ChainLinkGod Podcast - Chainlink Economics 2.0: A New Era of Value Capture for Oracles
Primer: Chainlink Economics 2.0 was one of the topics of discussion in the recent SmartCon. There are 3 pillars to it: (1) Increasing Revenue, (2) Reducing costs, and (3) Staking. In this episode of the ChainLinkGod Podcast, ChainLinkGod and Crypto Oracle dives deep into the 3 pillars.
SmartCon 2022
Plenty of announcements:
SWIFT partnering with Chainlink
Programs related to Chainlink economics 2.0 (increasing revenue, reducing cost, enabling staking)
Growth Of Chainlink
Chainlink can capture value on any blockchain or L2s
Have a wide range of services (e.g. price feeds, verifiable source of randomness, automation, Cross-Chain Interoperability Protocol)
Chainlink uses its initial token supply to subsidize services/get node operators to provide these services
Users start consuming these services and paying for them
In the context of decentralized protocols, value capture is not about extracting value but about economic sustainability over the long-term
Chainlink Economics 2.0
Original economic design focused on pure growth — using token emissions to fuel growth of the network
There’s a change in Economics 2.0:
Where token emissions are no longer needed
Users pay enough fees to service providers
3 different dynamics:
Increasing revenue
Reducing costs
Staking
Revenue
DApps use a portion of their revenue to pay for oracle services that they need to operate
However, early stage projects do not have revenue. What they have is tokens
At SmartCon, the Chainlink BUILD program was announced — early stage projects can provide a percentage of their token supply (~3-5%) to pay for Oracle services and enhanced support
Tokens paid to Chainlink could later be redirected to service providers who provide services that the project needs
Stakers will not only earn LINK, but this basket of assets of other projects in the Chainlink ecosystem
“All the stakers are basically seed investors in all the projects that are supported through BUILD. And these projects are the next Aave or the next big project. You’re basically getting tokens by staking.”
- Crypto Oracle
Chainlink has a large community and is good at guerilla marketing. These projects benefit from being part of the Chainlink ecosystem
Chainlink BUILD
Once these early projects start generating revenue, they would have the resources to pay for Chainlink services
Creates a long-term sustainable economic model that does not need token emissions
Revenue could be percentage-based or a static schedule, depending on the DApp and nature of the service
DApp revenue could be shared:
At the protocol level
Users paying individually each time they make a transaction
Makes for a more natural transition from BUILD to revenue sharing
The Funnel Of Web3 Revenue
SmartCon presentation by Sergey
If Web3 scales up and disrupts traditional markets, it is a multi-trillion dollar opportunity
Operating Costs
There’s different types of costs:
Infrastructure cost of running the Chainlink nodes
If it’s a data feed, you have the data provider subscription cost
On-chain transaction fees
In the growth phase, the costs were supported through Oracle rewards paid in LINK
As the revenue of the ecosystem increases, this can cover up a lot of these costs
There’s been various technical improvements in the Chainlink network:
Off-Chain Report (OCR), a protocol upgrade in 2021, reduced on-chain gas cost of publishing by 90%
At SmartCon, it was discussed that generalized implementation for more services could reduce cost by another 25%
Blockchains becoming more scalable, benefiting Oracle networks
At SmartCon, the Chainlink SCALE program was announced — A program where blockchain projects commit to offset the operating costs of Chainlink Oracle networks on that specific blockchain
E.g. Avalanche joined the program. Chainlink would provide node operators grants and AVAX tokens for them to publish Oracle reports on-chain
When blockchains cover the operating costs of Chainlink services, more data can be brought to the environment, supporting their developer ecosystem and the economic sustainability of the Chainlink network at the same time
Metis, an Ethereum L2, has also joined the SCALE program
Staking
Enables stakers to lock up their LINK tokens in a smart contract as a commitment to the proper operation of a specific oracle network
If an oracle network does not meet the conditions on which they were supposed to operate, LINK is slashed
Staking will be progressively rolled out in different stages
Chainlink Staking V0.1 will be launching this December
Introducing a decentralized alerting network, where stakers can raise alerts if an Oracle network does not meet its uptime requirements
Sets the groundwork for:
Stake slashing
Loss protection
Rewards switch from subsidized staking rewards to user fee revenue sharing
Its economics provides a reduction in token velocity, where service providers lock up their tokens to earn revenue, serving as a token sink
Opportunity for node operators like LinkPool to build larger business models beyond LINK staking (e.g. Node as a Service, bringing data providers online, etc.)
Different ways for stakers to join the ecosystem:
Stake directly
Using a delegation system in order to stake with node operators
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