Chainlink founder: Combination of modular smart contracts and oracles to accelerate the development of DeFi applications


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Sergey Nazarov, the founder of Chainlink, explained the application prospects of decentralized oracles and the advantages of combining with modular smart contracts.

Speech: Sergey Nazarov, Founder of Chainlink

On October 29th, the 2020 Web3 Summit opened on the Bund in Shanghai. This is the first time the Web3 Summit has come to China. Sergey Nazarov, the founder of Chainlink, the decentralized oracle machine, gave a speech, starting from the web application and development model, discussing how the smart contract module can be combined with the oracle machine to expand DeFi application scenarios.

The following is the full text of the speech:

Sergey Nazarov, founder of Chainlink

Hi everyone, nice to meet you all. Today I want to talk to you about smart contracts and how modular smart contracts and oracles can be combined to achieve more advanced application scenarios. Before going into the discussion, I want to talk about web applications first. We can look at today’s web applications and enterprise development models. Initially, there are monolithic web applications that cannot interact with each other. It was later transformed into a service-oriented infrastructure, and many modular services or “microservices” or “function as a service” appeared, which could realize interaction.

This shift allows web applications to be quickly developed and iterated, and enterprise applications can be quickly developed and iterated. This is because each module can be combined with other modules to form more advanced applications, and each module has sufficient security guarantees. , The combination can play a greater value. This is an amazing model that has greatly accelerated the development of web and enterprise applications. And we are now seeing the same trend gradually taking shape in the field of smart contracts. In the beginning, smart contracts were monolithic applications with no connectivity. They were all complex codes, cumbersome and insecure. Later, various protocols began to develop smaller and more flexible modules, which were embedded in the protocol to implement various functions, such as lending or derivatives or insurance. Later, the functional modules in these protocols can also be used in other applications. For example, some modules of Aave can be used in Synthetix or some modules of Synthetix can be used in yEarn, and so on. Therefore, more and more agreements have begun to transform to “service-oriented infrastructure”, and they have begun to develop small modules and flexibly combine modules. This has two effects.

First, this can guarantee the safety of each module. People no longer need to worry about the safety of these small modules. This can improve the usability and reliability of the modules, even if they are combined together, so that more advanced products can be created. At the same time guarantee safety.

Second, this allows people to focus on developing modules, cultivating a certain function or field, develop specialized modules, and then combine them with other modules to achieve more advanced functions, so they are valuable in terms of specialization and security. These modules can be integrated together to achieve more advanced application scenarios. You can call this “modularity”, or “service-oriented infrastructure” or “currency Lego”, but they are essentially the same concept. This trend has also appeared in the development history of the blockchain industry. Initially, the only application scenario for smart contracts was Bitcoin multi-signature. At that time, there were basically only two things that could be done: Bitcoin transfer and multi-signature. Around 2014, protocol smart contracts appeared. The protocol was very cumbersome and contained many different parts, each of which was a separate smart contract. You need to add different smart contracts to the protocol of the blockchain itself. This takes months or even years. After that, there is a major change, that is, the scripted smart contract of Ethereum has appeared, replacing the original That kind of clumsy protocol smart contract, it only takes a few days to a few weeks to complete the smart contract script and launch the smart contract, which also gave birth to the generalization and new smart contract types, and realized the smart contract module It is a major innovation that the contract can interact with each other and the script is developed by different people.

And now, we have the ability to develop scripted smart contracts and this ability is rapidly expanding to cover more and more application scenarios. So scripted smart contracts began to enter the fields of finance, international trade and insurance, and these products all require data input, such as market price data, insurance products require weather data, and international trade products require cargo data. These data can be transmitted in some form On the blockchain, the current trend is to connect scripted smart contracts to the off-chain world, and the oracle is the key to this trend. This trend has currently driven some areas of smart contracts to achieve great growth, namely In the field of DeFi smart contracts, most DeFi smart contracts need to connect two systems, one is an on-chain smart contract system and on-chain code, and the other is an oracle system such as Chainlink, which inputs data into the system.

