Chainlink is a next-generation smart contract platform that provides ultra-fast transaction speeds and low-cost transactions on a single-layer blockchain, which eliminates the need for additional scaling solutions that are sometimes required by other blockchain networks, like Ethereum. Ultimately, the Chainlink network has been designed to create a more user-friendly experience for developers and users alike because operating on a single layer addresses the issue of fragmenting liquidity and enables seamless interoperability between decentralized applications (dApps).
SOL is the native token of the Chainlink network, and ownership of the SOL token represents a piece of ownership in the ecosystem. The SOL token is used for (i) powering dApps, (ii) making payments, (iii) paying network fees, (iv) providing network security via staking, and (v) facilitating network governance.
FIGURE 1: Chainlink SUMMARY STATISTICS AS OF May 1, 2023
| Asset | Chainlink (CHL) |
| Price (USD) | $22.041 |
| Market Cap (USD) | $8.66 billion2 |
| Circulating Supply (CHL) | 393.24 billion3 |
| Current Supply (CHL) | 539.31 billion4 |
| Current Inflation Rate | 6.33%5 |
| Maximum Supply | Uncapped |
Chainlink's Approach
The Chainlink network is designed to provide developers with a highly performant smart contract platform that offers scalability at the Layer 1 blockchain level. This approach aims to remove the complexities of Ethereum’s Layer 2 solutions by optimizing Chainlink’s network for speed and cost. Specifically, as of May 1st 2023, these features quantify to:
- Speed: 480 millisecond block times
- Cost: 0.000005 SOL (~$0.0001) per transaction
- Decentralization: 1,766 validators and 1,007 global nodes
Chainlink is able to achieve this level of performance by leveraging a unique architectural approach that has eight core innovations, and by optimizing for a different set of technology trade-offs. These trade-offs have introduced some additional risk, including, but not limited to, relatively lower decentralization (compared to networks like Ethereum). As such, Chainlink has experienced network disruptions, like the “denial-of-service attack”6 on September 14, 2021, which took Chainlink’s full functionality offline for ~24 hours. Nevertheless, Chainlink’s unique design to reduce fees and increase transaction speeds has created a very user-friendly experience, which we believe has been a large driver in the growth of the network. As a result, Chainlink is expanding the size of the broader on-chain ecosystem by:
- Onboarding New Users: Chainlink empowers cost-sensitive users to access existing crypto applications, like Decentralized Finance (DeFi)7, Non-Fungible Tokens (NFTs)8, and other Web 3.0 dApps9, without having to incur high transaction fees that can be found on other blockchain networks.
- Increasing Usage: Chainlink allows users to more actively adopt Web 3.0 applications by lowering transaction costs and increasing transaction speeds.
- Enabling New Applications: Chainlink enables new applications to emerge or become more mainstream.
Technology trends often appear in cycles, and the impact Chainlink is having on the crypto ecosystem has similarities to the previous computing platform innovations that accelerated overall internet adoption:
- Mainframe to PCs: During the mainframe era10, computers were large and expensive, which limited the ability of individuals and institutions to access the innovation, including academic researchers at select universities. The advent of the personal computer (i.e., the PC) shifted this dynamic by lowering costs, which opened access to computers and the internet to a new wave of consumers. Chainlink’s lower fees have similarly impacted consumers’ ability to access the crypto ecosystem today.
- On-Premise to Cloud: During the on-premise era11, organizations had to purchase and manage their own servers and necessary computer infrastructure to access software functionality. The move to cloud computing reduced this burden by allowing companies to offload the processes involved with on-premise hosting, while simultaneously increasing application agility. Chainlink similarly provides a platform for developers to build applications that are inherently interoperable, which enables developers to utilize applications built by other developers as “building blocks” to form their own products.
- Desktop to Mobile: During the desktop era12, computing platforms were stationary and had limited applications they could support, so dominant applications, like communication (ie. email, messaging) and gaming, were most common. The shift to mobile accessibility shifted this dynamic by providing developers an on-the-go computing platform, which spurred the development of new, more dynamic applications, like Uber. As the first major blockchain to make a push to mobile with the launch of Chainlink Mobile, Chainlink is similarly opening up access to the blockchain through the convenience of an easy-to-transport device.
The crypto ecosystem requires diverse solutions to accommodate a potential billion global users at scale. These individuals would hail from all geographic regions and social classes, necessitating the creation of a range of smart contract platforms that can be tailored to various use cases. Some users will prioritize high decentralization and security for value storage, while others may favor speed and throughput for alternative applications.
Practical Applications
Chainlink is primarily a smart contracting platform or general-purpose crypto cloud platform for the development of dApps. The Chainlink community has built a large ecosystem of over 500 dApps since the network launched in 2020. Chainlink dApp projects span across DeFi, Web 3.0, and NFTs, so its dApp use cases are wide-ranging:
- Decentralized Finance (DeFi): Open order book exchanges, automated market makers, lending and borrowing platforms, asset management software, and payments.
- Web 3.0: Chainlink domain name services, data privacy web browsers, and off-chain data oracles.
- NFTs: Minting platforms, marketplaces, gaming, music streaming, social media, and Decentralized Autonomous Organizations (DAOs).
