In our Discord Community for members, we received several analysis requests for Chainlink in the past few days. So we thought it would be a good idea to put this project in the spotlight and dedicate a premium series of articles to it, Chainlink is the largest oracle network and is currently plummeting in price along with the rest of the crypto market. In this series, we dive into the fundamentals behind crypto projects and will come back periodically to monitor developments.
As you are used to from us, we analyze various statistics to paint a clear and realistic picture. If you still have questions after reading this article, you can easily ask them in our Discord community, here our analyzes are usually shared 48 hours earlier and you can easily get in touch with experienced analysts and traders.
chain link (LINK)
Chainlink is a decentralized oracle network. This means that Chainlink focuses on linking smart contracts to off-chain data. Think of storing off-chain data, for example the results of a football match so that you can make football bets on the blockchain or, for example, a house on the blockchain so that you can take out a mortgage. In previous articles we already went in depth on smart contract platforms such as Ethereum, Solana and Cardano.
With an oracle network such as Chainlink you make the potential of smart contract platforms accessible for everyday business. Linking two networks to a smart contract (a traditional smart contract platform and an oracle network) is also called a hybrid smart contract. An oracle network is essential to enable mainstream applications of blockchain. Furthermore, Chainlink is agnostic, meaning that applications can be built with different underlying blockchain technologies.
Fundamental metrics Chainlink
In this section, we look at key fundamental metrics. Fundamentals focus on underlying technology and development of a blockchain network to give an idea of the long-term potential of a project. This forms the basis for estimating risk and making investment choices. In our previous FA articles, the focus has mainly been on layer 1 networks. Now we analyze an oracle network. Because an oracle network works differently compared to a layer 1, we will also (partly) use other fundamental metrics. For example, we look at the integrations that an oracle network has (in other words, how many hybrid smart contracts the oracle has built) and we compare the price metrics of the largest oracle networks.
Partner projects
An important metric to track Chainlink’s performance is to look at the number of partners enabled on Chainlink. More partners means more potential use of the network. An oracle network benefits from partnerships because a large part of the network demand/use must mainly come from such partnerships. Partners use oracle networks to translate off-chain into actionable on-chain information, increasing the demand for the native oracle token and potentially the price. Having many partnerships is therefore an important sign for a healthy oracle network.
The table below from early 2022 shows an overview of the number of projects that collaborate with certain Oracle networks. Chainlink stands head and shoulders above the rest and seems to be the standard oracle choice in the blockchain world. Berry Data came in second with the number of projects.
It is striking that Berry Data has an extremely low market cap compared to the number of partner projects. This is expressed in the table below in the metric market cap distribution per partner project. Band has remarkably few projects compared to its market cap.
| chain link | Band | Berry | |
| Partner projects January 2022 | 1091 | 78 | 141 |
| Market cap breakdown per partner project | €2.29 million | €6.4 million | €1420 |
Table 1: Source; Cointelegraph
The table below shows some of the integrations Chainlink works with. The Chainlink ecosystem extends from DeFi projects to partnerships with major enterprises such as Amazon Web Services and Google Cloud. This is positive as the demand for Chainlink extends beyond crypto-niche products. With Chainlink as the largest oracle and further adoption and integration of Blockchain technology in daily life, we expect continued strong growth of Chainlink in the future.
| Blockchain | Polygon, OKExChain, Skale, xDAI, Tezos, Fantom, Cosmos, Solana, Polkadot, Zilliqa, Harmony, Ocean Protocol, Ethereum and more. |
| DeFi | Pancake Bunny, Polywhale, Venus Protocol, Pancakeswap, Sushiswap, Terra, Konomi, ICHI, Yield, Perpetual Protocol, CREAM Finance, Curve, Aavegotchi, Zapper, Binance Smart Chain, Dodo, Nexo, Kyberswap, Bancor, Celcius, 1Inch, Loopring, Aave and more |
| Enterprise | Google, Intel, Oracle and more |
| Infrastructure | Near Protocol, Baseline Protocol, Loopring, Offchain Labs, Linkpool, Celer Network and more |
| L2 | Arbitrum, Starkware, Polygon, RSK, xDai, Celer Network and more |
Table 2: Sample of chainlink integrations
Price metrics
In terms of market cap, Chainlink is by far the leader of all oracle networks. The table below shows the two largest oracles (Chainlink and Band). The difference is so great that you can conclude that Berry Data is irrelevant (it even looks like the project is at a dead end). This may have to do with the fact that Berry Data is not an agnostic oracle network. The latter means that the oracle can work with different blockchains. A Chainlink and Band are this and therefore a lot more future-proof than Berry Data.
