77 Smart Contract Use Cases Enabled By Chainlink
Fundamentally, contracts define the terms and obligations for an exchange of value between two or more independent parties. Historically, a centralized arbitrator is usually required to verify if those terms and conditions are met. However, thanks to the advent of blockchain technology and smart contract applications, we can now replace centralized arbitrators with decentralized infrastructure, reducing counterparty risk and improving operational efficiency.
However, due to the consensus mechanisms of blockchains, smart contracts have no built-in capabilities for interacting with external resources like data providers and API services as a means of verifying the outcome of real-world events happening outside the blockchain. This creates what is known as the blockchain oracle problem and represents one of the greatest limitations to representing everyday contracts on the blockchain.
To overcome this lack of connectivity, smart contracts use oracles as middleware to retrieve external data inputs and push data outputs to external systems. Not only do oracles serve as a two-way bridge between smart contracts and the outside world, but they provide a security framework for protecting against any single point of failures such as data manipulation and downtime.
Chainlink is the most widely used decentralized oracle network, currently securing billions in USD value for live applications across numerous blockchains and use cases. Chainlink is not a single oracle network but an ecosystem consisting of numerous decentralized oracle networks running in parallel. Each oracle network can provide a multitude of oracle services without cross dependencies on other oracle networks, some of which include:
- Pre-Built Decentralized Price Feeds that can be quickly integrated into any DeFi application to obtain asset prices with full market coverage.
- A Verifiable Random Function (VRF) to access a provably fair and secure Random Number Generator (RNG) directly on-chain.
- Modular External Adapters to connect to any off-chain resource like premium data providers, web APIs, IoT sensors, bank payments, enterprise backends, other blockchains, and more.
- Various other oracle services such as Fair Sequencing Services for fair transaction ordering, DECO for privacy-preserving attestations of TLS web session data, Arbitrum Rollups for scalable off-chain Solidity computation, and more.
Ultimately, Chainlink provides the necessary developer tools required to construct any type of oracle network, such as using multiple data sources, multiple oracle nodes, various aggregation methods, payment penalties, reputation services, and visualization tools. This allows for a wide range of use cases to be developed, tested, and pushed into production.
Access to external data opens up a whole new wave of functionality for smart contracts. To inspire you with the limitless potential of universally connected smart contracts, we put together a list of 77 ways to use the Chainlink Network. If any of these ideas resonate with you or if you want to learn more, find us on Discord or Github, and check out our documentation to begin building universally connected smart contracts today.
Money is the common medium used today to value and exchange assets. Financial products provide different vehicles in which people can maximize the value of their money via different strategies like hedging, speculating, earning interest, collateralizing loans, and more. However, traditional finance is often gated, wherein well-capitalized entities have disproportionate control over the issuance of money and the creation/offering and settlement of financial products. The result is a lack of universal accessibility to certain financial products and the introduction of counterparty risk, where the larger entity has more influence on whether the financial product is fairly honoured according to the pre-agreed upon terms.
Blockchains and smart contracts bring deterministic execution to financial products, eliminate moats around financial product creation, and provide a tamper-proof monetary policy for on-chain assets. Chainlink oracles play a critical role in creating advanced smart contracts representing financial products and monetary instruments, particularly those that execute based on market data like FX rates, interest rates, asset prices, indices, and more.
Stablecoins are on-chain tokens that are pegged 1:1 to fiat currency, commonly the US dollar. They provide users with the ability to hold a non-volatile cryptocurrency. While centralized stablecoins are backed by fiat in an off-chain bank account, decentralized stablecoins are commonly overcollateralized by on-chain cryptocurrencies and require price data to maintain full collateralization (e.g. a user’s collateral is worth over 150% the value of their loan).
DeFiDollar is an example of a decentralized meta-stablecoin (a stablecoin backed by multiple stablecoins) that uses Chainlink Price Feeds to track the price of the underlying assets including sUSD, USDT, DAI, and USDC. In the event that one or multiple of these tokens deviate from their 1:1 USD peg, thus causing DUSD to also lose its peg, a rebalance is triggered between the four reserves in order to preserve the dollar parity of DUSD.
Blockchain-based money markets are crucial financial infrastructure that use smart contracts to connect lenders, who wish to earn a yield on their assets, with borrowers, who wish to gain access to working capital. They allow users to increase the utility of their crypto holdings and participate in both the supply and demand side. However, to ensure the solvency of the platform, price feeds are required to track the valuation of assets used on the platform as a means of ensuring loans are issued at fair market prices and liquidations automatically occur on undercollateralized loans.
Aave is an example of an on-chain money market protocol that uses Chainlink Price Feeds to fetch market data for nearly two dozen different cryptocurrencies supported on the platform. With this real-time pricing data, the Aave protocol is able to calculate the valuation of each user’s collateral and debt in order to determine when liquidations should be initiated. This ensures the Aave protocol is always sufficiently collateralized, protecting billions of USD value in user deposits.
Futures are financial derivatives that “obligate” traders to buy or sell an asset at a predetermined price at a specified time in the future. Commonly used for hedging and leveraged exposure, futures smart contracts require users to collateralize their long or short position. Price feeds are used to determine whether or not liquidations should occur, ensuring each contract is fully collateralized at all times.
dYdX and MCDEX are examples of on-chain financial applications that utilize Chainlink Price Feeds in order to power Perpetual Contracts, which is a Futures contract without expiry. By using Chainlink oracles, these protocols are able to ensure the solvency of their platform by having access to real-time price data for both determining when liquidations should occur and dynamically setting the funding rate to maintain net neutral exposure.
Similar to Futures contracts, Options are a type of financial derivative that grant traders the “option” to buy or sell a certain amount of a particular asset by a future date if they so choose. In the off-chain world, centralized entities most frequently underwrite the contracts, but on the blockchain, decentralized peer-to-peer options are possible.
Auctus and FinNexus are examples of options protocols that use Chainlink Price Feeds to calculate the valuation of crypto assets, enabling users to mint and trade options contracts. Additionally, Chainlink oracles can provide Implied Volatility (IV) data on various crypto assets, granting contract creators the ability to calculate an option’s contract premium in a decentralized and tamper-resistant manner.
Synthetic assets are a category of financial derivatives that provides traders with price exposure to specific assets, such as stocks or commodities, without requiring ownership of the physical asset itself. Smart contract-based synthetic assets allow traders to create advanced non-custodial trading strategies and gain exposure to traditional assets that do not exist on the blockchain.
Synthetix is an example of a derivatives protocol that uses Chainlink Price Feeds to enable the minting of various “synths” that allow traders to gain on-chain exposure to assets like cryptocurrencies, fiat currencies, commodities, indices, equities, and more. Through a peer-to-contract trading model, users are able to swap between these synthetic tokens with zero slippage using Chainlink Price Feeds to access the current value of the underlying assets.
Credit Default Swaps
Credit Default Swaps (CDS) are financial agreements that allow lenders to hedge against the possible occurrence of a default (lack of payment) from a borrower. If the borrower goes into default, the party who issued and sold the Credit Default Swap reimburses the lender for the outstanding funds not paid by the borrower.
