DEFIMARKETAPPLICATION

【Dapp Pocket】DeFi Weekly Report – Fourth Week of July: Chainlink, LINK, and the Symbiotic Relationship with DeFi

share
【Dapp Pocket】DeFi Weekly Report – Fourth Week of July: Chainlink, LINK, and the Symbiotic Relationship with DeFi

Dear DeFi enthusiasts,

This week, Ethereum led a surge in the cryptocurrency market, possibly related to progress on Eth2.0, while DeFi platform tokens experienced a slight pullback, possibly due to the flow of hot money into Ethereum and other currencies.

Liquidity mining remains hot, with decentralized finance contract platform UMA announcing the launch of new tokens and liquidity mining, and the hottest yearn set to release its V2 version; four Korean banks are expected to input USD/KRW exchange rate data into Chainlink nodes, and Binance Smart Chain's testnet announced the integration of Chainlink's oracle data. We further discuss Chainlink and its issued LINK tokens in our perspective.

Advertisement - Please scroll down for more content

This week's major viewpoints include Vitalik Buterin's announcement of the integration progress between Eth1.0 and Eth2.0, Ryan's inference of DeFi development space from Coinbase user numbers, and Compound's Leshner explaining what TVL in DeFi Pulse actually represents.

Our Perspective | The Mutual Benefit Between Chainlink, LINK, and DeFi

As we all know, Oracles are an essential part of the development of DeFi platforms. Serving as a bridge between real-world data and the on-chain world, without a good Oracle to assist, DeFi protocols can easily be maliciously attacked due to pricing errors. Chainlink, as the leader in this space, has benefited from the recent surge of DeFi projects, with its token LINK skyrocketing over 400% from the beginning of the year to now, reaching a peak of over $8.6. However, as DeFi tokens have slightly pulled back this week, LINK has also seen a decline. So, what makes Chainlink so remarkable? What is the utility of LINK? And how does DeFi affect the price fluctuations of LINK?

Chainlink Operation Model and Advantages

As the leading Oracle, Chainlink's biggest advantage lies in the network effect it has established; currently, most DeFi platforms use Chainlink Oracles. Additionally, Chainlink has a decentralized network of data sources, with over 70 nodes currently in operation. These nodes compete with each other through a reputation mechanism to provide better on-chain data. Furthermore, as the leader in Oracles, traditional financial institutions are beginning to pay attention to DeFi. If banks, financial institutions, or regulatory bodies want to bring data on-chain, they are likely to turn to Chainlink first, thereby strengthening its influence.

LINK Functionality

The LINK token is used to pay for the services of Chainlink Oracles, and nodes need to stake LINK as collateral to become a part of the network. Therefore, as the number of Chainlink nodes and users continues to grow, the value of LINK is likely to increase. Currently, LINK does not have governance functionality.

Implicit Risks

Chainlink's reputation mechanism evaluates a node's past accuracy in providing data, along with other factors like quoting and activity, to determine whether to choose that node to provide data. Nodes that have frequently provided incorrect data in the past are less likely to be chosen again. However, Chainlink has not disclosed the specific penalty mechanism for nodes that provide incorrect data, which raises concerns among skeptics. Additionally, despite having over 70 operating nodes, the majority of data is provided by around 20% of the larger nodes, which some skeptics believe contradicts the decentralized nature of DeFi.

Competitors

Currently, there are no real competitors in the market that can be considered direct rivals to Chainlink in the Oracle service provider space. Although Coinbase provides Oracle services, it still positions itself as a supporter of Chainlink rather than a competitor. Band Protocol is one of the most promising Oracle service providers, with backing from Sequoia Capital, and its token BAND has tripled in value in the past month. However, Band Protocol still has few partners, and major DeFi platforms worldwide have yet to integrate with it. The largest decentralized stablecoin issuer, Maker, uses its own developed Oracles.