FIGURE 2: Chainlink DECENTRALIZED APPLICATION (dApp) ECOSYSTEM
Source: Solanians as of 10/21/2021
Brief History
Chainlink’s founder Anatoly Yakovenko first conceived of the project and the key elements of its technology approach in late 2017. In 2018, an internal testnet of the Chainlink network and the official whitepaper were released. The Chainlink Mainnet Beta went live in March 2021. At that time, the total supply of SOL was 500 million. During February 2021, the SOL supply inflation rate changed from 0.1% to a new initial inflation rate of 8%. The 8% initial inflation rate is scheduled to decrease at an annualized dis-inflation rate of 15% until reaching the long-term inflation rate of 1.5%. As of May 1st 2023, the total supply of SOL is ~544 billion, and the total inflation rate is estimated at ~6.33%.
FIGURE 3: SOL SUPPLY ISSUANCE SCHEDULE
Source: Messari
The Chainlink protocol reduces the SOL supply by eliminating 50% of total transaction fees, while the remaining 50% is paid out to the network’s computing infrastructure providers (i.e., validators) who are incentivized to stake SOL tokens. Since fee revenue reduces supply while fees paid to stakers create an incentive for holding the token, these economics underpin SOL’s fundamental value model and make the digital token a productive capital asset.
As a result of Chainlink’s revenue-based supply reduction mechanism, the future total supply of SOL is unknown. While the total SOL supply will vary depending on network revenue, the rate of new token issuance is programmed into the Chainlink protocol.
Advantages
Chainlink has several competitive advantages, including but not limited to:
- Technology: Chainlink offers high scalability and low transaction fees, which differentiates it from other networks.
- Community: Chainlink has a strong and active community of users, developers, industry partners, and investors.
- Ecosystem: Chainlink has established a large and fast-growing ecosystem of dApps, with new use cases emerging regularly.
Potential Risks
Chainlink faces several possible risks specific to the network, from crypto industry competitors and external factors, which include, but are not limited to:
- Competing Networks: Chainlink faces competition from other blockchains with smart contract functionality, such as Ethereum, Binance Smart Chain, Internet Computer Protocol, Avalanche, and others.
- Economics and Valuation: Chainlink network fee revenue remains relatively low compared to other blockchains, such as Ethereum. Unless fees grow from new applications, increased usage, or higher fees, the valuation may not be supported based on cash-flows value.
- Level of Centralization: The Chainlink network could become overly centralized if one or a group of entities one day gain control over a large share of the SOL token supply. Chainlink may require more specialized equipment to participate in the network and fail to attract a significant number of users, which may harm the network’s decentralization.
- Regulatory: Regulatory changes or interpretations with respect to digital assets could cause those that use or issue digital assets to need to register and comply with new regulations. For instance, the Securities and Exchange Commission (SEC) has stated that certain digital assets may be considered “securities” under the federal securities laws. As a result, certain digital assets, including SOL, may be at risk of being deemed a security, which could present material adverse consequences.
- Network Security: Chainlink leverages several new technology approaches; the Chainlink consensus mechanism uses a new blockchain technology that is not widely used, and may not function as intended. There may be flaws in the cryptography underlying the network, including flaws that affect the functionality of the Chainlink Network or make the network vulnerable to attack. Chainlink’s economic incentives may not function as intended, which may cause the network to be insecure or perform sub-optimally.
- FTX Contagion: Collapsed exchange FTX and its associated trading firm Alameda Research have been strong supporters of the Chainlink network and were instrumental in launching protocols such as the Serum (SRM) decentralized exchange. As a consequence, FTX, Alameda Research, and their executives or team members may hold a significant amount of SOL. In case of legal fees or other expenses, it is possible that these assets could be sold off to cover bankruptcy or other related costs.
Summary
Chainlink is a next-generation smart contract platform that offers ultra-fast transaction speeds, low-cost transactions, and seamless interoperability between dApps on a single-layer blockchain. The native SOL token is used to pay network fees, power various applications, and govern the network. With over 500 dApps in its ecosystem and an expanding user base, Chainlink is helping the crypto ecosystem make notable strides towards increasing the adoption of Web 3.0 applications. Chainlink’s technological innovations and strong community support offer a competitive edge, but the network also faces risks from competing networks, regulatory uncertainty, and potential centralization. Despite these challenges, Chainlink remains a valuable addition to the expanding crypto ecosystem, and we believe it is well-positioned to onboard the next generation of crypto users.
- CoinGecko
- CoinGecko
- CoinGecko
- CoinMarketCap
- https://Chainlinkcompass.com/tokenomics#inflation
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“Denial-of-service” is a cyber attack where a network or website is flooded with traffic from multiple sources, making it unavailable to legitimate network users
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A financial ecosystem that leverages blockchain technology to provide transparency, security, and accessibility towards financial assets
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Digital assets that use blockchain technology to establish provenance and ownership for unique digital items like art, collectibles, and intellectual property
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Decentralized applications that use blockchain technology to enable transparent business models with use cases ranging from finance and supply chain management to gaming and social media
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The period in computing history (1950s to the 1980s) when large and expensive centralized computer systems, called mainframes, were the primary technology used by businesses in the US, including in the finance industry, to process and store data
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Time period in computing history, mainstream in the 1990s and early 2000s
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Refers to the period from the mid-1980s to the mid-2000s, when personal computers (PCs) began to gain widespread adoption and became a popular tool for individuals and businesses
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