Opium.Exchange is an example of an on-chain derivatives protocol that uses Chainlink Price Feeds to settle various financial derivatives products. One of these products includes a Credit Default Swap on the centralized stablecoin USDT Tether, allowing traders to hedge against Tether deviating and falling below its $1 peg.
“Derivatives smart contracts deployed on Opium Exchange are connected to Chainlink’s price reference data feeds, reading pricing data at execution of the derivatives contract to calculate payouts. By virtue of Chainlink’s open visualizations of the Price Reference Data oracle networks, traders on Opium Exchange can independently verify the accuracy and on-time delivery of prices at contract maturity.” –Opium + Chainlink integration
Bonds are a financial agreement that enables the raising of short term capital by issuing debt to be paid back at a later date. Traditional bond contracts can be replicated as an automated smart contract through the use of Chainlink oracles, which provide the data required for settlement such as interest rates, debt scores, fiat payments, and more.
Chainlink has already demonstrated such capability with a POC with SWIFT, where oracles were used to aggregate interest rates from five major banks, fetch debt score data from S&P, and generate an interest payment in the form of an ISO20022 SWIFT payment message. As a multi-trillion dollar industry, bringing bonds onto the blockchain can greatly reduce counterparty risk and lower operational costs across the board.
Tokenized Portfolio Management
A unique use case for smart contracts is non-custodial “smart portfolios” that automatically rebalance user portfolios by executing trades on their behalf based on preset conditions. This provides users with advanced financial products that programmatically manage investments based on the current market-wide price of specific assets and tokens. These trading strategies can be tokenized, allowing users to transfer and use these tokens within other smart contract applications.
Tokensets is one such example of a protocol that uses Chainlink Price Feeds to generate various “Sets,” tokenized positions that execute trades on the behalf of users. These Sets are based on Technical Analysis (TA) metrics such as the RSI or moving averages, designed to catch key price action trends. Additionally, users can use their Set tokens as collateral within other protocols, such as the Aave money market, to gain additional capital efficiency.
As discussed in our recent education piece, tokenized real-world assets are among the most promising use cases for blockchain and smart contract technology. They take real-world assets and represent them on the blockchain as a token. Compared to traditional assets, tokenized assets benefit from global accessibility, permissionless liquidity, on-chain transparency, and reduced transactional friction.
DeFi Money Market (DMM) is a project that represents real-world assets on-chain and allows users to invest in the revenue streams of these assets through mTokens, which pay a stable fixed yield to holders. DMM uses Chainlink oracles to calculate the valuation of its real-world assets, which initially consist of car equity loans, before minting any new mTokens to ensure full collateralization by assets existing off-chain.
Proof of On-Chain Reserve
Wrapped cross-chain assets—cryptocurrencies/tokens native to one blockchain that are locked into a contract and then “unlocked” on another blockchain—are becoming increasingly popular due to their ability to increase the collateral types available within the DeFi ecosystem. However, in order to ensure the integrity of DeFi applications supporting wrapped asset deposits, Proof of Reserve reference contracts can be used to supply data regarding the true collateralization of these on-chain assets.
Two protocols using Chainlink to power Proof of Reserve reference feeds include BitGo’s WBTC and Ren Protocol’s renBTC, representing over 90% of the wrapped Bitcoin on Ethereum and representing billions in USD value. These Proof of Reserve reference feeds provide DeFi protocols with the data they need to autonomously verify collateral reserves and swiftly protect user funds during an under collateralization event. Proof of Reserve reference feeds can also be used to track the collateralization of assets beyond cross-chain tokens includes stablecoins and real-world commodities, further increasing the collateral available within DeFi.
Proof of Off-Chain Reserve
Bringing real-world assets onto the blockchain provides a large potential to expand the economic activity of DeFi, as seen with the adoption of fiat-backed stablecoins. However, this requires the underlying collateral to be held by a central custodian, disconnecting the on-chain tokenized representation from the actual off-chain asset itself. Through Chainlink Proof of Reserve, smart contacts are able to autonomously audit the collateralization of real-world asset-backed tokens, protecting users during black swan events.
An example of this is the TUSD Proof of Reserve reference feed that provides DeFi applications with data regarding the true amount of US dollars backing the stablecoin TUSD held by TrustToken’s off-chain escrowed bank accounts as reviewed by Armanino, an independent top 25 auditing firm in the United States. This collateralization data can be checked against the total amount of circulating TUSD tokens on various blockchains, as reported by the complementary TUSD Proof of Supply feed, to determine the collateralization of TrustToken’s tokenized USD.
Automated Asset Management
Smart contracts can be used to automatically execute trading strategies at predetermined intervals. However, a range of variables can influence the profitability of those strategies, specifically network gas costs. Thus, traders using automated systems need reliable data from oracles in order to ensure that their trades will be consistently profitable.
One such example is Gelato, an automation protocol for Ethereum developers, which uses a Chainlink-powered gas price oracle. Having real-time access to gas prices allows users to specify the Ethereum gas price conditions under which they wish to execute a specific trade, as well as cease the execution of automatic trading strategies if gas prices rise too high.
As an increasing number of DeFi products launch with DAO (Decentralized Autonomous Organization) governance, there becomes more of a need for developers and community members to distribute the revenue generated by a DeFi protocol in a decentralized and real-time manner. Through the usage of Chainlink oracles, DAOs can distribute crypto revenues proportionally according to various metrics, such as staked coins, governance participation, developer activity, or any customized set of requirements.
In certain instances of exceptionally high volatility, the prices for assets on a cryptocurrency exchange may cease to reflect the prices seen on the wider market. This can lead to a loss of funds to arbitrageurs, or to users who get falsely liquidated due to leveraged positions they had open. Such occurrences reduce user trust in the exchange and can benefit from a circuit breaker that trips should certain deviations occur.
Digitex is an example of a traditional exchange that protects users from market manipulation by monitoring for the deviation between their internal price feeds and Chainlink Price Feeds as an additional layer of security for users trading on the platform. If the exchange’s price deviates beyond a certain percentage from the wider market-wide price reported by Chainlink oracles, a “circuit breaker” can be triggered to temporarily halt trading and liquidations.
Decentralized exchanges (DEXs) are on-chain trading venues that allow users to trade cryptocurrencies without taking custody of those assets or giving out personal information to a centralized institution. As DEXs grow in popularity, the desire for traditional trading strategies and advanced features currently available on traditional centralized exchanges grows in importance.
0x Relayer Bamboo Relay is an example of a decentralized exchange that uses Chainlink Price Feeds to power stop-loss order functionalities—conditional trading functions based on the price action of an asset. With aggregated market data from Chainlink, each trader’s stop-loss order will only be executed when the market-wide price of the asset surpasses a certain predefined threshold, preventing market manipulation attacks from falsely executing trades.
Automated Market Makers
An increasingly popular category of decentralized exchanges is Automated Market Makers (AMMs). Instead of traditional order books, AMMs are on-chain liquidity pools that facilitate asset swaps based on a predetermined price formula. By pooling capital, liquidity providers are able to earn passive yield and traders gain access to on-demand liquidity.
