interoperability among blockchains, leading to seamless communication and usage difficulties because they can not communicate with each other.

We believe that solving this challenge is key to the future of blockchain infrastructure. 

However, Chainlink has embarked on a mission to bridge these gaps. They have been hard at work, developing what they believe is the solution to this problem: the Cross-Chain Interoperability Protocol, or CCIP.

At its core, CCIP is a cross-chain messaging framework, empowering developers to build services and applications that communicate seamlessly across multiple blockchain networks.

For example, a user could deposit ETH into Aave on Avalanche. Aave would then use CCIP to transfer the ETH to Compound on Ethereum, which mints cETH representing the collateral. The user can borrow assets on Ethereum using the cETH as collateral. 

When finished, the cETH is burned, triggering CCIP to send the ETH back to Aave on Avalanche and repay the loan. This allows the user to earn Aave yield on Avalanche while accessing Ethereum DeFi apps with borrowed assets, saving on fees compared to manual bridging, with no bridge custody requirements.

To provide perspective on the scale of this infrastructure, Chainlink's largest competitor in cross-chain messaging, LayerZero, was recently valued at $3 billion in its latest funding round. 

This valuation already represents 40% of Chainlink's current Fully Diluted Valuation (FDV), which is $7.47 billion. This showcases that offering this service could significantly increase LINK's valuation, underscoring the magnitude of the pain point it could address.

There are several reasons why CCIP could outshine Layer Zero.

Chainlink Oracle Integration: CCIP leverages the established and decentralised Chainlink Oracle network, providing a reliable and proven data source for cross-chain applications.

True Decentralization: CCIP does not rely on default or centralised entities, enhancing security and reducing the risk of single points of failure.

Customisable Security: Developers can configure security settings according to their application requirements.

Transparent Fee Structure: CCIP employs transparent fees paid in LINK tokens, ensuring clarity and predictability for users.

Despite being a bit late to the party, these advantages make Chainlink well-positioned to disrupt another industry, just as it has done with...