CHAINLINK

DIGITAL ASSET REPORT:

LINK Review and Investment Grade

Crypto Briefing Research Department

March 20, 2020
Grade-B

Quick Facts

TickerLINK
Current Price$2.25
Market Capitalization$786,927,120
Buy Up To Price:$4.80
Funding Information
ICO DatesSeptember 19, 2017
Public Allocation10% ($32,000,000)
Private Allocation40% ($32,000,000)
Circulating Supply350,000,000 LINK
Total Supply1,000,000,000 LINK
Top 10 Addresses Combined Stake69.66%
ATH Price$4.95 (Mar 04, 2020)
30-Day Average Price$3.60
24H Volume$543,555,926
30-Day Average Volume$473,870,927

Contents

Fundamental Factors

Market Opportunity 85;
Ecosystem Development 75;
Token Economics 75;
Token Performance 60;
Core Team 85;
Underlying Technology 75;
Roadmap 70;

Combined Score: 7.6

Introduction

Chainlink aims to solve the smart contract connectivity problem by creating a network of decentralized data providers, known as oracles.

On their own, smart contracts are unable to connect with external data or other off-chain resources. In fact, more than 80% of the use cases for smart contracts need external resources, which would be unavailable without some sort of data providers. Having contracts that are able to react to market events is essential for the industry to move to the next level. And Chainlink is building the necessary infrastructure for this breakthrough.

The project has a professional team and has shown a consistent focus on development since its foundation in 2014 and the launch of its mainnet in 2019. 

From a business development perspective, Chainlink is also among the most successful projects in the space. It has developed a long list of blockchain, enterprise, and DeFi partners that are or will be integrating Chainlink’s oracles in the future.

As the blockchain space develops, oracles will become an absolute necessity in terms of infrastructure for this growing decentralized economy. Additionally,  as the leader among oracle providers, Chainlink has a good chance to occupy a significant share of this growing market.

Market Opportunity

Although smart contracts have not yet become a mainstay in people’s everyday lives, they have shown decent growth over the last two years. The trend is expected to continue into the foreseeable future. 

According to some research reports, the global value the contract market is expected to reach is approximately $300M by the end of 2023. This means that the aphorism 'code is law' might be closer than some of us expect. 

Smart contracts and blockchain technology provide a great deal of utility to potential users. They can help lower the costs of verifying transactions and can create new use-cases and markets.

Reliably getting external data has been a problem for Ethereum since its launch in 2015.

To this day, the "Oracle Problem" remains one of the main criticisms towards Ethereum. That said, moving towards 2021 projects like Chainlink will likely resolve the problem.

Chainlink was the first oracle platform launched on the Ethereum network. Fundamentally, it is blockchain agnostic and its team intends to support all leading smart contract platforms. 

The project currently faces little market competition. In fact, its closest competitors are much smaller and have fewer resources to develop and grow their ecosystems.

Still, from a technological perspective, it is too early to determine which solutions will dominate the market. It is quite likely that projects will try to use several oracle providers in order to diversify and mitigate potential oracle attacks.  

As an example, after the attack on DeFi lending and trading protocol bZx⁠—where a hacker managed to get away with nearly $1M⁠—the protocol announced that it will start integrating Chainlink, Band Protocol, and Uniswap v2 as price oracles.

Even with diversification, Chainlink is far ahead of its competition. Both in terms of real-world integrations and in relationship building within the crypto community. Chainlink is the number one choice for projects looking for an oracle provider, giving the project a solid head start for adoption of its technology.

Technological Solution

Chainlink provides relevant data feeds and APIs through multiple decentralized sources, making data safer and less prone to manipulation. As such, smart contracts are the main consumers of these oracle functions.

The project utilizes the Request-Event-Response mechanism, where the client broadcasts the need for external data. Then, an external party that listens for such events gets notified of the request, grabs the requests, and sends them into the chain.

To make life easier for the developers of these applications, the project already provides a base contract so there is no need to write one from scratch. 

Chainlink nodes are basically external data sources for the requested information. There is no limit to the number of nodes that can be connected to the Chainlink network since nodes operate independently and do not communicate with each other.

At the current state of the project's development, every data request has a predetermined Chainlink node that can fulfill it, which makes the system centralized. However, as the project matures, it will move towards a more decentralized structure with data providers competing for user requests.

To further secure the network, data providers will need to stake LINK tokens to guarantee correct and accurate data provision. Good behavior will be incentivized, attracting more data providers to the platform,  while bad behavior will incur penalties.

Therefore, the project’s token utility is built upon two main use-cases:

  1. Oracles have to stake a certain amount of LINK tokens as collateral in order to have skin in the game.
  2. Chainlink clients pay oracle providers for their services in LINK tokens.