DODO is an example of an AMM protocol that uses Chainlink Price Feeds to power a new AMM design known as a Proactive Market Maker. DODO’s PMM mimics human market-making behaviours and gathers more capital near the market price reported by Chainlink in order to facilitate more efficient and frequent trading.
Many protocols rely on some form of staking—the locking of cryptocurrency collateral into a smart contract—in order to secure their crypto-economic networks. Staked collateral might help signal where rewards should be proportionally distributed, or it can be “slashed”—programmatically taken under certain conditions as a means of disincentivizing malicious behaviours.
For instance, AdEx requires its validator nodes to stake collateral and maintain high availability. AdEx uses Chainlink oracles to monitor node uptime and trigger the slashing of collateral should any node fall below the uptime requirements. This ensures that only high-quality node operators participate in the network, which in turn enhances the security of the entire platform.
Rebasing is a new financial primitive within DeFi that involves the act of adjusting the supply of a token as a means to maintain its peg to a specific reference asset, such as the US dollar. If the price of the token is above its peg during the rebase, then more tokens are minted and given proportionally to all token holders with the goal of lowering the per token price. Conversely, if the price of the token is below the peg, then a certain percentage of each holder’s tokens are burned to raise the per token price.
Ampleforth is an example of a protocol that uses Chainlink Price Feeds to power its native rebasing functionality. The total supply of AMPL is rebased on a daily basis to track the current Consumer Price Index (CPI) rate, an index from the Bureau of Economic Analysis on the current value of the inflation-adjusted 2019 US dollar. Both the volume-weighted average price of AMPL and the CPI index is provided to the Ampleforth protocol by Chainlink oracles.
Yield Farming is a new financial primitive within the DeFi ecosystem that is used to bootstrap liquidity and facilitate the fair distribution of a protocol’s governance tokens. In most yield farming applications, users who provide liquidity to the protocol are granted a reward in the form of the protocol’s native governance token, serving as a growth subsidy.
Two protocols using Chainlink oracles for their Yield Farming mechanism are Plasm and StrongBlock. Plasm uses Chainlink price oracles to determine the amount of value users have locked into the protocol and distribute rewards accordingly, while StrongBlock calculates the USD value locked in Community pools at the end of every 24 hours.
It’s easy for smart contracts to issue payments in the cryptocurrency of their native blockchain, such as Ethereum smart contracts issuing payments in ETH. However, many businesses can’t afford the risk of holding volatile cryptocurrency assets on their balance sheet. They also don’t want the additional friction of trading out cryptocurrency for their preferred fiat currency. Given the wide variety of payment preferences around the world, smart contracts need access to many types of payment options to adequately service global demand. Chainlink can facilitate a wide variety of payment services thanks to its ability to push outputs from the smart contracts to external APIs.
Chainlink enables smart contracts to connect to existing banking systems, allowing smart contract developers to seamlessly integrate information and services such as consumer bank accounts, direct deposit, and other processes from leading global banks.
Many consumer applications such as Uber and AirBnB offer popular retail payments to users. Chainlink can bring the same ease of use to smart contracts by giving them access to the leading credit card providers and established payment networks, like PayPal and Stripe. Developers can start building applications that take advantage of the most in-demand payment outputs, both domestically and internationally, used on a daily basis in the retail economy. Chainlink already has pre-built modular external adapters for popular retail payment rails such as PayPal and Mistertango.
Cryptocurrency is becoming increasingly popular, but some of the popular choices are often disconnected from the leading smart contract platforms. Chainlink bridges the gap by allowing any smart contract platform to make payments on any other distributed ledger, such as Bitcoin payments triggered from the Ethereum blockchain. Additionally, Chainlink Price Feeds can be used to provide exchange rates at the time of transfer or point of sale, ensuring users get fair market rates in a tamper-proof manner.
Alchemy and Paycoin are examples of hybrid crypto/fiat payment platforms that will use Chainlink Price Feeds to determine exchange rates, allowing users to pay with a wide range of cryptocurrencies while the merchant still receives their preferred form of payment.
One significant source of inefficiency across nearly all industries in the legacy world is the delay in payments for services rendered to employees and contractors. Chainlink-powered smart contracts can be used to programmatically distribute payments to workers in real-time, which would reduce accounting overhead costs for employers, as well as providing access to earned wages for workers on a more immediate basis.
Fiat on/off-ramp aggregator Transak laid out how this could work by using a work tracking API like WakaTime to trigger payments to developers on a regular basis. Additionally, Chainlink Price Feeds can be used to calculate the exact amount of crypto revenue to distribute, maintaining a certain USD value per payout.
Remittances are quite common in the increasingly globalized world. However, it’s a slow and expensive industry, despite advancements in technology. Many DLT projects are aiming to disrupt the remittance industry and Chainlink oracles can provide reliable data on foreign exchange rates to smart contracts as well as enable direct deposit upon transfer.
Gaming and Randomness
While DeFi is currently the largest smart contract market, developers are increasingly building fraudproof, crypto-economically incentivized gaming applications. One of the unique characteristics of blockchain games is their ability to generate rare tokenized in-game items (mostly as NFTs), as the blockchain provides definite proof of the item’s rarity. Minting these rare items in a manner that the external entities or the game’s developers can manipulate to their own advantage is key to ensuring their value, which is why Chainlink developed a Verifiable Randomness Function (VRF). Chainlink VRF is a secure and provably fair source of Random Number Generation (RNG), which generates on-chain cryptographic proofs to prove to users that the randomness was not tampered with.
Their provably fair form of randomness brings reliability to the rarity of items, opening up things like virtual metaverses, where tokenized items can be reliably used across different games. Verifiable randomness is also critical to creating unquestioned fairness to regulated gambling applications, removing the need to trust that the house is telling the truth about their odds. Additionally, Chainlink VRF can unbiasedly order participants for in-demand giveaways and events or fairly select participants for low demand events like jury duty. Beyond randomness, gaming can benefit from numerous data sets, such as real-world event data to augment in-game functions/ratings, exchange rates to facilitate NFT markets, IoT data to connect the physical world on-chain, and much more.
Unpredictability is one of the hallmarks of fun games. The excitement of not knowing the next stage or what will happen around the corner creates suspense, intrigue, and challenge. Developers can leverage Chainlink VRF to ensure the integrity of unpredictable events. Some of those gameplay scenarios may include map generation, critical hits (battling games), matchmaking (multiplayer games), card draw order, and random encounters/events.
Random Rewards and NFTs
In-game items are a critical component of most games, as they provide users with special powers or unique attributes. Many in-game items are issued as non-fungible tokens (NFTs), a token that is unique and not interchangeable. Chainlink VRF is already playing an important role in generating provably random NFTs or creating NFT attributes as rewards for different predefined in-game achievements, such as earning a rare skin for finishing in the top 10. Additionally Chainlink oracles can mint NFTs based on real-world data and events, such as the weather in a particular region or the result of a football game.
Evolution Land is an example of an on-chain gaming project using Chainlink VRF to quickly and efficiently mint NFTs with randomly selected attributes that are distributed as randomized rewards when players open treasure boxes. Another example is Ether Legends, a digital collectible trading card game that uses Chainlink VRF to randomly distribute rare crypto-backed NFT prizes to top tier players at the end of a season. Popular gaming dApp Axie Infinity also recently announced that they are using Chainlink VRF to generate provably random traits for Origin Axies within the game’s digital pet universe.