So here we can see that in addition to the protocol developing modules, systems such as Chainlink are also developing modules and finally integrated into the protocol. The root cause is the next generation of smart contract products, such as financial products, international trade products and insurance. Products, blockchain games, NFT systems, etc. Most application scenarios require an additional system that is connected to the oracles. They need to be connected to the off-chain to obtain data. Only by accessing the off-chain data can these new application scenarios be realized. This is the area we are concerned about. It is how to create additional services on the chain and transmit data, random numbers, and various resources required by smart contracts to the chain. According to our observations, every time we release a new type of data, a new application scenario will be activated. Therefore, not only is the protocol transforming towards modularity, Chainlink is also providing modular services for each smart contract to assist in the development of the contract. , Our most popular service now is market price data. Market price data is very important for products in various DeFi ecosystems, such as insurance products and financial products. Therefore, many DeFi projects integrate Chainlink oracles to obtain data because they To realize the function, data must be input, so while high-quality oracles like Chainlink continue to emerge, the market size, contract volume, and product volume of DeFi are also growing rapidly.

Another point is also very important. The DeFi protocol has launched more and more services for other DeFi protocols. At the same time, Chainlink has also launched more and more on-chain services. The on-chain market price data is indeed very important. Many DeFi applications have indeed spawned, but we have also released many other types of data, such as sports game data, random numbers, and game event data. After DeFi, the next application area is games. Now there are many game applications that require sports. Match data and random numbers. These applications integrate Chainlink to obtain data input and integrate Chainlink’s services into their own protocols. These protocols themselves are creating modular services for other applications to access. Finally, people can use these at the same time. The modular service of the protocol itself and the Chainlink service. Another data type with great potential is insurance data. For example, weather data applications such as Nexus Mutual, Arbol and Etherisc are connected to Chainlink weather data, and some users also have access to prices. Data and weather data are also very gratifying. Once the data types are enriched, such as price data, random numbers, and weather data, some protocols will combine all types of data in innovative ways to create more advanced intelligence. Contract modules, and other agreements can also use these modules. Recently, we have also issued a proof of reserve so that users can prove asset status in other environments. Initially we can only prove the status of Bitcoin on the Bitcoin blockchain. Later, we can use wBTC to represent Bitcoin on Ethereum. The proof of reserve can prove the state of assets locked in the protocol. This function is very important because you It can prove to the DeFi protocol that the collateral in another environment is available, which is a very powerful tool.

In addition, many data providers have begun to release all kinds of different data, such as voting data, geographic location data, and various other data. Once these data are transmitted to the chain, new application scenarios can be activated. Our goal It is to accelerate the development of modularity or “service-oriented infrastructure”, provide various modules for the protocol to interact with the off-chain world, help the protocol integrate the modules of other protocols, and share the modules of the protocol itself with other protocols, and finally these All protocols use Chainlink, because the modules they use are connected to Chainlink services. In short, once the data types are enriched, it will stimulate more innovative vitality.

So what has Chainlink done in the DeFi field? Chainlink’s decentralized oracle network accesses the highest quality data sources, and has highly decentralized oracles and high-quality data. This has spawned a large number of DeFi application scenarios, which reliably connects DeFi applications to the required data , This is our contribution to the DeFi field. The data source can run the Chainlink node personally. They sign the data and transmit it directly to the DeFi application. It can also be connected to the oracle network. The oracle obtains data from any environment. The environment does not need to make any changes to the infrastructure. This mechanism is very flexible and can efficiently transmit all off-chain data to the blockchain. Data providers do not need to change their existing infrastructure.

