24th October 2024 > > Chainlink.
tl;dr
Chainlink has embarked on its revolution of the TradFi industry, which will benefit each and every one of us.
Market Snap
Market Wrap
With the US election just two weeks away, and the tightest of polls, I suspect TradFi markets will likely stay tightly range-bound. The spot BTC ETFs had another big day of inflows yesterday. More to come I believe.
Curious Cryptos’ Commentary – Chainlink and crypto adoption by TradFi
Swift sits at the heart of TradFi acting as the conduit to move fiat around the world electronically to the tune of a remarkable $5 TRILLION a day, totalling more than the inconceivably large number of $1 QUADRILLION every year.
Swift clearly works very well, but like all centralised systems and databases, there are a lot of administrative people doing basic administrative tasks such as reconciliation, at all the TradFi banks that use Swift.
I wonder if anyone can suggest a solution to that problem? A solution that will dramatically improve productivity at the banks, lowering the cost of capital for industry, and making all of us wealthier? Ah, yes, blockchain technology, of course. Why didn’t I think of that?
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Chainlink, whose native coin LINK has long been a core holding of the CC Treasury since soon after inception, was one of the first oracles, providing verifiable data on-chain for consumption by either DeFi or TradFi. DeFi can only truly work with oracles (writing smart contracts that rely upon centralised data sources is a strangely odd concept), and TradFi becomes more robust by using oracles.
Sergey Nazarov (https://x.com/SergeyNazarov), Co-founder of Chainlink and a man with a brain, has announced a joint project with Swift:
At only twenty minutes long, it is worth a watch. But you don’t have to, for the CCC research team has done that for you. Let us recap, more simply, and with greater brevity than our old mucker Sergey.
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The key part appears very early on. This graphic shows the integration of the blockchain into the TradFi infrastructure around Swift:
I prefer to see it as the integration of TradFi into the blockchain, but as it TradFi bankers who are being pitched this idea, Sergey made the wise decision to let them continue to believe that they are still in charge.
The first step known as “pre-settlement” remains unchanged from today. Pre-settlement refers to the process by which two interested parties make their intentions plain to Swift. As an example, one bank sells a specific US treasury bond to another bank at a pre-determined price for settlement on a specific day. TradFi banks need make no change to any of their systems for this part of the process, a key requirement for wholesale adoption of blockchain technology.
The second state known as “lock asset” is when Chainlink inserts itself into the process, electronically “receiving” the asset from the seller’s TradFi custodian via Swift, tokenising it, and locking it onto the blockchain. When complete, this information is shared with Swift which then facilitates the movement of fiat from the buyer to the seller. Again, this movement of fiat uses the same rails that exist today – there is no need to make a change to any of the TradFi world’s systems.
Once payment is confirmed, the Swift message is combined with the asset on the blockchain recording the new ownership.
Hey presto! Almost instantaneous, almost feeless, settlement of financial transactions with full visibility and immutability of the record of ownership. Allied with no reconciliation issues of any kind.
As Sergey says:
“This is not a concept, this is not an idea, this is not a plan. This is a product.”
And that is very exciting. Blockchain technology has so much potential, of which only a very small part has been realised. This is a major improvement to the way TradFi works today, and it is being implemented today.
So, when someone says that cryptos have no utility (looking at you in particular, economists at the ECB) you know they have no idea of what they speak.
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A key stumbling block to adoption of blockchain technology by TradFi is the sheer transparency. All transactions and all parties to those transactions can be seen on-chain. Using the legacy database approach currently in existence within TradFi, most details of all transactions remain obscured, which is why money-laundering remains rife within banks, but barely touches the sides in the crypto world. Again, this is a fact which the economists at the ECB choose to ignore, for otherwise their own prejudices are made plain to themselves.
Chainlink has a solution.
Let us look at a simplified real-life example.
If I buy a stock using my on-line brokerage account, those details are all stored in-house. The broker has previously complied with all the KYC and AML requirements. These are an important safeguard, but they are far from perfect, and they are terribly inefficient, designed as they were by bureaucrats.
Chainlink has a blockchain solution that uses zero-knowledge proofs (https://en.wikipedia.org/wiki/Zero-knowledge_proof), a concept that is rapidly gaining a reputation for being the ninth wonder of the world. This solution will allow for full compliance with all KYC and AML rules more efficiently and more effectively using the blockchain but obscuring (as does the legacy databases today) individuals’ identities when transactions are undertaken.
Again, the scope for productivity improvements is vast, and we know the benefits that will bring to all of us.
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And there is much more in this presentation.
Chainlink is right at the forefront of the crypto revolution.
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