Prediction markets are venues where individuals bet on the outcome of specific real-world events. Due to the very nature of blockchain-based prediction markets, they are reliant on external data to settle outcomes. Chainlink provides a decentralized, tamper-resistant source of external data to trigger the settlement of a prediction market and payment to the winners. Some of the potential datasets include sporting events results, political election outcomes, and cryptocurrency roadmap completions/price predictions, but ultimately encompass any type of wager as long as there are takers on the other side.
Everipedia, a blockchain based encyclopedia, recently used Chainlink to relay election results on-chain to settle prediction markets. Everipidia operates a Chainlink oracle node and delivered cryptographically signed data from The Associated Press regarding the results of the 2020 presidential election onto the Ethereum blockchain where it was used by on-chain prediction markets such as YieldWars.
As the casino industry continues to migrate to online formats, players need new forms of assurance that the games they’re playing have provably fair and unbiased odds. Smart contracts offer a reliable medium for executing verifiable logic, while Chainlink VRF provides a secure and on-chain auditable source of randomness to power online versions of classic casino games like slots, blackjack, poker, and more.
A key component of every lottery is a secure source of tamperproof randomness used to determine a winner. The security and transparency of the randomness become increasingly important when more value is at stake such as in state-operated lotteries.
Chainlink recently collaborated with the Colorado State Lottery to launch a Hackathon to incentivize developers to rethink the lottery using blockchain-based smart contracts. With provably fair randomness generated by Chainlink VRF, hackathon participants showcased how large scale lotteries can create unique lottery games with additional security and transparency guarantees on how outcomes are determined. One example is The Numbers Game which used Chainlink VRF to create a unique inverse popularity contest lottery game.
No-Loss Savings Games
Advancements in DeFi composability have led to innovative applications such as no-loss savings games—a dApp that pools user deposits and lends them out on a decentralized money market in order to accrue interest. After some specified time frame, a winner is selected, earning all the accumulated interest from the pool. After the winner is chosen, all users are able to withdraw their original deposit without any loss.
An example of this is PoolTogether, an on-chain no-loss savings game that uses Chainlink VRF to select the winner of each prize. By utilizing a transparent and verifiable source of on-chain randomness, users are provided a higher degree of trust in the overall reliability and fairness of the no-loss lottery platform.
Sports and Esports
Smart contracts provide integrity to the execution of an online sports bet, while Chainlink decentralized oracle networks can verify sporting outcomes by aggregating data from reliable web APIs. These smart contracts (usually in the form of prediction markets) can be based on the match’s result, individual performances, or even something as seemingly inconsequential as a game’s opening coin toss. On top of that, eSports prediction markets are possible that retrieve gaming data and broadcast it on-chain to determine the winners.
One example of a project using Chainlink oracles to verify sports and Esports results is Bet Protocol. By using Chainlink, Bet Protocol ensures there is no single point of failure in the sourcing and delivery of high-quality sports data to its on-chain prediction markets.
The insurance industry today operates in a low trust business environment. Policyholders have an incentive to falsely report positive metrics in insurance applications to reduce their monthly deductibles and insurers have an incentive to delay payments and raise rates to account for misrepresented risk profiles. Since insurance companies are responsible for processing claims and much more capitalized than policyholders, they wield substantially more power in terms of when and how claims are settled. Chainlink-powered smart contracts shift insurance contracts towards a more objective, equal-standing model where data directly determines the outcomes and execution is deterministic, without tampering by either party.
Crop insurance has long been considered an especially promising use case for smart contracts as it provides farmers in developing nations with insurance which they otherwise could not get access to or don’t trust due to underdeveloped local insurance markets. By providing anyone with an Internet connection the ability to hedge against unforeseen weather conditions, farmers all over the world are able to maintain their livelihood without the concern that one bad weather season could cause financial ruin.
One example of this is Arbol, a smart contract-based weather coverage solution that uses Chainlink oracles to fetch rainfall datasets from the National Oceanic and Atmospheric Administration (NOAA). This data is used to settle parametric crop insurance contracts that provide coverage based on the amount of rainfall in the region.
One of the earliest forms of smart contract insurance to reach production is flight insurance. Due to a range of uncontrollable variables such as weather and maintenance, flights are often delayed, leading to inconveniences for business travellers. Flight insurance policies allow travellers to mitigate these opportunity costs, as they pay out compensation in the event of a delay.
One example is Etherisc, a decentralized insurance protocol that leverages Chainlink oracles to retrieve flight data in order to confirm whether or not it’s been delayed. By removing the need for dispute periods, insurees are guaranteed that they will immediately receive payment if their flight was delayed and insurers are able to reduce costs by removing manual claims processing.
Modern vehicles come with a wide range of internal sensors, internet connectivity, and even native APIs. The winner of Chainlink’s 2020 Virtual Hackathon, Link My Ride, made use of some of these data points, allowing the smart contract to specify a rental period, unlock the vehicle doors for the renter, record the length of time rented, calculate mileage driven, determine the remaining battery charge, and automate rental payments. These functionalities came together to create a complex car rental contract for a Tesla vehicle using a custom external adapter. As vehicle-based APIs grow more sophisticated, new forms of insurance will become available including parametric car insurance that triggers based on numerous impact sensors in the vehicle or insurance discounts based on metrics like mileage driven per year.
The growing “smart home” phenomena are leading to sensors and advanced security systems that automatically inform homeowners and emergency services of unusual events. These sensors can be connected to smart contracts through Chainlink oracles in order to create new parametric home insurance products. Especially useful for vacation homes and other residences that are not used year-round, insurance products can be wired to detect broken pipes, malfunctioning solar panels, or even home intrusions as a means of a more direct skin-in-the-game alarm system protection from companies.
Smart contracts with sound data are ideal for reducing the costs and occurrence of disputes, as well as speeding up the time of settlement. Numerous web APIs and external databases host sufficient data for determining if and when a death occured, such as death certificates, obituaries, cremation records, and police reports. Chainlink can use that data to autonomously issue out payments and distribute assets amongst several parties listed in a life insurance policy, eliminating unnecessary overhead and accelerating payments to policyholders.
Due to countless advancements in biotech and IoT wearables (e.g. Smartwatch), insurance companies can create smart contracts that offer health insurance discounts or trigger penalties based on a patient’s health data. Useful data points can include distance travelled (exercise), body weight, heart rate, and possibly more advanced biometrics as they are made available into the future. Chainlink oracles can also spot data anomalies that can trigger mandatory consultations in order to keep favourable policy rates.
Gran Fondo, an ETHDenver 2019 Hackathon entry, used Chainlink oracles to bring GPS time-stamped data from IoT wearable devices on-chain to enable the creation of on-chain athletic competitions that payout in ETH. This same exact data can also be used to create health insurance contracts that determine premium rates based on the amount of physical activity within a certain time frame as recorded by the Chainlink-connected IoT wearable device.
