Chainlink (LINK) funding situation and recent developments

Authors: Duoduo, Lisa, LD Capital

Chainlink (LINK) is the leader in the oracle space and an indispensable middleware in the DeFi sector. This article briefly analyzes its funding situation and recent developments.

I. Funding Situation

Basic Information

LINK ranks 19th in market capitalization, with a market cap of $4.1 billion, a total supply of 1 billion tokens, and a current circulating supply of 560 million tokens, resulting in a circulation rate of approximately 56%. The 24-hour spot trading volume is $220 million.

Price Trends

During the bull market in 2021, it reached an all-time high price of $52. In May 2022, it fell to $7 and has since maintained a state of fluctuation. The lowest price in 2023 was around $5, while it has tested $9.5 several times but failed to break through. The current price is $7.38, down 86% from the all-time high.

Token Distribution

The total supply of tokens is 1 billion, with 35% sold through ICO, 30% allocated to LINK's parent company SmartContract for development, and 35% used to incentivize node operators.

The main uses of LINK are twofold: to pay node operators for the costs incurred in obtaining data for smart contracts; and to serve as collateral required by node operators at the request of contract creators. Thus, LINK does not confer governance rights over the project.

The current circulation rate of LINK is approximately 56%. There are no clear unlocking rules for the remaining locked portion, which is periodically transferred from Non-circulating supply marked wallets.

The historical release of LINK tokens can be seen in the chart below. There were concentrated token releases from July to August 2019, March to November 2021, and July to August 2022, with weekly releases, although the amounts released were relatively small, ranging from hundreds of thousands to 1.5 million. Significant releases occurred in August and November 2022, as well as March, June, and September 2023, generally maintaining a quarterly release schedule, with each release amounting to between 10 million and 20 million tokens. From August last year to now, approximately 84 million tokens have been released, which, at an average price of $7, equates to a market cap of about $590 million.

From the holding distribution shown by Nansen, there are multiple Non-circulating supply marked wallets that collectively hold about 44% of the tokens. In the past 30 days, Non-circulating supply marked wallets have transferred out a total of 17 million tokens.

The staking addresses hold 25.47 million tokens, accounting for 2.55%, with 315,000 newly staked tokens in the last 30 days. This indicates that the scale of token staking is still relatively small.

In terms of exchanges, Binance wallets hold the most LINK, accounting for over 6%. Wallet 0XF97 has seen an inflow of 15.5 million LINK in the last 30 days, while wallet 0X5A5 has seen an outflow of 8.5 million.

Upbit's marked wallet holds 1.28% of LINK, with an outflow of 760,000 tokens in the last 30 days.

Additionally, a newly created wallet 0X95a within one day holds about 4.21 million LINK, accounting for 0.42%. This address is unmarked and has no clear owner.

The address of market maker Jump Trading holds a total of 4.66 million tokens, accounting for 0.46%, with a market cap of approximately $32 million. In the last 30 days, 0X73A has seen an inflow of tokens worth $1.55 million, while 0X2EF has seen an inflow of nearly $3 million worth of tokens. The net outflow value is $1.45 million.

Overall, the distribution of circulating LINK tokens is relatively dispersed. Among the top 40 holding addresses, excluding project and exchange addresses, the two largest unmarked addresses hold 0.42% and 0.4% of the tokens, respectively. There is no correlation between these two addresses. The disclosed addresses of market maker Jump Trading collectively hold 0.46% of the tokens, with a net outflow of tokens worth $1.45 million in the last 30 days, which is not a large amount.

Recent Token Transfer Situation

The table below shows significant token transfers in the last 30 days. Non-circulating supply marked wallets have transferred approximately 17 million tokens to Binance, which, at an average price of $7, represents about $120 million flowing into the market.

A large holder withdrew 4.21 million tokens from Coinbase custody, with a market cap of approximately $29.5 million (at $7). The related tokens were then transferred to wallet address 0x95a, which is also unmarked.

It can be seen that the project address holds a large number of tokens, and due to the unclear release rules, there is a possibility of a large release of tokens to the market in the short term. Additionally, after this price increase, a large holder withdrew a significant amount of tokens from the exchange.

Contract Data

According to Coinglass data, the contract holding volume for LINK is $213 million, with a 24-hour transaction volume of $629 million. The contract trading volume is about three times that of the spot trading volume. Relative to LINK's overall market cap, the contract holding volume is not high, accounting for about 5%.

From the contract data, after the drop on August 18, the price fluctuated between $5.8 and $6.5. On September 18, the holding volume increased significantly, rising over 50% in a single day, while the price broke through the bottom range.

Subsequently, the holding volume saw some adjustments, with growth slowing down, but it remains on an upward trend overall. The token price experienced three rallies and three pullbacks, but the overall trend is upward.

During the price increase from the bottom, the long-short holding ratio dropped from 2.5 to 0.89, indicating that there were more short positions. This also means that the average value of long accounts is higher than that of short accounts, with higher-value accounts showing stronger bullish sentiment.

