[LINK] Collateral Onboarding Application

[LINK] Collateral Onboarding Application

  1. Who is the interested party for this collateral application?

@monet-supply

Details about the LINK token and Chainlink system were graciously provided by an anonymous member of the Chainlink community.

  1. Provide a brief high-level overview of the project, with a focus on the applying collateral token.

Chainlink is a generalized blockchain agnostic framework for building decentralized oracle networks that provide smart contracts with tamper-resistant access to real world data, events, and payments that reside on off-chain systems.

The LINK token is used to pay node operators for delivering off-chain data/compute through LINK’s ERC677 (ERC20 compliant) transferAndCall() function. LINK will also be staked by node operators in service level agreements (SLAs) as collateral which can be slashed for malicious activity, unresponsiveness, or any other predefined condition in the SLA. The LINK token is essentially economic bandwidth for Chainlink oracle networks.

SmartContract retains roughly 27% of the total supply of 1,000,000,000 LINK tokens out of an initial 30% allocation. SmartContract also controls an additional 35% of the token supply that is allocated to incentives for node operators. Roughly 38% of supply is circulating (35% from the initial token sale and 3% from SmartContract sales/dispositions).

  1. Provide a brief history of the project.

SmartContract was founded in 2014 as a development company for externally connected smart contracts. Chainlink had a token sale in September 2017 with a cap of $32M. The Chainlink mainnet was launched in May 2019 with an ETH/USD reference price feed. Since then, there are now 30+ price feeds connected with 16 DeFi projects.

  1. Link the whitepaper, documentation portals, and source code for the system(s) that interact with the proposed collateral, and all relevant Ethereum addresses. If the system is complex, schematic(s) are especially appreciated.

Whitepaper: https://link.smartcontract.com/whitepaper

Documentation: https://docs.chain.link/docs

Source Code: https://github.com/smartcontractkit/chainlink

LINK token: https://etherscan.io/token/0x514910771af9ca656af840dff83e8264ecf986ca

  1. Link any available audits of the project. Both procedural and smart contract focused audits.

Nick Johnson Audit Report: https://github.com/smartcontractkit/audits/blob/master/reports/Nick%20Johnson%20-%20Chainlink%20Audit%20Report.pdf

Quantstamp Audit Report: https://github.com/smartcontractkit/audits/blob/master/reports/Quantstamp%20-%20Chainlink%20Audit%20Report.pdf

SigmaPrime Audit Report: https://github.com/smartcontractkit/audits/blob/master/reports/SigmaPrime%20-%20Chainlink%20Smart%20Contract%20Security%20Review.pdf

  1. Link to any active communities relating to your project.

Twitter: https://twitter.com/chainlink

Reddit: https://www.reddit.com/r/Chainlink/

Telegram: https://t.me/chainlinkofficial

Discord: https://discord.gg/aSK4zew

  1. How is the applying collateral type currently used?

LINK is currently used within the Chainlink ecosystem as a means of payment to oracle node operators for delivering external data/compute to a specific blockchain environment. The LINK token will also be staked by node operators as collateral in service agreements which can be slashed for poor performance or non-responsiveness.

LINK is also used as a collateral asset, representing 34% of Aave’s total market size ($23M of $67M) and 40% of Aave’s total value locked ($22M of $54M) as of 21 May 2020.

  1. Does one organization bear legal responsibility for the collateral? What jurisdiction does that organization reside in?

No organization bears legal responsibility for the collateral. The token is open source and permissionless, with no blacklisting/whitelisting or minting functionality.

SmartContract retains roughly 27% of the total supply of LINK tokens, and including the 35% reserved for node operator rewards retains effective control of roughly 62% of total token supply. It looks like the ICO and company token holdings are managed through SmartContract Chainlink Ltd SEZC, which is registered in the Cayman Islands. SmartContract’s primary place of business is in the US state of California.

  1. Where does exchange for the asset occur?

LINK is traded on centralized exchanges including Coinbase, Binance, Kraken, Gemini, Huobi, OKEx, Bittrex, as well as decentralized platforms such as Kyber, Uniswap, 0x, Loopring, and Oasis.

  1. (Optional) Has your project obtained any legal opinions or memoranda regarding the regulatory standing of the token or an explanation of the same from the perspective of any jurisdiction? If so, those materials should be provided for community review.

I am not a lawyer and no part of this collateral application is legal advice. I am not aware of any publicly available legal opinions addressing the project or token’s regulatory standing.

For context, LINK is listed on US regulated exchanges such as Coinbase, Gemini, and BinanceUS that are not qualified to offer exchange/brokerage services for securities.

This article (https://www.sec.gov/corpfin/framework-investment-contract-analysis-digital-assets) from the SEC may also help frame discussions on the token’s legal classification.

  1. (Optional) Describe whether there are any regulatory registrations for the token and provide related documentation (including an explanation of any past or existing interactions with any regulatory authorities, regardless of jurisdiction), if applicable.