Climate-related uncertainty is leading to more unpredictable seaway conditions such as low or high water levels. This can result in hundreds of millions of dollars lost due to the temporary closing of major shipping seaway channels. Smart contracts can use Chainlink oracles to connect to an array of real-world sensors to issue parametric insurance coverage for a wide range of coverage protections like the thawing of frozen goods during transit, damages to the ship, or late shipments due to unforeseen weather conditions.
One example of this is a hackathon project aimed to ensure cargo carriers in the event of the climate change-related closure of major shipping routes. Chainlink oracles connected to water level sensors that trigger insurance payouts in the event of water dropping or rising above present levels determined to lead to waterway closures.
Insurance is a difficult industry for potential entrepreneurs to enter because of the risks associated with underwriting large numbers of policies. In a catastrophic event, an insurance company may be unable to cover all obligations, leading to default. As such, many companies “reinsure” their underwritten portfolio—offloading a portion of their risk in case they cannot cover all claims.
One possible solution would be to tokenize reinsurance policies as smart contracts. This would allow individual investors to back insurance policies by buying fractions of a policy. Chainlink oracles can be used within this process to denominate the current value of an insurance policy, route insurance payments to token holders, and autonomously trigger insurance payouts.
Smart contracts provide ample opportunities for enterprises to cut costs and improve efficiency in multi-party business processes thanks to reductions in counterparty risk, intermediary overhead, and external disputes. However, in order to leverage smart contracts, enterprises require additional considerations around privacy, scalability, and connectivity in order to meet certain business and legal requirements. Chainlink provides a gateway for enterprises to both sell their data and API services to blockchain environments and satisfy certain technical requirements like on-chain access to private data, off-chain computation of contract logic, on-chain privacy of transactions, and much more.
Blockchain Abstraction Layer
Just as the Internet acts as a single gateway for connecting computers, Chainlink provides enterprises with a single middleware for connecting their APIs to every blockchain environment. Chainlink is blockchain-agnostic and can be integrated onto any current and future blockchain, with many leading chains already supporting Chainlink or actively integrating it, such as Ethereum, Polkadot, Avalanche, Binance Smart Chain, Matic Network, and more. By having Chainlink operate across all the major chains, enterprises can leverage it as a “blockchain abstraction layer” used to get their existing systems “blockchain-enabled” across any/all chains efficiently.
This reduces integration work to a minimum so enterprises don’t have to rebuild existing infrastructure, but instead can focus on their core blockchain strategy. It also limits vendor lock-in by removing the burden of enterprises to choose which blockchain is the most likely to become the industry standard.
Monetization of Data and APIs
Chainlink’s built-in flexibility ensures it’s fully compatible with existing legacy data and API infrastructure. Thus, data providers can also use Chainlink’s blockchain abstraction layer to sell their data to smart contracts on any blockchain. This can be done in two ways: selling data to the Chainlink Network or the data provider running their own Chainlink oracle node to sell data directly to blockchains.
By selling data to the Chainlink Network, data providers don’t need to change anything about their current business model, meaning back-end modifications aren’t necessary and they can accept payments in fiat currency. Alternatively, data providers who see the value in the smart contract economy can run a Chainlink Node to provide signed data (using digital signatures) directly to smart contracts, allowing them to earn more revenue and build a reputation as a reliable data provider.
Hybrid Cloud/Blockchain Applications
As smart contracts evolve, there becomes an increasing demand for more advanced decentralized applications that require expensive or complex computations, not feasible on-chain. One solution is using oracles to attest to off-chain computations processed within more scalable cloud computing environments. Leveraging Chainlink’s bidirectional communication capabilities, hybrid cloud/blockchain applications can be created that route computational instructions and/or data off-chain for processing, as well as bridge the results back on-chain for smart contract use.
One example of this is Theta, a decentralized video streaming network that uses Chainlink oracles to mitigate click farms and ad fraud in the advertising industry. Chainlink oracles fetch refined statistics on the reputation score of Theta nodes generated in Google BigQuery, a Big Data analytics platform, and deliver that data onto the Ethereum blockchain. Advertisers can then use this data as an immutable resource to determine where to allocate capital or to automate advertisement agreements based on some specific performance metric.
Privacy-Preserving Data Queries and Credential Management
For many enterprises and institutions, data privacy is not an optional bonus but instead a strict requirement, such as to meet regulatory mandates like GDPR. Chainlink is developing a cutting-edge solution to this challenge through the recent acquisition of DECO—a privacy-preserving oracle technology created by an Ari Juels-lead team at Cornell University.
DECO allows all data transmitted over HTTPS/TLS, which is most of the world’s data, to be confidentially attested to by oracles without the data ever being revealed on-chain (never leaves the off-chain database) and without any modifications to the servers hosting the off-chain data. For example, Alice is able to use DECO to prove her bank account balance is above a certain threshold without revealing her exact account balance or her identity on-chain or to the oracle itself. This opens up nearly all of the world’s data to be leveraged on-chain while still retaining confidentiality and data licensing agreements.
On-Chain Transaction Privacy
In addition to the privacy of data inputs, many enterprises want the privacy of the contract logic and outputs. Chainlink has developed a way of using oracles to provide on-chain transaction privacy for DeFi smart contracts via a solution called Mixicles. Mixicles separate the on-chain data inputs from on-chain payment outputs, using an oracle as the bridge between the two components and a transaction mixer. Instead of delivering the raw data input on-chain, Chainlink oracles post an integer representation that only has meaning to the contract participants (e.g. a 1 or 2 as seen in the example below). A mixer can then take that integer input to execute a payout to a party that is concealed, yet still produces an on-chain audit report for users as a means of meeting regulatory requirements. The Mixicles protocol is able to achieve multiple layers of privacy, such as concealing the terms of the contract, the data source used, the true value of funds within the contract, and who received the payment (in terms of correlation to the input).
Private Off-Chain Computation
Chainlink practices a defence-in-depth approach to security, where users leverage multiple layers of security to get a variety of guarantees. Another solution being developed by Chainlink is Town Crier, an oracle protocol that uses additional hardware in the form of a trusted execution environment (TEE) to achieve private, generalized off-chain computation.
Town Crier uses TEE-based oracles (specifically Intel SGX) to enable Chainlink oracle nodes to perform advanced computations on data within a black box environment where data cannot be leaked, even to the node operator. Town Crier provides both data confidentiality and computation integrity, opening up new oracle use cases like handling private keys for cryptocurrency payments or user login credentials for identity verifications.
As smart contracts continue to accelerate in adoption, there is an increasing demand for practical scaling solutions that can boost the throughput and lower the latency of decentralized applications, while retaining base-layer security of user funds. Commonly these layer 2 scalability solutions require the existence of one or more off-chain validator nodes that are responsible for batching transactions and delivering a succinct response onto the base-layer chain as needed.
Chainlink oracle nodes are computer-enabled and can serve as validators for layer-2 solutions, such as for Off-chain Lab’s Arbitrum Rollups. Chainlink nodes can perform Arbitrum computation of Solidity functions, generate fraud proofs, and stake LINK collateral to back their services without any modifications. The end result is using oracle not just for data inputs, but for performing scalable off-chain Solidity computation too.