However, after the price rose to $7, the long-short ratio for large holders also decreased from 1.23 to 1.09. This indicates that the bullish sentiment among large holders has diminished. (Note: Large holders in the long-short ratio refer to the top 20% of accounts in Binance holdings.)

Overall, the holding volume shows a continuous growth trend. Although there have been pullbacks during the rise, these pullbacks have not fallen below previous highs. The long-short holding ratio has shifted from long to short, with higher-value accounts showing stronger bullish sentiment.

II. Fundamentals and Recent Developments

Business Data

Currently, in the general oracle field, Chainlink has demonstrated overwhelming advantages and market position, forming high market barriers.

From the perspective of the oracle market size, Chainlink, Chronicle Labs, and WINLink occupy over 90% of the entire oracle market. Chronicle Labs and WINLink also have significant market shares, but their influence cannot be compared to that of Chainlink.

WINLink is a decentralized oracle project within the TRON ecosystem, limited to the TRON ecosystem. Chronicle Oracles is an oracle funded by MakerDAO, specifically serving MakerDAO, and is considered an internal oracle.

According to official data, there are currently over 1,700 projects within the Chainlink ecosystem, including 704 DeFi projects, 525 NFT projects, 288 gaming projects, etc. Most well-known projects are included.

Product Architecture

Decentralized Oracle Networks (DONs)

A DON is a decentralized oracle network composed of many Chainlink nodes. By introducing multiple independent data provider nodes, it ensures the security, reliability, and tamper-resistance of data, reducing the risk of single points of failure and making data manipulation more difficult. The decentralized oracle feature of Chainlink makes it the preferred data provider for many DeFi projects and other blockchain applications, significantly driving Chainlink's leadership in the oracle market.

The node operators of Chainlink mainly include the following categories:

• DevOps Nodes: These nodes are organizations that specifically run blockchain infrastructure, such as PoS validator nodes, PoW mining pools, and full node RPC providers. These node operators are experienced in running critical Web3 infrastructure, managing cryptographic private keys, and providing services in exchange for cryptocurrency. DevOps nodes include top staking pool providers like Fish, P2P Validator, and Staked.
• Enterprise Nodes: These nodes are located worldwide and currently run backend infrastructure for the traditional Web2 economy. This includes international telecom companies such as T-Systems (a subsidiary of Deutsche Telekom) and Swisscom, as well as global institutions like LexisNexis.
• Community Nodes: These nodes come from the Chainlink community, including winners of the Chainlink Oracle Olympics, CryptoManufaktur, LinkRiver, and NorthWest Nodes.

Chainlink Data Feeds

Data Feed is one of the most widely used features of Chainlink, designed to provide secure, reliable, and decentralized off-chain data sources for smart contracts, widely applied in scenarios such as lending, derivatives, stablecoins, and asset management in DeFi.

Data Feed employs a multi-layer data aggregation mechanism.

First, price data aggregators like CoinGecko and CoinMarketCap perform the first aggregation, calculating a volume-weighted average price to ensure the quality of trading data.

Chainlink's node operators obtain the first price data from these aggregators and perform a second aggregation.

The final layer of data aggregation occurs at the decentralized oracle network (DON) level, where all node operators upload their obtained median data and node signatures to generate Off-Chain Reporting (OCR) published on-chain. OCR aggregates all data and stores it in the contract, making it difficult to tamper with once stored. At least 2/3 of the nodes in the DON must upload results and signatures for the OCR to be accepted on-chain. This mechanism greatly ensures the tamper-resistance of the final data in the Data Feed.

VRF (Verifiable Random Function)

Chainlink VRF (Verifiable Random Function) is a decentralized random number generation service that provides secure and verifiable randomness for smart contracts. Random number generation is a key component in many application scenarios, such as games, NFT projects, and prediction markets. For example, Axie Infinity uses Chainlink VRF to ensure that each of the 4,088 original Axies is randomly generated based on predefined probabilities in the smart contract.

CCIP (Cross-Chain Interoperability Protocol)

CCIP is an interoperability protocol for building cross-chain applications and services, allowing developers to build their own cross-chain solutions on top of CCIP. CCIP also provides simplified token transfers supported by Chainlink's decentralized oracle network. While CCIP has use cases similar to products like LayerZero, it is not just a bridge with a programmable layer; hybrid smart contracts will allow interactions between on-chain and off-chain smart contracts as well as cross-chain execution, serving as a bridge between Web 2 and Web 3.

Developers, applications, and enterprises can use CCIP to unlock various use cases, such as:

• Cross-Chain Tokenized Assets: Transfer tokens across blockchains from a single interface without building their own bridging solutions.
• Cross-Chain Collateral: Launch cross-chain lending applications that allow users to deposit collateral on one blockchain and borrow assets on another.
• Cross-Chain Liquid Staking Tokens: Bridge liquid staking tokens across multiple blockchains to enhance their utilization in DeFi applications on other chains.
• Cross-Chain NFTs: Enable users to mint NFTs on the source blockchain and receive them on the target blockchain.
• Cross-Chain Account Abstraction: Build smart contract wallets with native CCIP functionality to improve user experience for cross-chain function calls. For example, allowing users to approve transactions on any chain using a single wallet.
• Cross-Chain Gaming: Create blockchain-agnostic gaming experiences that allow players to store high-value items on more secure blockchains while playing games on more scalable blockchains.
• Cross-Chain Data Storage and Computation: Implement data storage solutions that allow users to store arbitrary data on the target chain and perform computations on it using transactions from the source chain.

