Chainlink’s link token is outperforming bitcoin by leaps and bounds as the oracle network’s various use cases garners investor attention, leading to a self-feeding bullish cycle.
Link rose by 31 percent in the first quarter and was trading near $3.20 at press time, representing a 42 percent month-to-date (MTD) increase, according to data source Messari.
The cryptocurrency was registering a bigger MTD price gain of 62 percent over the weekend, when it was trading at a one-month high of $3.66.
While the 14th largest cryptocurrency is extending its Q1 ascent, bitcoin, the top cryptocurrency, has eked out just 5 percent gains so far this month, having shed 10 percent of its value in the first quarter.
This being the cryptocurrency market, hype has played a role in the run-up.
"Link has a strong fan base that constantly promotes or ‘shills’ the project to potential buyers. This often creates a positive reinforcement cycle, further driving up the price," Connor Abendschein, crypto research analyst at Digital Assets Data, told CoinDesk.
But recently Chainlink has given those promoters something to talk about: its association with a new project called the Baseline Protocol and partnerships in the decentralized finance (DeFi) space, which have generated hype for the project.
Chainlink is a system of oracles built on top of the Ethereum blockchain. An oracle is a third-party information source that supplies data to blockchains. If someone buys insurance against an earthquake or hurricane, for example, an oracle would tell the smart contract when such a disaster occurs so it can pay the policyholder. The link token, in turn, is used to pay Chainlink node operators for providing these services.
The Baseline Protocol, formed by EY and Consensys in collaboration with Microsoft in March, is an open source initiative that combines advances in blockchain, cryptography and messaging with the goal of delivering secure and private business processes at low cost through the public Ethereum mainnet.
Chainlink joined forces with the founders in developing the eponymous baseline protocol.
“People are incredibly excited for Chainlink to help usher in an era of mainnet enterprise applications as a part of initiatives like the Baseline Protocol,” said Vance Spencer, co-founder of technology company Framework Ventures, which is one of the largest private holders of LINK tokens.
Some observers think Chainlink would serve best in such baseline protocols as a facilitator or oracle for all moving parts in the new business network and could continue to benefit from the ongoing shift in focus from base layer chains to the middleware services that provide security for data feeds.
“The boundaries between classically defined smart contracts and oracles have started to dissolve,” Spencer said. “This has reframed narratives surrounding smart contracts, pushing expectations of trustlessness and, therefore, valuation from base layer blockchains to the oracles that service them. Chainlink is by far the best of breed approach, team and product in a space that we increasingly see as winner-take-all.”
The DeFi industry turned to Chainlink, which draws asset prices from multiple sources to inform smart contracts, after multiple hacks on lending platform bZx in February exposed risks arising from using a single source for such data.
“Link has gained some notoriety due to the protocol's variety of use cases, particularly their decentralized price reference data feeds, which are used by various DeFi protocols such as Synthetix and bZx,” Abendschein said.
bZx attackers were able to manipulate asset prices and make sizable money mainly because the platform used Kyber Network as a single oracle, or supplier of asset prices.
An attacker's job becomes difficult with the use of multiple price inputs as manipulation on one platform does not meaningfully affect the end result of the transaction.
Lending platforms bZx, Aave, Celsuis network and Synthetix have partnered with Chainlink for secure oracle solutions.
Chainlink claims its decentralized oracle network can vastly expand the functionality of DeFi smart contracts, increase the variety of products offered, and make the market more enticing for regulated players to participate within. If that proves true, the cryptocurrency could continue to outperform bitcoin and most other cryptocurrencies.
That said, bitcoin is still an anchor for the cryptocurrency markets. As a result, a sell-off in bitcoin, if any, would likely derail Link’s bullish move.
The leader in news and information on cryptocurrency, digital assets and the future of money, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups. As part of their compensation, certain CoinDesk employees, including editorial employees, may receive exposure to DCG equity in the form of stock appreciation rights, which vest over a multi-year period. CoinDesk journalists are not allowed to purchase stock outright in DCG.