Blockchains require a decentralized network of infrastructure providers such as validators, sequencers, transcoders, and oracles. Traditional infrastructure providers, such as telecommunications firms or internet service providers can support Chainlink oracle infrastructure by offering Node as a Service (NaaS) solutions to institutions and users alike. For example, they can provide a third party node network to serve as a blockchain abstraction layer for enterprises wanting to sell their APIs to smart contracts without provisioning any backend infrastructure, as well as create a personal node for a data provider and run it on their behalf.
T-Systems MMS, a subsidiary of Deutsche Telekom (Europe’s largest telecommunications provider) operates a Chainlink oracle node and provides off-chain data to numerous DeFi applications. As the demand for universally connected smart contracts continues to grow, it is likely to demand for NaaS will increase, providing Chainlink Nodes like T-Systems with opportunities to offer their existing client base a way to get blockchain-enabled.
“By operating a Chainlink node, T-Systems MMS will provide reliable real-world data to Chainlink network users and decentralized applications (dApps) on Ethereum, further supporting the vision of public blockchains as a foundation for numerous use cases such as Decentralized Finance (DeFi).” –T-Systems MMS
Abstract Cryptocurrency Payments Through Invoicing
Given the novelty, volatility, and regulatory uncertainties around cryptocurrencies/tokens, some enterprises are currently hesitant to personally hold and handle cryptocurrencies. With most blockchain infrastructure requiring cryptocurrency to operate, enterprise adoption still remains limited or even completely blocked off. Instead of waiting on the often slow legal system to resolve the issue or for enterprises to warm up to the idea, Chainlink oracles can be used as a workaround to the problem using common invoicing techniques widely used today to allow them to pay third service providers in fiat, which then handle cryptocurrency payments in the background.
Hackathon project LINK Gas Station takes the concept of Meta-Transactions—where blockchain transaction fees are abstracted away and paid by a relayer—and applies it to Chainlink. It uses third-party relayers to manage ownership of the utility tokens LINK and ETH, both of which are needed to pay for Ethereum computation and obtain Chainlink oracle data services. By doing so, the liability and complexity of cryptocurrency ownership shifts away from the enterprise and onto the chosen relayer, resulting in a process where an enterprise can simply pay an invoice in fiat and gain access to the entire decentralized ecosystem. Importantly, enterprises still have full control over the cryptographic private key required to sign-off on transactions.
External Data for Baseline Protocol
Baseline Protocol is a framework for syncing enterprise systems of record using the Ethereum mainnet as a common frame of reference. Baseline uses zero-knowledge proofs to ensure disparate enterprise databases are kept in a state of consistency (same set of records) with their counterparties without revealing any confidential data on-chain.
Chainlink oracles are a key piece of infrastructure for ensuring Baseline events are using the same external data inputs. For example, dynamic purchase orders can leverage Chainlink oracles to fetch aggregated weather data (from multiple sources) regarding the temperature of the goods being shipped. The price per item in the purchase order can be autonomously updated depending on the temperature, such as bananas with dynamic pricing based on the weather conditions. Chainlink’s ability to create consistency around external data inputs creates consistency among business partners, reducing disagreements and reconciliation.
Bootstrap Legacy System Security
As outlined in the whitepaper, Chainlink will use service level agreements (SLAs) and staking to create additional security crypto-economic guarantees for oracle services. The SLA, which exists on-chain and is signed by both parties, defines the terms of the oracle service and the penalties/rewards issued based on the oracle’s performance. The results of the SLAs can be fed into reputation systems where future users can assess the reliability of a node. Enterprises running their own Chainlink Node can use staking-backed SLAs to bootstrap the reliability and security of their data and off-chain services, forcing them to have real economic stake and reputation on the line for failing to meet their stated requirements. This allows enterprises and data providers to provide deterministic guarantees to automated processes like smart contracts without rebuilding their entire backend systems.
A supply chain starts from sourcing materials and ends with delivering goods to the end customer. Along the route there are payments transferred, changes in ownership, customs clearances, regulatory oversights, and documents shared between parties. Smart contracts offer a way to automate these processes as a means of reducing friction and counterparty risks in global trade. Chainlink oracles can connect supply chain smart contracts to web APIs, cloud networks, and various real-world sensors, such as GPS, temperature, velocity, acceleration, humidity, luminosity, and more. This data can be used to trigger payments and transfers of data between parties in a manner that can’t be manipulated by any single party in the supply chain. Such a framework generates a golden source of truth for all involved parties with substantially less overhead.
Supply chains are increasingly making use of RFID (radio frequency identification) technology to track goods. RFID systems connect inventory items with tags that can be detected at distance via a radio frequency. This allows for simplified and highly efficient tracking of store merchandise, shipping pallets, and many other common inventory methods. With Chainlink oracles, RFID data from the real-world can be used to trigger a wide range of on-chain contracts, including the initiation of payment upon receipt of inventory at a warehouse, or autonomous insurance payouts for delayed shipments.
The Open Library Project, a project created during the Chainlink Virtual Hackathon 2020, used Chainlink oracles to build an RFID blockchain integration that enables users to check-in and out RFID-tagged books and record it on-chain, creating a decentralized and borderless book rental platform.
IoT sensors can be used to ensure that products in transit are properly maintained throughout the supply chain journey. Examples include keeping food at certain temperatures and sealing containers against tampering. Chainlink can be used to connect these IoT sensors to smart contracts that trigger payouts and issue fines depending on whether or not the IoT data confirms quality control standards were adhered to as defined in the predefined purchase order.
An example of this is PingNET, a decentralized transmission network for IoT devices that uses Chainlink to enable automated payments between stakeholders based on data from IoT-enabled pallets on PingNET. PingNet also aims to bring other IoT event data on-chain like Humidity, Altitude, UV index, Radiation, and more.
When cargo is shipped across borders to countries with varying regulations, most often it requires clearance from the receiving nation’s customs agency to prevent the shipment of illegal or dangerous goods. Many trade finance contracts will require access to this data to determine the status of a shipment in real-time. As smart contracts begin to automate such agreements, they will still require information regarding customs clearance. Chainlink oracles can directly provide this data in a privacy-preserving manner, allowing for end-to-end automation of a cross-border trade finance contract.
Bill of Lading, Invoice, and Policy of Insurance
International trade largely consists of three main documents: the Bill of Lading—issued by a carrier to acknowledge receipt of cargo for shipment, Invoice—issued by a seller to a buyer regarding the details of a sales transaction, and Policy of insurance—a contract between the insurer and the policyholder stating the claims the insurer is legally required to pay. Each of these documents can benefit from oracles, such as generating a Bill of Lading directly from data, providing foreign exchange rates to Payment Invoices, and providing IoT quality control data to an on-chain Policy of Insurance contract to trigger settlement.
Utilities like water, energy, and the Internet are foundational pillars of modern society. The efficient functioning and management of these utilities are vital to social and physical health, yet they often rely on poorly incentivized business dynamics and outdated infrastructure. Smart contracts bring modernization to our utilities’ infrastructure by moving them towards more fair, automated, and real-time systems that use decentralized networks, data, and crypto-economic incentives to enforce such conditions. This ensures that utility providers are held to a higher standard and users have better access to objective data showcasing the quality and status of key utility services.
