Chainlink, which is a price feed provider for many protocols and projects, recently introduced staking for its native token LINK recently. In today’s article, we look at chainlink, their Tokenomics, how they help the projects and their staking program.
In-order to understand chainlink, we would suggest brushing up on smart contracts, which we had covered in an older article here. Chainlink aims to create a network where data providers also known as oracles are monetarily incentivised to provide reliable data to the blockchain. As chainlink is run by oracle, it's important to understand what an oracle is. An oracle is a software that acts as an intermediary helping to do two-way data transfers between smart contracts and the real world. In other words, chainlink is a decentralized network of oracles that provides data from offchain to onchain sources and vice-versa. It allows smart contracts to act upon real word information that exists outside of the blockchain in a secure manner.
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<source: Google>
Launched in June 2017, chainlink is the solution from smartcontract.com, a company co-founded by Sergey Nazarov and Steve Ellis. The chainlink network acts as a bridge between blockchain industry and the traditional world. It is basically an Ethereum based network and is secured by a proof of stake consensus algorithm.
They are trying to solve the problem of replacing a middleman between two parties. The oracles of chainlink are trying to replace all these parties on both sides with code. The node operators are tasked with providing reliable information and the primary sources for providing data. They are incentivised with money for their services. However, they stake a certain portion of link in the network as node operators so that they are always truthful and reliable, failing which a part of their stake can be slashed.
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<source: Google>
For instance, when someone wants a piece of data on the blockchain, like the FIFA score between Croatia and Brazil, they first have to set up something called a requesting contract, which starts the process. After setting up a requesting contract, the chainlink algorithm will register this request as an event, proceeded by setting up a new matching smart contract known as chainlink service level agreement that will allow it to access data off the blockchain, followed on by creating sub contracts. Without getting too technical, with all of these sub contract processes combined, chainlink seamlessly provides accurate data for smart contract execution.
LINK is the native token of the chainlink blockchain, which is used to fund the project’s growth. The project went ahead with their ICO in September 2017. They fixed a maximum limit of 1Billion tokens and was sold at an initial price of $0.11 cents, which is at $6.86 currently according to coin market cap. At the time of writing, LINK has a circulating supply of 507 million tokens, which is around 50.7% of the total supply. According to their token supply, 35% of the supply will be allocated to people who help in securing the network and run the oracle, followed by 30% earmarked towards development of the blockchain/ecosystem and the remaining 35% was sold in the public sale event link the ICO.
In their chainlink 2.0 whitepaper, released on 15th April, 2021, the team proposed staking to ensure timely delivery of correct oracle reports. Their general approach to staking had three key innovative aspects. A powerful adversarial model, Super-linear staking impact and Implicit-Incentive Framework. They introduced staking on 7th December and elected holders locked 7 million tokens, valued at about $51 million, in the first 30 minutes.
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<source: Chainlink>
The staking pool, currently in beta, is initially capped at 25 million LINK, which the company says is a security-conscious approach, meaning 28% of the staking capacity was met within the first 30 minutes. The protocol is paying out 4.75% in annualized rewards to stakers in the form of LINK tokens. Stakers will be unable to unlock or move their LINK rewards until the next version of the protocol is released. That is expected in nine to 12 months, the company said in a blog post.
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