Key milestones for CCIP are as follows:

In August 2021, Chainlink released the Cross-Chain Interoperability Protocol (CCIP).

On July 18, 2023, CCIP launched its early access phase on the mainnets of Avalanche, Ethereum, Optimism, and Polygon, with Synthetix and Aave utilizing CCIP.

On July 20, CCIP was opened to developers on five testnets: Arbitrum Goerli, Avalanche Fuji, Ethereum Sepolia, Optimism Goerli, and Polygon Mumbai.

On August 31, Swift collaborated with several financial institutions for experiments, including Australia and New Zealand Banking Group Limited (ANZ), BNP Paribas, BNY Mellon, Citibank, Clearstream, Euroclear, Lloyds Banking Group, SIX Digital Exchange (SDX), and The Depository Trust & Clearing Corporation. Chainlink was used as an enterprise abstraction layer to securely connect the Swift network to the Ethereum Sepolia network, while Chainlink's Cross-Chain Interoperability Protocol (CCIP) achieved full interoperability between the source and target blockchains.

On September 15, DTCC (The Depository Trust & Clearing Corporation) explored the capabilities of CCIP with Chainlink to facilitate the tokenization of real assets. DTCC is a major global securities settlement system, processing over $200 billion in transactions annually.

On September 21, CCIP went live on the Arbitrum mainnet.

On September 28, CCIP went live on the Base chain mainnet.

Chainlink Stake v0.2

Staking is a core measure of Chainlink Economics 2.0, aimed at increasing the security of the network. Staking allows ecosystem participants (such as node operators and community members) to support the performance of oracle services with staked LINK and earn rewards.

In December 2022, the initial test version of Chainlink Stake (v0.1) was released, consisting of a 25 million LINK staking pool supporting ETH/USD data sources on Ethereum.

Chainlink Stake v0.2 is expected to launch in the fourth quarter of 2023, expanding the initial staking pool capacity to 45 million LINK. v0.2 will gradually broaden access to a wider range of participants, starting with a priority migration period for existing v0.1 stakers, followed by an early access phase, and finally general access.

v0.2 has been restructured into a fully modular, scalable, and upgradeable staking platform. v0.2 builds on the experiences of v0.1, focusing on the following goals:

Providing greater flexibility for community and node operator stakers while retaining the secure non-custodial design of staked LINK.

Improving the security guarantees of oracle services supported by Chainlink Stake.

The modular architecture will iteratively support future improvements and additions to Chainlink Stake, such as expanding to more services.

A dynamic reward mechanism that can seamlessly support future new sources of rewards, such as user fees.

III. Summary

Fundamentally, Chainlink is the leader in the oracle space, currently holding a significant advantage in the number and quality of service projects, with strong product development capabilities, continuously launching and optimizing products.

Recent business focuses include promoting the expansion of CCIP services and launching Chainlink Stake v0.2 in the fourth quarter. CCIP is a service product aimed at consolidating and expanding new clients and has received high praise and attention due to its innovative nature, while also being an important tool for asset tokenization. Chainlink Stake v0.2 represents a profit-sharing model between nodes and token holders, enhancing the project's security and stability. It strengthens the product from both external expansion and internal construction perspectives.

In terms of funding, the project holds 44% of unreleased tokens, with no clear release rules or timelines, allowing for releases as needed. Recently, tokens have been released every three months, with each release amounting to 10 million to 20 million tokens. The token supply is large and carries high uncertainty. However, the last release occurred in mid-September, and if following the three-month schedule, the next release is expected in December.

Moreover, the distribution of tokens held by single addresses is relatively dispersed, with exchanges primarily concentrated on Binance, accounting for over 6%. The address of market maker Jump Trading holds 0.46% of the tokens.

Recently, a large holder has built a position, withdrawing 4.21 million tokens from Coinbase on September 27, with a market cap of approximately $29.5 million (at $7).

In terms of contract data, the holding volume shows a continuous growth trend. Although there have been pullbacks during the rise, these pullbacks have not fallen below previous highs. The long-short holding ratio has shifted from long to short, with higher-value accounts showing stronger bullish sentiment.

Overall, Chainlink has excellent fundamentals, is considered a blue-chip project with a high market cap. In terms of token structure, the project holds a large number of tokens, with a large supply and high uncertainty; the remaining holdings are relatively dispersed. Recently, a large holder has built a position, and a newly created address has entered the top 40 holding addresses. In terms of contract data, the holding volume shows a continuous growth trend, with slight increases, rising and then pulling back, but the pullbacks have not fallen below previous highs, indicating an overall bullish sentiment.

Note: The data in this article is as of September 27, 2023.