Chainlink’s link token jumped to record highs on Monday, far surpassing bitcoin’s returns since the start of 2020. The ever-increasing use of Chainlink’s price oracles in decentralized finance (DeFi) is driving the cryptocurrency higher, according to analysts.
The 12th largest cryptocurrency by market value clocked a lifetime high of $5.72 at 11:45 UTC (7:45 a.m. ET) and was last trading at $5.65, representing over 200% gains on a year-to-date basis.
Meanwhile, bitcoin is down more than 50% from its lifetime high of $20,000 reached in December 2017 and has gained only 29% so far this year, according to data source Coin Metrics.
The link cryptocurrency has decoupled from bitcoin, the crypto market leader. Observers are associating link’s massive rally with Chainlink’s increased usage in the decentralized finance space.
“We’re attributing this short-term price spike to Chainlink’s scaled usage in the DeFi space,” said Vance Spencer, co-founder of Framework Ventures, which is one of the largest private holders of link tokens. “The market cap for DeFi projects have quintupled in the last half year, and most of the ecosystem is now relying on (or planning to rely on) Chainlink for connecting on-chain DeFi smart contracts to off-chain data feeds like commodities and crypto price data.“
Meanwhile, Simon Peters, crypto market analyst at investment platform eToro said, “The crypto asset has been displaying a bullish trend for some time now, with Chainlink making all the right noises by partnering with a number of projects in the decentralized finance (DeFi) space.”
Chainlink is a system of oracles built on top of the Ethereum blockchain that supplies data to decentralized blockchains. For example, if two users bet on the outcome of a binary event, the oracle will tell the smart contract which user won, so it can pay the winning bettor.
With Chainlink, the advantage is that it supplies data to smart contracts in a decentralized way, or from multiple sources. That ensures the security and reliability of the blockchain, which can be compromised in case the oracle depends on a single source. For instance, lending protocol bZx suffered multiple hacks in February as the platform once used Kyber Network as a single oracle, or supplier of asset prices.
Hence, the DeFi industry has turned to Chainlinks. Major names in the DeFi space including Kyber Network, AVA, Graph Protocol, Opium Network, Synthetix and now bZx have integrated Chainlink’s oracles, according to its official blog. Chainlink’s official twitter handle has announced at least two partnerships every week over the last two months.
The cryptocurrency may have received an additional boost from Chainlink’s association with China’s national blockchain project. “The importance of the Chinese government choosing to integrate Chainlink oracles into their national blockchain services network (BSN) cannot be understated,” said Spencer.
“Long term, we expect Chainlink’s value to continue to appreciate. We believe that the smart contract platform that eventually becomes the standard for Web3 will be valued at several factors higher than Ethereum’s current market cap. If that is the case, then it’s natural to assume that its security layer, Chainlink, will significantly grow in value as well,” said Spencer.
Some observers are of the opinion Chainlink is best positioned to benefit from the ongoing multi-year shift in focus from base layer chains to the middleware services that provide security for data feeds.
Further, the lure of earning additional by staking link tokens could drive demand for the cryptocurrency. “The idea that users could someday earn a steady income stream for participating in the crowdsourcing of useful data for smart contracts is likely to be attractive to institutional and educated retail investors alike,” said Spencer.
In Chainlink’s ecosystem, staking involves depositing link tokens in a node in order to be able to undertake jobs that require collateral or joining a staking poll in order to connect blockchain to off-chain data, as noted by crypto exchange Exodus.
Short-term correction ahead?
With the flow of coins toward exchanges recently jumping to the highest level since March, there’s a chance the cryptocurrency could witness a short-term pullback.
Exchange net flow, or the difference between volume flowing into and out of exchanges, rose to 3,482, the highest since March 14, according to data provided by the blockchain analytics firm Glassnode.
Investors tend to move cryptocurrency from their wallets to exchanges to be able to more quickly liquidate holdings during a price crash or when they expect a price pullback.
“From a technical perspective, link just broke past its largest resistance level at ~$4.90 and is now in price discovery mode both in terms of BTC and USD,” said Connor Abendschein, crypto research analyst at Digital Assets Data.