Conclusion

Despite attracting direct competitors like Zeus Capital, which released a bearish report on Chainlink, Chainlink has generated a network effect and has a sizable decentralized network as a data source. Continuously developing and updating, we remain optimistic about Chainlink's future. The value of LINK is speculated to increase as DeFi platforms utilizing Chainlink, such as Aave and Synthetix, continue to grow. However, as a utility token, if the price of LINK rises too high, it may increase the burden on users and future node operators, which is something to watch out for.

References

This Week's Highlights

DeFi Aggregator Yield Protocol yearn.finance to Launch V2 Version

Andre Cronje's DeFi aggregator yield protocol yearn.finance will launch its V2 version in 3 to 4 days. The new version aims to simplify yield farming and automate operational processes. The system will reduce gas fees, with deposit and withdrawal costs as low as approximately $2 even at 100 gwei. Additionally, apart from the scheduled strategy list, anyone can submit yield farming strategies and receive additional rewards for their strategies.

What is yUSD? UMA Launches Yield Dollar Token, Driving Price Up Nearly 50%

Decentralized financial contract platform UMA officially announced the launch of a new token - Yield Dollar (yUSD) and liquidity mining on July 23, driving the token price up nearly 50%. yUSD is a variant of stablecoin with a fixed value of $1 at maturity, requiring collateralized cryptocurrency assets for minting.

Four Major Korean Banks to Provide Forex Data for DeFi Platforms

According to Korean media ddaily, four major Korean banks (Shinhan Bank, IBK Bank, KEB Hana Bank, and NH Bank) will participate in a joint project involving Chainlink (LINK) and the Korean financial technology platform Center Prime. These banks will provide real-time USD/KRW exchange rate data to Chainlink nodes, allowing DeFi service providers to access this data when creating smart contracts on blockchain platforms. These four banks have shown a keen interest in blockchain technology, marking their first meaningful investment in the DeFi space.

Binance Smart Chain Testnet Announces Integration with Chainlink Oracles

The Binance Smart Chain testnet announced the integration of the decentralized network Chainlink. Through decentralized Oracles, real data can be securely brought into the Binance Smart Chain, enabling developers to build better smart contract applications with real data. This integration can also assist developers in developing more applications in derivatives, crypto payments, automated asset management, and more.

Ethereum's Next Multi-Client Testnet Medalla to Launch on August 4

In an official post, Ethereum announced that due to the stable operation of the current Ethereum multi-client testnet Altona (launched at the end of June), the team has decided to launch the next multi-client testnet, Medalla, on August 4 at 9:00 PM. This marks a significant step forward from Altona, as Medalla is a testnet built for the community and maintained by the community. While previous testnets were mainly operated by client development teams and Ethereum Foundation members, with the launch of Medalla, the stability and health of the Ethereum chain will be almost entirely in the hands of the community.

Other Highlights Include:

Data Indicators

This week's data is collected from 7/21 to 7/27, with price capture time around 5:30 PM. TVL stands for Total Value Locked, indicating how much value is locked in the platform. Data Source: DeFi Pulse.

Lending Platform Scale

DEX Scale

DeFi Coin Prices (Farmer's Zone)

Expert Opinions

Vitalik Buterin: Eth1.0 and Eth2.0 Successfully Integrated on Testnet

Ethereum founder Vitalik Buterin shared a tweet from Ethereum core engineer Danny Ryan on Twitter. In essence, Eth1.0 has successfully integrated into Eth2.0 on the testnet, marking significant progress.

Ryan Sean Adams: I Believe DeFi Still Has Significant Room for Growth

Mythos founder Ryan Sean Adams mentioned his views on DeFi development on Twitter. He noted that Coinbase has 35 million users, while DeFi only has 250,000 users... indicating that DeFi still has significant room for growth.

Robert Leshner: TVL Refers to Funds Not Withdrawn from the Platform

Compound founder Robert Leshner recently responded to a tweet from a user on Twitter. The user questioned the reliability of DeFi Pulse's TVL algorithm, claiming that it includes funds borrowed multiple times. In response, Leshner clarified that the way DeFi Pulse calculates TVL is not as the user stated but represents the amount of funds "not withdrawn" from the platform. In the case of Compound, this can be understood as the "currently available lending amount."