CoinEx Institution: Cryptocurrency Project Report — Chainlink (LINK)

Author：CoinEx Global Ambassador Er.R.Vinothkumar

Project Overview:

Chainlink is a blockchain-base middleware, acting as a bridge between cryptocurrency smart contracts and off-chain resources like data feeds, various web APIs, and traditional bank account payments. This way, Chainlink allows Smart Contracts to communicate with external resources on their own. LINK is an ERC20 token based on the Ethereum Blockchain. It is used to pay Chainlink Node operators for the retrieval of data from off-chain data feeds, formatting of data into blockchain readable formats, off-chain computation, and uptime guarantees they provide as operators.

Tagline:

Decentralized oracle network

Description:

Chainlink is a decentralized oracle network. It aims to serve as a middleware between smart contracts on smart contracting platforms and external data sources, allowing smart contracts to securely access off-chain data feeds.

Background:

Chainlink traces its origins back to September 2014, when its parent company SmartContract.com was founded to create a bridge between external data sources and public blockchains. The team eventually developed a product called Chainlink that allows smart contracts to connect to data feeds from any web API and data source. However, SmartContract.com’s original oracle solution for public blockchains relied on centralized oracles, creating what is known as the oracle problem — the problem stemming from smart contracts’ reliance on trusted third parties for external data. In 2017, SmartContract.com attempted to address this problem with the Chainlink network, a new decentralized oracle network. In September 2017, SmartContract.com (SmartContract Chainlink Ltd) raised $32 million in ICO to build the project. The Chainlink network seeks to bridge external data sources and public blockchains. It connects smart contract platforms to critical off-chain data from markets, events and payments through its decentralized oracle network. Anyone who has a data feed or any other API can join the Chainlink network and undertake jobs to retrieve and provide data to smart contracts. Node operators are paid in Chainlink tokens (LINK) for their services. Node operators will also be able to stake LINK to service certain smart contract requests that require collateral, when staking launches on mainnet. Chainlink’s mainnet went live on Ethereum on June 1, 2019.

Technology:

Chainlink consists of both on-chain and off-chain components. Off-chain, Chainlink consists of a network of oracle nodes that connect to public blockchains (initially just Ethereum). On-chain Chainlink consists of a series of smart contracts that provide an interface to requesting contracts demanding data feeds. Chainlink’s off-chain component consists of a network of oracle nodes connected to the Ethereum blockchain. These nodes independently harvest responses to off-chain requests.Their individual responses are aggregated via a smart contract on Ethereum, weighted, then returned to a requesting contract. ChainLink nodes are powered by the standard open source core implementation which handles standard blockchain interactions, scheduling, and connecting with common external resources. Chainlink’s on-chain component consists of of three main contracts: a reputation contract, an order-matching contract, and an aggregating contract. The reputation contract keeps track of oracle-service-provider performance metrics. The order-matching smart contract takes and logs proposed service level agreements (SLAs), which include details such as query parameters (which data feeds to use), the number of oracles needed by the purchaser, collateral required, and uptime requirements, and collects bids from oracle providers. It then selects bids using the reputation contract and finalizes the oracle SLA. The aggregating contract collects the oracle providers’ responses and calculates the final collective result of the ChainLink query. It also feeds oracle provider metrics back into the reputation contract. The way this flows begins with a user smart contract. User smart contracts broadcast request contracts containing SLAs defining parameters for the data request. Node operators who monitor the Ethereum blockchain for these request, then bid to service them using the order matching contract, which both collects bids and logs the SLA parameters. Users can also select specific node operators manually through either the Chainlink core team marketplace or third party marketplaces for matching requests. Once matched with a request node operators, node operators return external data to the aggregating contract, which aggregates data from operators into a single weighted value, sends performance metrics to the reputation contract, and then reports the single weighted value back to the smart contract that requested it. In exchange for their services, node operators are compensated in LINK. LINK is currently built on Ethereum, although it plans to integrate with all smart contract networks later on its roadmap.

Launch Style :

Crowd-sale

Usage Details:

Big Investors:

Consensus Capital ,China

8Decimal

Outlier Ventures,United Kingdom

Chainlink Team:

Token Price Chart :

Depth Chart:

Similar to Chainlink:

Source: https://public.tableau.com/profile/cryptospong3#!/vizhome/ChainlinkContractTransactionCounts/Sheet1

LINK has over 20 price oracles for Ethereum, which can be used as an aggregated trusted price source for DeFi applications. LINK also offers decentralized price reference data for several other USD and ETH pairs, all of which can be used by various types of applications, crypto-native or otherwise.

Source: feeds.chain.link/eth-usd

The decentralized network has three approaches for preventing faulty data and reducing single oracle vulnerabilities. Data sent through the network is curated and verified through majority voting, which prevents a single point of failure in the oracle system.

The network also cycles through oracles and introduces a reputation and certification system for oracle performance. Hardware components also protect the integrity and confidentiality of data to ensure tamper-proof and private data transfers between oracles and smart contracts.

When a smart contract requests data from ChainLink, every node in the network submits their data and the nodes put their LINK tokens at stake. If the node is found to have submitted bad data, their LINK tokens are distributed to nodes that submitted good data.