Internet, Telecommunications, and Cloud Hosting
Many utilities like the Internet, cable TV, and cloud hosting charge customers based on set pricing structures. However, when their services go down, sometimes causing large financial losses due to opportunity costs (e.g. Exchange experiencing downtime due to a cloud outage), no one is held accountable. IoT sensors can monitor the uptime of utilities and Chainlink can feed their performance data into a smart contract to calculate monthly payments or issue reimbursements based on downtime.
ETHNewYork 2019 hackathon entry Blocksolid provided a use case where NGOs could hold Internet Service Providers (ISPs) accountable for faulty internet services in developing regions. They did so by tracking Internet Service Provider (ISP) uptime and using Chainlink oracles to relay this data on-chain. If downtime is detected, the on-chain smart contract holding donated funds is updated to prevent withdrawals from the ISP.
Energy providers are responsible for ensuring all the world’s infrastructure receives the energy required to power the global economy. To increase the efficiency of energy delivery, Chainlink oracles can be used to feed consumption rates into a smart contract to trigger over-consumption penalties, levy CO2 taxes, and provide current energy prices to fairly generate electricity bills and allow payments in different currencies. Smart contracts can take readings from smart meters to monetize someone’s output, track consumption, and facilitate payouts between the two.
Dipole, a blockchain-based distributed energy trading market, plans to use Chainlink Price Feeds to enable the on-chain trading and valuation of energy assets. Users can then purchase energy resources using fiat or cryptocurrency with exchange rates determined by Chainlink-powered decentralized price feeds.
While often taken for granted, the infrastructure that ensures your tap at home can provide you with water is heavily monitored for quality control and reliability. IoT sensors can monitor water tables, track corporate consumption, and identify illegal syphoning of public bodies. Chainlink can feed data from this IoT data to smart contracts in order to issue regulatory fines, generate consumption invoices, trigger autopayments, update supply tracking databases, or even trigger emergency funding cities are at risk of floods.
Emissions and Waste Management
Emissions and waste disposal are industries that can be transformed by IoT-enabled smart contracts that can accurately measure output and efficiency. Through Chainlink oracles, this data can be used to automatically trigger payments to the proper regulating body for overconsumption, monetize the garbage used in recycling or waste-to-fuel technologies, or generate incentivized payment structures that lower garbage bills when someone consumes less or uses more biodegradable items.
Authorization and Identity
While smart contract enabled blockchain networks are inherently pseudonymous, there is strong demand for users to be able to prove their real-life identity as a means of ensuring Sybil-resistance and/or granting clearance. Through Chainlink oracles, traditional data infrastructure containing user identities (such as governmental databases, social media, etc) can be connected to smart contract applications, either by tying a user’s identity to their on-chain address or attesting to data in an off-chain server. This ensures institutions are able to maintain full regulatory compliance and provide an additional layer of security via dealing with known identities.
E-signatures have become an increasingly popular way to obtain signatures on documents. It has modernized the signature process and helped companies avoid the costly overhead of obtaining a hand-written physical signature. With signatures being the most common way to authorize contracts, it’s a necessity that Chainlink oracles give smart contracts access to leading e-signature companies like DocuSign.
Chainlink can benefit the e-signature industry in two ways, attesting to the e-signature / relaying it on-chain, or providing existing e-signature solutions with access to external data as a means of making their contract solutions more dynamic. FirmaChain, a blockchain-based digital signature and contracting solution, is using Chainlink oracles to allow their digital contracts to execute according to real-world data and events, like checking the authenticity of a driver’s license before approving a car rental.
Another verifiable way to authorize a smart contract is through biometric data, such as a fingerprint or a retinal eye scan. Since biometrics are uniquely identifiable to a specific person, they can be an effective way to verify someone’s identity as long as there is a reliable database or source to cross-reference it against. Chainlink oracles can both deliver the biometric data to the smart contract and connect it to different off-chain databases to verify authenticity.
Using trusted hardware and/or advanced cryptography, Chainlink oracles securely handle private account information of external systems and applications. This enables smart contracts to directly verify credentials, such if someone has the proper amount of funds or possesses a specific security key. Once Chainlink oracles relay the confirmation on-chain, the smart contract can trigger execution and settlement of funds. Bringing credentials on-chain can also be especially effective for verifying inputs before exchanging valuable assets.
Institutions leveraging blockchain and smart contract technology often require additional infrastructure to ensure full regulatory compliance in regards to Know Your Customer (KYC) and Anti-Money Laundering (AML) laws. This requires the use of an external oracle to provide the data regarding the identity and full history of funds being transferred.
Coinfirm is one example of a blockchain analytics firm that is using Chainlink oracles to bring data from its Anti-Money Laundering (AML) solution on-chain. This provides a plug-and-play solution for users wanting to add compliance to any on-chain application through real-time verification by an oracle network.
Social Media Identity and Domain Names
Blockchains still have a steep learning curve for many people, particularly around dealing with long hexadecimal addresses. In order to improve the user experience, oracles are being used to help transform hexadecimal addresses into human-readable names like “chad.crypto”.
One example is Unstoppable Domains, an on-chain domain name repository using Chainlink oracles to tie a user’s Twitter social media account to their human-readable on-chain address in a verifiable and transparent manner. This allows anyone to verify that a blockchain domain is tied to a user’s social media account before sending them funds.
Smart Contract Audit Results
To ensure the integrity and proper functioning of smart contract applications, developers may want to verify whether or not a protocol has undergone one or multiple security audits before sending it funds. Using an oracle, users can get on-demand verification of audit results directly on-chain, opening up use cases like automatic checks before certain transactions, such as high-value ones or when acting as a trusted custodian for other users’ funds.
Cybersecurity firm Hacken will use Chainlink oracles to bring their security data on-chain regarding smart contract audits, penetration tests on centralized exchanges, bug bounties, and more. This data can then be utilized by smart contracts to prevent interactions with dangerous and/or unaudited smart contracts.
Two-factor authentication (2FA) is another method a user can leverage to secure their online accounts, which requires an additional layer of verifications beyond a username and password. This increase of security prevents unauthorized access to confidential information, as well as preventing the transferring of funds without multiple verifications. With Chainlink oracles, smart contracts are able to be enhanced with 2FA functionalities, directly protecting a user’s cryptocurrency holdings.
Digital Bridge is an example of a project using Chainlink oracles to bring 2FA security to smart contracts on the Matic Network. By connecting to a high-availability 2FA API authentication service, Chainlink enables users to create a defence-in-depth strategy for their on-chain funds, preventing unauthorized transfers even in the event that their private key is stolen.
All types of intellectual property, from royalties like copyrights and trademarks to license fees for patents, can be turned into smart contracts. Chainlink can be used to check IP databases for ownership verification, verify off-chain credentials before IP access, and facilitate payments from the user to the IP owner. Smart contracts could even tokenize partial ownership of IP and divvy out payments according to a person’s share percentage. Large enterprises such as Microsoft and EY have shown this to be a practical solution that significantly reduces operational inefficiencies in the rights and royalties management process.
