An On-Chain Analysis of Chainlink

Chainlink(LINK) has been one of the best performant crypto assets in 2019 and one that remains an enigma for most crypto investors. This is partly because Chainlink is not a general purpose cryptocurrency but rather a programmable token focus on one of the biggest use cases for decentralized applications(DApps): integration.

While the performance of the LINK token certainly puzzles most crypto investors, most of the analysis has centered on its aggressive price movement and technical indicators. However, an analysis of it’s on-chain behavior reveals some very interesting insights that provide a more clear perspective of the future performance of this crypto-asset.

Explaining Chainlink in Two Minutes

Chainlink is a protocol to streamline the integration of external data into smart contracts. The core principles of the Chainlink protocol are based on the concept of blockchain oracles that combine the immutability of the state of the blockchain with the relevance of external data for on-chain smart contracts.

The core architecture of Chainlink is based on four fundamental components:

· External Data: This might represent an API or data fee containing relevant information to a blockchain programmable asset.

· Chainlink Node: This is the off-chain middleware operates between the blockchain and external data sources, which provides real-world data and fulfills the requests from requester contracts. The Chainlink node handles jobs, tasks, scheduling, and signing transactions for the blockchain. The Chainlink node runs through a specified set of sequential processes and includes a number of core adapters which give it support to read and process data, and write to the blockchain.

· External Adapter: This component allows for additional functionality outside of what is supported by the default Chainlink adapters. Data validation and mapping are classic scenarios for external adapters. Functionally, external adapters can be seen as serverless routines that complement the core functionality of an existing Chainlink adapter.

· Blockchain Node: This component is responsible for monitoring a specific blockchain and allows the Chainlink node to look for specific events to occur to initiate a job.

LINK tokens are the underlying currency of all the integration processes in Chainlink. For instance, when you create a Chainlink request, your Requester Contract sends an on-chain transaction to an Oracle Contractin a transaction that transfers LINK, along with the data representing your request.

The Oracle Contract tracks LINK balances from requesters and emits an event when it receives LINK which notifies the off-chain Chainlink network that a request has been initiated.

Once the request has been received, Chainlink performs the work of the request and returns the answer to the oracle contract, indicated by the blue arrow.

The Oracle Contract updates the LINK balance to pay the node operator and returns the result to the Consumer Contract.

The LINK Price Movement

During the course of this year, Chainlink has been one of the top performing crypto assets and has drawn the interests of many crypto investors.

The fascinating thing is that the Chainlink price movements are not directly related to an increased usage on the protocol itself. Beyond the impressive gains, Chainlink on-chain behavior contains some interesting insights.

Five Interesting Chainlink On-Chain Metrics

Blockchain datasets are an incredible source of information about the behavior of crypto assets. In the case of a fast growing asset like Chainlink some of the metrics highlighted by the IntoTheBlock platform are enlightening.

1)LINK Investors Have Realized Major Gains

Nothing surprising there, except maybe the actual numbers 😉. IntoTheBlock’s In-Out the Money analysis reveals that over 74% of Chainlink investors are in the green which makes for a very healthy ecosystem. An interesting point about this analysis is that it reveals that there are over 11,000 addresses that bought at an average price of $3.54 which could represent the next major level of resistance for a LINK price rally.

2)Large Transactions Have Been Healthy

Large transactions are always a solid indicator of the health of a crypto asset. IntoTheBlock’s Large Transaction analysis for ChainLink reveals a steady pattern with an abrupt peak around July following the LINK listing in Coinbase.

3)The Chainlink Network is Growing and Active

IntoTheBlock’s Address analysis shows that over 57% of addresses in the Chainlink network are active. Also the balance between new addresses and addresses with zero balance has been very positive.

4)After the Coinbase Listing the Flows of New Capital Coming Into Chainlink has Dropped

IntoTheBlock’s Traders analysis reveals that the new money inflows into Chainlink has decreased significatively since June but still remains solid.

5)Chainlink Remains More Popular Outside Asia

Despite its global footprint, Chainlink remains more popular within wester investors based on the metrics revealed by IntoTheBlock’s East-West analysis.

As you can see, the on-chain data analysis of Chainlink shows interesting patterns about the behavior of a crypto-asset that go beyond price and volume metrics.

This behavior is not necessarily correlated with an increased adoption of the Chainlink protocol so its value is mostly speculative at this point.

For a protocol centric crypto-asset like Chainlink, its on-chain analysis might be the richest source of insights about the behavior of investors and token holders.

(Disclosure: The author is the CTO at IntoTheBlock)