This punishment system incentivizes a continuous stream of honest data from decentralized sources. The network currently supports Ethereum, Bitcoin and Hyperledger with partnerships including Google, Intel, and Oracle.

Source: @linkmarine1

On the network side, the number of on-chain transactions per day (line, chart below) and average transaction value in USD (fill, chart below) have been inversely related since mid-May 2019. Average transactions per day over a weekly period are currently at an all-time high of 7,600. Average transaction values have also steadily increased since the beginning of the year. Average transaction values reached US$86,000 on November 29th, 2018.

The 30-day Kalichkin network value to on-chain transactions ratio (NVT) has ranged wildly over LINK’s short history and recently hit an all-time low in late September 2019. A rising NVT suggests the coin is overvalued based on its economic activity and utility, which should be seen as a bearish price indicator.

The number of monthly active addresses (fill, chart below) has moved in line with the LINK/USD price. From May to July 2019, monthly active addresses (MAAs) increased 13x, reaching an all-time high of nearly 2,400, while the USD market price increased nearly 6x. MAAs currently sit at an all-time high. On June 29th, 2019, daily active addresses surpassed 10,000. A sustained increase in MAAs should be seen as a bullish indicator for price.

The chainlink project has 93 Repos on Github with the most active repo accruing over 3,700 commits over the past year from 30 developers. Most coins use the developer community of Github where files are saved in folders called “repositories,” or “repos,” and changes to these files are recorded with “commits,” which save a record of what changes were made, when, and by who. Although commits represent quantity and not necessarily quality, a higher number of commits can signify higher dev activity and interest.

LINK exchange-traded volume over the past 24 hours has been dominated by the Tether (USDT) and Bitcoin (BTC) trading pairs on Binance and Coinbase. The U.S. Dollar (USD) and Ethereum (ETH) pairs make up a substantial portion of the reported volumes.

Technical Analysis: (Details updated at 20 Mar 2020, 11:00 UTC)

A roadmap for trend shifts can be deduced using Exponential Moving Averages, Volume Profile of the Visible Range, and the Ichimoku Cloud. On the twelve-hour chart for the LINK/USD market, the spot price relative to the 50-period Exponential Moving Average (EMA) and 200-period EMA can be used as a litmus test for the trend. These key EMAs bullishly crossed in October 2019, but will likely cross bearish over the next few days. Both EMAs currently sit around US$3.00 and will likely act as resistance.

The Volume Profile of the Visible Range (VPVR, horizontal bars) also shows from US$1.58 to US$2.80, suggesting another extended period of accumulation or distribution would be necessary to break this range. Although RSI and volume show no signs of bearish or bullish divergences, RSI hit a low of 17 on March 12th.

Turning to the Ichimoku Cloud, there are four key metrics; the current price in relation to the Cloud, the color of the Cloud (red for bearish, green for bullish), the Tenkan (T) and Kijun (K) cross, and the Lagging Span. The best entry always occurs when most of the signals flip from bearish to bullish, or vice versa.

On the twelve-hour chart, Cloud metrics are bearish; the spot price is below the Cloud, the Cloud is bearish, the TK cross is bearish, and the Lagging Span is below the Cloud and below price. The trend will remain bearish so long as the spot price remains below the Cloud.

On the daily LINK/BTC chart, trend metrics are bullish to neutral. Price has largely remained above the 200-day EMA since August 2018. Additionally, since 2018, all drops below the Cloud have been temporary, leading to bullish continuation. The trend will remain bullish while the spot price is above these two critical levels. High volume VPVR support sits around the 12,000 sat zone should price fall below the 200-day EMA.

On the daily LINK/ETH chart, trend metrics are similar to the LINK/BTC chart; price has held above both the 200-day EMA and the Cloud since July 2018. Again, the trend will remain bullish while the spot price is above these two critical levels. If and when this trend does reverse, very little downside VPVR support exists until the 0.0088 ETH level.

Conclusion:

As more and more non-compatible blockchains, APIs, and datasets begin to emerge, so has the need to bring interoperability to the on-chain and off-chain worlds. LINK aims to solve this problem through a decentralized oracle network of node operators, incentivized to propagate accurate data by staking LINK. Thus far, LINK has established impressive proofs-of-concept or partnerships with SWIFT, Google, Oracle, and Intel, all of which are leaders in banking or cloud computing industries.

On-chain metrics for the LINK token, Github dev activity, and Google Trends all show a strong or continuous uptick in activity over the past several months, which supports the recent bullish rallies and bullish trend. LINK run oracles have quickly become a mainstay of the DeFi universe. However, this flurry of on-chain activity is likely related to speculative demand and not necessarily organic use of the network. Additionally, the 27 million tokens held currently by Smart Contract Limited can be sold at any time.

Technicals for the LINK/USD have quickly turned bearish after posting a 50% decline over the past month. Price will likely continue to range between US$1.50 and US$3.00 for the indefinite future. Technicals for the LINK/BTC and LINK/ETH pairs suggest a bullish outlook with a continued multi-year bull trend. Both pairs are holding above the 200-day EMA and daily Cloud. If prices move higher throughout 2020, LINK tokens held by Smart Contract Limited may again be sold, as was the case in July through August 2019.

The content is for opinion sharing only and should not be relied upon to make any investment decisions.