Open-source technology is growing in popularity, which can benefit from more expansive bounty programs to incentivize contributions. However, verification of contributors work and payments to them are often manual processes, raising costs and delaying payout timelines. Chainlink oracles can be used to track contributions on public code repositories such as Github and unlock a payment escrow once predefined test cases for a bounty have passed without errors.
While society may not agree on various issues, an initiative most people can get behind is creating more transparency, accountability, and efficiency in government institutions. Blockchains provide society with new infrastructure for tracking and executing government processes, smart contracts offer tamperproof guardrails on how governments are allowed to take actions, and oracles allow for the use of objective data to trigger the execution of those actions as opposed to always leaving it up to centralized interpretation. Oracles are one of the most important ingredients to realizing the value of smart contracts within government processes, as they both provide a bridge to connect legacy infrastructure to blockchains and serve as the final triggers executing the contract.
Enterprise use of smart contracts will require new forms of automated regulatory compliance. While some restrictions can be hardcoded into the smart contract’s programmatic code, governments can also make use of oracles as a way of extracting metadata from the smart contract or requiring external approval from a government-run oracle before broadcasting a transaction.
An example of a Compliance Oracle was outlined in the Project Whitney Case Study initiated by the Depository and Trust Clearing Corporation (DTCC), the post-trade financial services company that settles the vast majority of securities transactions in the United States. As stated in the case study, a compliance oracle is a “Dynamic rules engine that enables issuers and investors to maintain compliance throughout a securities lifecycle by approving/rejecting transactions. When a transaction is approved, the stock record is updated, and the movement of tokens on-chain occurs.”
Given the recent polarization around election results, there is an increasing demand for secure, tamper-proof voting solutions that establish integrity in the election process. While it may take time to overhaul government voting systems, one can envision a simplified scenario where a vote can be cast on-chain using a private key, an oracle can verify the ID of the person from multiple approached sources in a privacy-preserving manner via DECO, and, if they match, then a confirmation is published on-chain where it is stored as an immutable record that can be cryptographically verified by anyone.
Smart contracts can be used to bring more efficiency and integrity to the issuance of government certificates, permits, and deeds. Oracles can be used to generate certificates more autonomously, such as using DECO to verify a person’s credentials before sending them a tokenized document such as a permit. Using a system like DECO allows the smart contract to query a set of authoritative sources in a privacy-preserving manner. Such an automated process could save billions of dollars in government spending.
Blockchain Gas Price
In order to prevent spam attacks, transactions on smart contract-enabled blockchains require the gas fees in the native token to pay for the cost miners expend to validate a transaction. However, the market that determines gas prices happens off-chain and thus smart contracts require an oracle to fetch the current cost per unit of gas.
An example of this in action is Tornado.cash, an on-chain privacy mixer that uses the Chainlink gas price oracle when generating transactions if centralized gas price providers are off-line or inaccessible (such as being blocked by Tor). Smart contracts can also use this gas price oracle to create gas price derivatives and other financial products designed for hedging against blockchain network congestion and high transaction costs.
Time-Based Transaction Execution
Many smart contract applications must trigger at specific time intervals, such as contracts that expire at an exact time on a specific date. Time can be used to trigger the execution of the smart contract or trigger another oracle to fetch a different data set. Through the Chainlink Alarm Clock external adapter, developers are able to build truly autonomous smart contract applications based around any time zone.
It’s unlikely that one blockchain will come to dominate the entire smart contract market, especially when considering throughput limitations, jurisdictional differences, and specialization of chains. Such a multi-blockchain universe means that blockchains must cross-communicate with one another. However, due to their inherent security properties, blockchains cannot natively access data on other blockchain networks, a very similar issue to the oracle problem. Chainlink oracles can be used to bridge this gap by reading data on one blockchain and writing the results on another as a means of triggering some type of cross-chain interactions and/or simply an on-chain transaction on the chain requesting the information.
Fair Participant Selection
With the advent of blockchain-based public sales, many projects are looking for ways to fairly choose the order of sale participants beyond the common “first come, first serve”’ model, which can be easily manipulated. Initially popularized by centralized exchanges, there is an increasing shift towards the lottery-based selection of sale participants within smart contracts.
One example is Centaur, a DeFi platform which uses Chainlink VRF to determine the participants in an on-chain public sale. Based on a list of addresses accumulated before the sale, Chainlink VRF determines in a verifiable and fair manner which addresses from that list are allowed to participate in the on-chain public sale.
Another example is Get Protocol, a blockchain-based event ticketing solution that uses Chainlink VRF to randomly determine a digital waiting line for in-demand concerts and events. This provides users with an equal opportunity to obtain tickets, in a manner they can independently verify on-chain as unbiased.
Random Node Selection
Some protocols use unpredictability as a form of security, such as randomly choosing validators for block production. An insecure source of randomness would allow malicious actors to overly insert themselves into the process and manipulate the production of blocks, possibly even bringing the network to a halt. Chainlink VRF can be used as a tamper-proof source of randomness to fairly choose validators each time a block of transactions needs to be produced, protecting blockchain networks from a large category of key attack vectors.
Fair Sequencing Services
While Chainlink oracles are commonly recognized for their ability to fetch and deliver data from the real world on-chain in a reliable and secure manner, they can also perform various off-chain computations including the ordering of transactions. Chainlink’s development of Fair Sequencing Services will allow decentralized applications to mitigate Miner Extractable Value (MEV) by ensuring transaction order cannot be manipulated by miners as a means of siphoning value from users. Additionally, by preventing front-running attacks, gas costs can be drastically reduced and DEXs can become more trustworthy (e.g. trades are honoured according to fairer rules like the arrival in the mempool).
Satellite Imagery and Drones
While slightly more advanced, it’s not hard to imagine a future where satellite imagery is used in combination with IoT networks and drones to gather data on external activities like a construction project. Through artificial intelligence, the data could then analyzed and cross-referenced with past projects to determine the completion percentage of a project. Chainlink oracles could relay that data to an on-chain smart contract to issue completion-based payouts to construction companies, solving a major problem in delayed cash flows for companies performing large, time-consuming projects.
During a fireside chat between Chainlink Labs Chief Scientist Ari Juels and Chainlink Co-founder Sergey Nazarov, Ari discussed his early work with PhD student Sishan Long on a project called AIRS: Automated Incentives for Reforestation Stewardship. AIRS aims to incentivize stewardship of the environment by consistently taking in satellite data (carbon capture capacity, the ability to sequester carbon, carbon sync capability, etc.) and monitoring its state over time using trusted execution environments. The idea is for entities like governments and NGOs to pour money into the smart contract that gets dispensed to the people who are responsible for maintaining and expanding this very important carbon sink.
As a generalized framework for building decentralized oracle networks, Chainlink provides developers with the tools they need to connect their smart contract applications to any real-world data or events required for their use case. While the use cases listed above are not an exhaustive list, as there is an infinite number of smart contract use cases made possible by Chainlink, we believe they provide a starting point for developers who are interested in building new innovative decentralized applications.
If you’re a developer and want to quickly get your smart contract application connected to Chainlink oracles, visit the developer documentation and join the technical discussion in Discord. If you want to schedule a call to discuss an integration more in-depth, reach out here.