| Project | chain link | Band | Berry |
| What is it? | Agnostic oracle network | Agnostic oracle network | Binance chain oracle network |
| market cap | €2.5 billion | €0.5 billion | €0.2 million |
| 24H trading volume | €587 million | €13 million | €7 thousand |
Table 3: Price metrics
It is also striking that the trade volume of Chainlink is almost 50x as large as compared to Band, while the market cap is 5x larger. This is an indication that there is relatively much more activity around Chainlink.
Recent developments
Recently, Chainlink released the Chainlink 2.0 Whitepaper. This contains several innovations that should improve the security and consistency of off-chain computing.
Explicit & superlinear strike
At the moment it is not possible to discontinue Chainlink. Currently, only blockchain node operators, called validators, can earn LINK tokens by performing tasks in the network. But with the announced Chainlink 2.0, the staking will change and will also be accessible to the general LINK holder. It is expected to go live sometime in the second half of 2022. The Chainlink discontinuation has a fundamentally different purpose than the discontinuation of general blockchain networks. Where Proof-of-Stake blockchains use a staking mechanism to generate global consensus on a set of transactions, explicit staking in Chainlink 2.0 aims to create reliable and tamper-resistant oracle reports that accurately state the state of specific real-world events outside of a establish blockchain (off-chain).
By ensuring security, users can get more assurances about the validity and timeliness of the external data and off-chain calculations their smart contracts rely on. According to Chainlink itself, this new form of staking is better than what other oracle networks are doing. For example, Chainlink’s explicit staking mechanism would protect against a wide range of attacks.
Risks
A large portion (25%) of LINK tokens are held by the team. In addition, a total of 80% of the LINK tokens are owned by 125 wallets. This means that a small group of people can exert a lot of influence on the price by, for example, dumping. As a result, Chainlink is relatively centralized.
Furthermore, it is still waiting for Chainlink 2.0 and staking features. It is still unclear how these implications will impact the price of Chainlink. The general expectation is that staking will be positive for the price because of holding incentive for users and making the network more secure. We will not be sure of the promises until the Chainlink 2.0 upgrade actually takes effect.
Conclusion
Oracle networks solve a problem that is essential for smart contract platforms to go mainstream. This makes oracle projects a very interesting option to add to your investment portfolio. Chainlink is clearly the largest oracle project when you look at the market cap, trading volume and integrations with other projects. In addition, very interesting developments are coming with Chainlink 2.0. Making staking accessible to the general LINK hodler is an interesting way to generate passive income on your investment.
Are you curious about how the different fundamental metrics of your favorite coins develop in the future or do you have a fa-request of your own favorite token? Check out our Discord community for members.
Buy or sell a chain link?
To get an answer to the question to buy or sell, we would like to refer you to our Discord group for members. There, our analysts and experienced traders discuss their own entry and exit points on a daily basis. We also regularly share additional course analyzes and updates of projects that we have discussed earlier in this section. Through Discord we can share knowledge with each other 24/7 and we try to stay ahead of the market together with our members.
Investing involves risks. Our analysts are not financial advisors. Always consult an advisor when making financial decisions. The information and tips provided on this website are based on our analysts’ own insights and experiences and are for educational purposes only.
Disclaimer: Investing involves risks. Our analysts are not financial advisors. Always consult an advisor when making financial decisions. The information and tips provided on this website are based on our analysts’ own insights and experiences and are for educational purposes only.
