The introduction of smart contracts in the blockchain industry raised an important question: how to get off-chain data for smart contract execution? Then oracles came to the scene.
Oracles are entities that connect blockchain to external systems, allowing smart contracts to work based on inputs and outputs from the real world.
Oracles are crucial for the industry. That is why projects that link oracle networks and provide a variety of off-chain data are so important. The largest of them is Chainlink.
On the other hand, there were always concerns about oracle reliability. To address them, Chainlink decided to introduce a new level of security by implementing the staking of LINK tokens. It is coming soon and creating a big buzz in the community.
This article will explain how LINK staking improves the oracle networks.
Understanding Chainlink
Chainlink offers a solution for delivering information from off-chain sources to blockchain smart contracts. It is an infrastructure provider that supports over a thousand oracle networks that all together secure a value of $23 billion in over 1450 projects.
Chainlink provides the following services:
- Data feeds, like pricing data for digital assets
- Off-chain data sources
- Verifiable randomness functions
- Proof of reserves for verification of stablecoins and cross-chain holdings off-chain
- Keeper network for automation of smart contracts transactions requiring off-chain information for dapps
Chainlink has seen rapid growth over the last couple of years. It represents 47% of the total value secured by oracles.
LINK Staking Implementation
Recently the blockchain community raised many concerns about the security of the oracle network mechanism. As critics say, node operators don’t have any monetary incentive to prevent incorrect data inputs.
So Chainlink decided to introduce such an incentive with staking. Node operators won’t provide inaccurate data if they have LINK tokens locked up, and there is a risk of stake in case of misreporting. Before, LINK was only used as payment for oracle services.
Chainlink divided staking implementation into three phases. Later in 2022, they will release version v0.1 to test the basic mechanisms. Staking nodes will only provide price updates for ETH/USD pair. Chainlink will introduce a reputation framework and staker alert system in this release. After the launch, they will validate the main mechanics and collect feedback before the next stage.
The next one will be v1. This release will introduce more complex features like slashing of stakes. Also, it will introduce many other pair feeds.
The third stage is v2, which will introduce loss protection to help protect participating sponsors when a supported oracle network deviates from its service-level agreement (SLA). Other Chainlink services and feeds will be added at this stage.
You can check out the stage overview here:
Source: Chainlink blog
The Future of Chainlink
The introduction of staking is a significant turnaround in Chainlink economics. It will incentivize node operators to lock up LINK to earn higher rewards and fees. At the same time, LINK holders will delegate their tokens for staking.
By creating a monetary incentive for node operators, Chainlink hopes to discourage any misbehavior or misreporting in the system. Staking also allows users to become stakeholders in the system’s reliability. Users will be able to alert if the node they delegated to doesn’t meet performance standards.
Overall this implementation will be a huge enhancement for the LINK token itself.
Staking LINK with Everstake
After the release of LINK staking, Everstake will allow users to delegate their tokens.
We have proved our reliability as a node operator in the past years. Our experience and high-performance hardware ensure that Everstake meets the performance standards of Chainlink and receives higher fees and rewards for its work. Thus, higher yield for the investors.
As Chainlink is one of the main feed providers on the market, staking LINK may become a smart investment.
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