Therefore, the DeFi field is undergoing such a transformation. Chainlink’s high-quality data is enabling many DeFi applications to go online and bring value. We will continue to promote this trend and release more types of data, and continue to improve data quality. Another area is Insurance. Chainlink has access to insurance contracts that are currently online. Weather insurance is a very promising blockchain application scenario, especially in emerging markets, where consumers cannot obtain insurance products, and now Arbol is providing them To provide insurance services, local farmers only need to access the Internet, and smart contracts can learn weather data, so Arbol can provide them with various weather insurance services such as drought. And will continue to improve the data quality, so Arbol can provide them with various weather insurance services such as drought. This will have great value to society, and we are honored to be involved. There is a potential logic here as before. Once the amount of data is enriched, new application scenarios will be stimulated, because data as a chain service, availability and Reliability is improved. Once the data is guaranteed in terms of availability and security, people will develop applications around these data. Random numbers basically follow this logic. Now many excellent game development teams use random numbers, such as using Chainlink VRF (verifiable Random function), to ensure the security of the smart contract to the user, so the game content cannot be tampered with, and to ensure the security and non-tampering of the random number. Because most games consist of two parts: the state of the smart contract and the random number that triggers the state, many people start to need oracles to provide them with non-tamperable random numbers to prevent the risk of fraud in the game. With the ability to provide reliable random numbers for games, games can provide users with higher protection, and this will attract more players. Therefore, eventually blockchain games will become the mainstream mode of preventing fraud in the game industry. End-to-end reliability and tamper-proof modification can provide users with higher security. This requires games to achieve tamper-proof modification at the level of smart contracts and random number generation. In addition to random numbers, price data and weather data, now Others have begun to use oracles networks such as Chainlink to prove the status of collateral. Once you can prove the status of the collateral, the value of the collateral will increase accordingly. If you can prove a certain asset basket or a certain token’s off-chain collateral, such as real estate or bank account or stable currency or Bitcoin zone Bitcoin on the block chain can prove the value of the collateral in the agreement. This is the “Proof of Reserve” mechanism. Its importance to the collateral is also rising. The best thing is that it can to a certain extent To achieve transparency, the most criticized point of the financial system is that everyone does not know the true state of the collateral, and this is one of the reasons that led to the 2008 financial crisis.

Many people believe that the 2008 financial crisis was the cause of Bitcoin and blockchain technology. The purpose of the proof-of-reserve mechanism is to solve this problem for assets, or at least prove that the collateral is truly usable, and at the same time improve the mortgage process in the DeFi protocol The level of automation and security of the collateral. Once the reserve proof mechanism is used in scenarios other than the blockchain, such as real estate and many other application scenarios, you will find that proving the status of the collateral is very important for the DeFi protocol, and it is also The DeFi agreement will be opened to many new types of collateral. At that time, the DeFi agreement will not only become extremely diversified, but will also establish a market for various collaterals. For example, assets such as insurance premiums and real estate may establish a collateral market. I think this scenario will eventually emerge. We will see more and more on-chain services. You can call them modules, currency Lego or other names. These on-chain services will form many safe and high-quality smart contracts, and It has become an industry standard in many industries such as finance, insurance, and gaming. Just like web application connection libraries and APIs, smart contract applications on the chain will be combined into more advanced application scenarios. I think many of these modules will be oracles. The machine is composed of off-chain modules and on-chain contracts. On-chain contracts are linked to off-chain resources. Therefore, Chainlink will provide many on-chain services through on-chain contracts, provide random numbers for game smart contracts, provide price data for DeFi contracts, and provide insurance The contract provides weather or other event data, and the reserve proof function can prove the solvency and value of the collateral to the DeFi agreement.

In addition, the oracle network has other functions, such as providing proofs, providing data, and performing calculations to prove off-chain events. These proofs will also become on-chain services and be combined with the protocol and the modules embedded in the protocol. More complex and advanced application scenarios I think this is the driving force for the breakthrough development of web applications. The reason why web applications can develop like this is because there are many excellent developer libraries and APIs that are used by others, such as Uber, not all modules are developed from scratch. Uber developers developed the core code and then accessed the GPS interface to obtain the user’s location. Access the payment interface to pay the driver, access the message interface to send driver information to the user, and access the Twilio, Stripe and Google GPS interfaces. Eventually, the excellent teams in the Chainlink ecosystem will have the ability to safely and efficiently access high-quality systems. The application scenarios of smart contracts will ultimately promote the development of the entire industry, which is what we expect.

I think this is a very worthwhile direction for us to explore. I have seen the results now. I believe there will be many innovations in this field, and DeFi is only the first stop. If you are interested in work in this field, if you want to provide smart contract developers with various development resources to help them create the next generation of smart contracts, we look forward to working with you. We are hiring people all over the world. Our working method is completely open source. Our principle is to reward the best talents and ideas. We have provided a lot of resources for many top developers and blockchain ecology. We are looking forward to working with you if you are interested in this field. Interested, welcome to contact us. Thank you!

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