Per the terms of use (https://chain.link/terms), LINK has not been registered with financial regulatory authorities in any jurisdiction. I am not aware of any regulatory actions regarding SmartContract or the LINK token.

  1. (Optional) List any possible oracle data sources for the proposed Collateral type.

The centralized exchanges listed in (9) may offer data feeds that can be used for a LINK/USD oracle.

Chainlink also has a LINK/USD price feed live on mainnet. It is updated every 1% price deviation by 9 independent security reviewed nodes connected to multiple price data aggregators such as BraveNewCoin (feeds data to bloomberg terminal), Coingecko, and Kaiko.

  1. (Optional) List any parties interested in taking part in liquidations for the proposed Collateral type.

N/a

Full disclosure: At time of writing I own 60 LINK.

Previous discussions relevant to LINK:

17 Likes

Hmm, I didn’t realize that SmartContract retained so much of the supply of link. That unfortunately is not great. Doesn’t really affect use in the makerdao platform as inflation is slow and so not a major risk for mkr holders. As an example though, the state of xrp shows the perils of long term inflation and majority control of a token by a single party.

1 Like

I would like to chime in here and state that, in my opinion, LINK would be an obvious collateral addition to Maker. It is the largest and most liquid non-stablecoin ERC20 (well technically ERC677 I guess) and there is no shortage of linkies who are willing to go leveraged long on LINK. I think Aave is a prime example of that, which I have personally used myself. Behind only Ethereans, Linkies use DeFi applications more than any other community I know of. The addition of LINK to Maker would greatly increase the amount of DAI minted that could be minted.

The supply is very transparent and it is being used to further the growth of the Chainlink ecosystem, which directly feeds into the value of LINK, which directly leads to speculation on LINK, which directly leads to people going leveraged long, which directly leads to more minting of DAI. LINK is highly liquid and has proved itself to be an anomaly as far as ERC20 tokens go when you look at long term price performance.

Additionally to note, the team is not going to dump their tokens for a quick buck when it’s far more profitable to build a large, healthy, and growing ecosystem of oracle networks. Since LINK is not a governance token or a PoS coin, but a utility token (payments and staked as collateral) so the supply distribution is actually ideal for long term sustainability of the network. The team dates back to 2014 before the launch of Ethereum, and similar to the community, they’re in this for the long run.

I see no downside from adding LINK as a collateral addition to Maker.

3 Likes

Hi,

if you check this list Collateral Status Index
you can see that the LINK collateral application has already progressed through the Domain Greenlight and is approaching Community Greenlight.

2 Likes

Just to clarify, LINK hasn’t had any public Domain Greenlights yet. Community Greenlight is scheduled for next Monday.

4 Likes

A relevant point I want to bring up is that while there is a huge demand in the Chainlink community to use LINK within DeFi, currently the largest competitor of Maker, Compound, has yet to list LINK, leaving a major hole that Maker could easily fill and take market share out from under Compound.

After the launch of the COMP token, Compound is dangerously close to overtaking Maker in Total Value Locked https://defipulse.com (Compound grew from $90M TVL to $410M in a couple days), and a good way for Maker to keep an edge ahead of them is to list high in-demand collateral that Compound does not support like LINK.

It’s important to keep the status as the leading DeFi project, or you risk even more people switching to competitors. There is a large amount of LINK out there across many holders (153,000 on-chain addresses) waiting to deposit their LINK into DeFi. Not only that, but Linkies historically hold their LINK for a very long time.

“Data extracted from the underlying blockchain and cryptocurrency markets reveal declining balances of the token held at exchanges. In the logic of digital-asset traders, that’s seen as a sign that holders of the token have no near-term intention of selling their LINK tokens” - CoinDesk (https://www.coindesk.com/first-mover-chainlink-marines-hodling-investing-oracles).

Many of the other proposed collateral types I see do not have nearly as many holders, have holders who don’t hold for very long, and/or have communities who don’t use DeFi products very often. The demand for going leveraged long on LINK (and thus minting DAI) is much higher than the rest of all other proposed collateral types combined.

Additionally, Linkies historically have heavily dogfooded, bootstrapped, and supported DeFi projects that use Chainlink oracles. This means if Maker used the https://feeds.chain.link/link-usd price feed, much more DAI would be minted as a result, due to the increased trust from Linkies. I think Rune sums it up very well in his comment here (Using Chainlink Oracles for LINK-USD).

By adding LINK as a collateral type and using the Chainlink LINK/USD price oracle, not only will you will gain a huge amount of support from the large and growing Chainlink community, but a substantial amount of DAI will be minted as a result as LINK is not a collateral type supported by competitors such as Compound. This is a major mistake on the behalf of Compound, and is something that Maker can heavily benefit from by supporting LINK.

In my opinion, this is the best possible time to list LINK as a collateral option under MCD enabling more DAI to be minted.

2 Likes