Currently, however, the main demand for LINK tokens is largely driven by speculators. But as the project expands its oracle network, LINK token utility will likely improve alongside the growing number of real users.

In fact, Chainlink is actively moving in this direction. It is partnered with a number of notable projects who are working on implementing Chainlink’s solution. Having such a large network of partners should help the project drive adoption of its technology and the utility of its native token.

Ecosystem Development

Chainlink has the widest network of partners in the space. This is because sooner or later blockchains will need oracles. Given that Chainlink is blockchain agnostic, it has the solution for these networks.

Forging key partnerships did not seem to be much of a challenge for Chainlink, given its progress in the oracle space. However, real-world integrations and true adoption could take much longer, since they will require greater resources and involvement from different teams and projects.

Nevertheless, established partnerships are a good foundation for further development of the project. Currently, the project has more than 30 partners that can be divided into three categories:

Blockchains

Blockchains are the number one clients for Chainlink. The project has partnered with such networks as IOST, Hedera Hashgraph, Wanchain, and many others.

Traditional companies

Chainlink also has been in close contact with SWIFT, since the project won a Swift award in 2016. Due to their existing relationship, there is a strong possibility that SWIFT may use Chainlink to connect banks to smart contracts in the future.

The project has also partnered with Google cloud. The platform is integrating Chainlink oracles in an analytics data warehouse with ETH dApp support. 

DeFi projects 

DeFi is another hot market for Chainlink. A lot of DeFi projects still rely on centralized oracles, which does not fit well with the decentralized ethos of the DeFi space. Most of these projects will have to find third-party oracle providers, and Chainlink will be a good fit for the rapidly growing market of decentralized finance. In fact, Chainlink is already working with notable DeFi projects, such as Synthetix and bZx.

Overall, the project has a large ecosystem of partners. This year we should see more integration as the project develops. 

Things To Consider

Technologically, there is a risk that Chainlink’s partner blockchains will implement their own native solutions, making a second-layer solution like Chainlink unnecessary. Moreover, while Chainlink has a substantial first-mover advantage, up and coming competitors with the right resources could gain ground quickly. 

Given the fact that Chainlink’s solution is still under development and sometimes experiences problems, such a situation is certainly possible. Moreover, with market expansion, current rivals and new platforms could arise capitalizing on Chainlink’s developments.

There is also a risk that it will take considerable time before smart contracts will start entering mainstream adoption.

As one Forbes contributor said:

“Smart contracts are a really cool idea. The best way to use them is in a sandbox where really smart, unemployed people can play games and make experiments, keeping them out of trouble and far away from real life and real problems that need to be solved.”

For Chainlink, this will result in higher adoption costs, which could potentially affect its financial stability and its competitive position in the market.

Technical Analysis

Chainlink has started to exhibit bullish price action after revisiting a former breakout from a descending triangle pattern on the daily time frame and subsequently bouncing sharply from the retest of the bottom trendline.

The project is likely to revisit 2020 high while trading above the $1.50 level. 

Entry $1.90, with a buy-to-price of $4.80.

Conclusion

Chainlink, currently, is one of the few unique infrastructure projects in the space. Oracles are absolutely necessary for the future development of the industry and the project is targeting a large potential market. As a blockchain agnostic platform, it can easily fit most any smart contract platform. 

Given the fact that Chainlink has the first-mover advantage, the success of the project will depend highly on its ability to actually deliver workable and decentralized oracles. 

If it is in fact successful, it has a chance to become the dominant solution for decentralized oracles.

Therefore, the project receives a grade of B. 

The author(s) of this report is/are invested in the following coins: ETH. 

How to buy LINK

Step 1. Choose your preferred exchange.

LINK can be purchased from several cryptocurrency exchanges. The full list of available exchanges can be seen ​here​.

Step 2. Head over to your preferred exchange.

If you want to purchase LINK, it is a good idea to use Coinbase Pro. It has a good liquidity and is among the most reputable on the market.

Step 3. Create an account on the exchange of your choice if you don’t already have one.

Step 4. Top-up your exchange balance with some of your USD.

On Coinbase Pro, LINK can be purchased with USD, so make sure to first verify your ID and set up your debit card or bank account.

Step 5. Purchase LINK with a market or a limit order.

If you want to buy just a small amount instantly, it is easiest to use a Market Order.

Input the amount of LINK you want to purchase and press Buy.

If you need to purchase a large amount of LINK, it is best to use a Limit Order to get the best possible price.

Input the amount of LINK you would like to purchase, and the price at which the order should be filled at and press Buy. (It might take some time for the whole order to be filled if you are purchasing a large amount).

Step 6. Store your LINK on one of the supported wallets for increased security.

To store LINK, you can use Ledger or Trust Wallet​ for improved security.