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A few weeks ago I discussed Cardano and outlined the bull case for the project and why I think it has potential to deliver a fantastic multiple. In a continuation of the series of altcoin research I want to talk about a project with a lot of promise: Chainlink.
Chainlink is a product of the 2017 era though it quickly distinguished itself from the pack notably by not pumping and dumping violently like every single other coin of the same vintage. This was a stand-out quality and quickly became one of many as my research on the project expanded.
Chainlink is a decentralized oracle network that connects off-blockchain data resources to smart contracts on a blockchain network. This “middleware” allows the scope of smart contracts to expand unlimitedly connecting them to data feeds such as interest rates, market prices, logistics etc.
The goal of Chainlink is to build a bridge enabling smart contracts to integrate with existing systems. Historically large institutions have been slow to adopt new technology that requires changing data infrastructure. Chainlink allows organizations to reap the benefits of smart contracts while changing little in their backend processes.
Chainlink is managed and developed by Chainlink Labs a company founded by Sergey Nazarov and Steve Ellis and based in San Francisco, CA. The two founders are both serial entrepreneurs in the blockchain space. Sergey and Steve founded Secure Asset Exchange, an exchange network enabling users to swap cryptocurrencies, prior to SmartContract. Sergey also founded a decentralized email service called CryptoMail.
The Chainlink Lab advisory team includes professors from the University of Illinois and Cornell Tech, and a key member of the Ethereum Foundation.
Features and Functionalities
The Oracle Problem
The inability for traditional systems to communicate with blockchains is often called the oracle problem and represents a massive hurdle to widespread adoption of blockchain technology. Chainlink is the answer to this problem and with its implementation, blockchain technology will be available to many different industries.
Currently Chainlink can integrate with the two most popular blockchains: Bitcoin and Ethereum. There is also support for Hyperledger though it is not widely used. Chainlink is blockchain agnostic meaning it was built in a way that allows it to interface and read data from any other blockchain. Currently Chainlink can only execute actions on Bitcoin, Ethereum, and Hyperledger.
Flexibility is a core element of Chainlink’s capabilities and its external integration potential is massive. Chainlink can connect to any and all APIs/External Systems. Examples include market data from the NYSE and Bloomberg, retail payment systems like PayPal and Visa, events data like GPS information, and weather, and bank payment systems like SWIFT and Chase Pay.
Chainlink Labs has partnered with SWIFT, an international financial communications system, to consult on their own SWIFT Smart Oracle system. This partnership gives Chainlink Labs exposure to the over 11,000 banks in the SWIFT network.
In the last two years we’ve seen the emergence of decentralized finance (DeFi). For those that aren’t familiar with DeFi, it is essentially any standard finance function (think lending, borrowing, derivatives etc.) but done peer-to-peer outside of a centralized framework via smart contracts.
Chainlink is currently being implemented by leading projects in borrowing/lending, derivatives, asset management, and stablecoins to pull data from non-blockchain sources to power calculations around interest, pricing, and balancing. As DeFi grows the need to integrate traditional financial data into these contracts will grow as well.
Legacy data systems don’t talk to blockchains and the world is littered with legacy data systems.
The reconciliation of these two facts is the biggest problem facing the industry today. Chainlink provides an excellent solution and expands the potential reach of blockchain technology. The project has a dedicated team and a product that has been validated by both academia and the financial industry. By leveraging this position, Chainlink has the potential to become a major player in the development of the blockchain and global tech market.
It is a project early in its life cycle with substantial backing from a talented and promising team as well as industry leading users. As a long-term long position there is significant upside to be found as the protocol matures and begins feeding more data into smart contracts. Additional benefits will come from thoughtful expansion into adjacent markets where smart contracts can gain market share.
The main catalyst to increase price over the next year is the adoption of smart contracts in traditional industries and expansion of current enterprise relationships. Short term catalysts include increased marketing and additional blockchain integration. Historically, ChainLink’s founders have not marketed the product, a tactic to quell speculation, but as the technology matures, a solid marketing campaign will have positive effects.
Two major risks are lurking in the background. The first is ChainLink’s small team. Undoubtedly as the project grows the working capacity of the small team (50) will quickly be outstripped by the volume of work required. Operational scaling will be key to watch. The second is the SWIFT partnership. While the partnership opens many doors it also creates an opportunity for an acquisition or acquihire in which the Chainlink protocol is shuttered and the technology is extrapolated to another project. Both of these risks remain small yet do require attention.
That’s it, that’s the newsletter. Thanks for reading, I’ll talk to everyone on Thursday.
Congress agrees to $900 billion Covid stimulus deal after months of failed negotiations – Congress reached a deal Sunday on a $900 billion coronavirus relief package, a long-delayed effort to boost an American health-care system and economy buckling under the weight of the pandemic.
The U.K. has identified a new Covid-19 strain that spreads more quickly. Here’s what they know – England’s top medical officer on Saturday announced that the U.K. has identified a new variant of the coronavirus that “can spread more quickly” than prior strains of the virus, leading Prime Minister Boris Johnson to impose fresh restrictions on parts of the nation to control its spread.
US Floats Long-Dreaded Plan to Make Crypto Exchanges Identify Personal Wallets – U.S. cryptocurrency users hoping to transfer their holdings from an exchange to their own personal wallets may need to comply with new know-your-customer (KYC) requirements under a rule proposed by the Treasury Department Friday.
The Portfolio Rundown
Bitcoin has finally broken $20,000 and is running towards $25,000. Altcoins have followed but have lagged slightly. Unsurprisingly my Bitcoin allocation swelled past 50% and the allocations towards ETH, LINK, and ADA declined relatively. Cash has also dipped below my near term target of 5%. As I mentioned in Thursday’s letter I believe Bitcoin is due for a major pullback soon so I won’t be making any adjustments to the portfolio, things should balance out again. In the event Bitcoin runs far beyond $25k before a correction I’ll start to take profits and increase my cash allocation to take advantage of the pullback.
Nothing in this email is intended to serve as financial advice. Do your own research.