Is Chainlink the Future of Blockchain Oracles? - Rating & Analysis

What is Chainlink?

Chainlink is a decentralized oracle network launched by Sergey Nazarov in May 2019. It is known for its basic oracle (Market and Data Feeds) service. However, beyond this, Chainlink is building an abstraction layer for blockchain networks, which complement and enhance existing blockchains by providing universal connectivity and off-chain computation for smart contracts. The abstraction layer is called DONs (Decentralized Oracle Networks), which is the core architecture of Chainlink.

So what does the architecture look like? Chainlink is supported by multiple node operators. These operators group together to build oracle networks (DONs) and provide services to clients. The DONs operate independently, as they can customize the provided service, consensus mechanism, and inner rules between the operators.

Based on DONs, Chainlink is striving to maximize the off-chain computation to improve the utilization of smart contracts for developers to create and deliver decentralized services. Apart from the basic data feeds, Chainlink also provides other derivative services such as VRF, Automation, Proof of Reserve, FaIr Sequencing Services, DECO, etc.

What Is TokenInsight's Rating for Chainlink?

TokenInsight has rated Chainlink's current performance with AAA and a stable outlook. Similar projects with an AAA rating to Chainlink include Bitcoin, Ethereum, Dai, BNB, and others.

The breakdown of the rating results is scored as follows.

• Underlying Technology & Security 97.95%
• Roadmap & Progress 84.67%
• Token Economics 60%
• Token Performance 64.6%
• Team, Partners & Investors 98%
• Ecosystem Development 67.8%

Underlying Technology & Security (97.95%)

Chainlink's underlying technology & security outperforms most of the project. First, Chainlink is an open-source protocol, which has thoroughly disclosed its project architecture, underlying technology, and code base. Second, Chainlink has launched diversified services based on DONs, which can meet most of the off-chain needs of developers. Moreover, the smart contract of Chainlink has been audited 5 times by 4 audit agencies since 2019. The audited codebase is relatively comprehensive, and most of the risks found have been resolved. In conjunction with the audits, Chainlink also launched bug bounty programs with Immunefi and HackerOne to enhance the security of the project.

Roadmap & Progress (84.67%)

Chainlink launched its mainnet in 2019. Although Chainlink does not have an official roadmap with a detailed timeline, most of the announced products have been developed and operated stably. As of Jan 2023, Chainlink has expanded its services to 15 networks, while the main oracle service has helped complete nearly $7 trillion in transactions, and it has delivered data from Chainlink nodes to on-chain smart contracts around 6 billion times.

Meanwhile, the disclosure of Chainlink's development progress is relatively transparent and comprehensive. It synchronizes the project status with the community in various ways, such as monthly recaps, podcasts, and blogs. In addition, users can investigate the project’s real-time operating status through multiple integrated tools.

Token Economics (60%)

$LINK is the native utility token of Chainlink, which is primarily used for the payment of service fees. Then, in 2021, Chainlink introduced a new staking mechanism, called Chainlink Staking, that introduced 4 additional use cases of $LINK, including staking rewards and penalties, alerting mechanism, user fee rewards, and the reputation system.

Though the utility of $LINK has been improved, it is still limited compared to other leading protocols. First, Chainlink Staking is in beta version, so part of the functions of $LINK have not been realized. Second, Chainlink is not a DAO, thus, $LINK may lack some governance rights compared to other projects.

The total supply of $LINK is 1,000,000,000. 35% of the token was sold through Chainlink’s ICO on September 19, 2017. For the rest of the token, 35% is distributed to node operators as an incentive, and 30% goes to the company reserve to compensate the project developers and staff. As of Jan 2023, all of the $LINK tokens are unlocked. The current circulating supply of $LINK is 491,599,971, accounting for 49.16%.

Token Performance (64.6%)

The performance of $LINK on the secondary market is relatively great. According to the statistics of TokenInsight, $LINK has been listed on 152 exchanges with 639 spot trading pairs and 30 derivative trading pairs (2023.01.03). The Market Cap of Chainlink is $2.79b, ranked #25 on TokenInsight, and the 24h spot trading of $LINK is $179,847,242.5.

From TokenInsight's Chainlink (LINK) Price Chart below, the price of $LINK reached an all-time high of $51.85 on May 10, 2021. Then, it gradually declined as the market trended and stabilized in mid-2022. As of 3 Jan 2023, the price of $LINK is $5.6521, dropping nearly 89% compared with the ATH price.

Ecosystem Development (67.8%)

Community

The community of Chainlink performs actively with great participation, considering the followers and interactions. As of 3 Jan 2023, Chainlink has registered and operated the official accounts and community in multiple languages on more than 10 social media platforms. The Twitter account has the most followers (908,014), followed by Discord (113,868).

Chainlink Ecosystem

According to Chainlink’s statistics, there are 1,674 projects and 1,998 integrations in the Chainlink Ecosystem (2023.01.03). The graph below shows the number of new projects joining the Chainlink ecosystem from 2017 to 2022. The increment of projects peaked in 2021 and decreased by 13.34% in 2022. Overall, Chainlink's ecosystem is relatively large-scale with a growing upstream and downstream.

According to the disclosure, most of the projects in the Chainlink Ecosystem are concentrated on Ethereum, accounting for around 57%. Polygon has the second largest proportion, capturing 15%.

Closing Thoughts

Apart from the basic oracle service, Chainlink is striving to build an off-chain ecosystem (similar to layer2), helping DApp developers to remove redundant works while shifting part of the computation off-chain. Therefore, Chainlink has introduced various derivative products such as Automation, CCIP, etc. Currently, most of the announced products have been launched and upgraded steadily. In terms of security, Chainlink's codebase has been audited several times, alongside bug bounty programs to enhance the security of the project. In addition, Chainlink has accumulated a large community base and constructed a growing ecosystem with 1,674 integrated projects, which is the foundation for the project's growth. However, the utility of $LINK may be limited compared to other leading projects, lacking sufficient application scenarios and governance rights, which may affect the market demand for $LINK.

Based on the above information, TokenInsight gives a rating of AAA to Chainlink with a stable outlook.

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