Chainlink, DeFi, Ethereum, Kusama, Oracles, parachains, Polkadot, Smart Contracts

As demand for smart contracts climbs, Chainlink’s modular oracle for the Substrate framework aims to power developers and defi applications with trusted off-chain information and pricing data needed to attract projects to Polkadot and Kusama.

Blistering Growth in Defi and Smart Contracts Beckon New Layer of Trust

As the smart contract revolution continues to gain traction, the fissures and flaws in existing infrastructure that supports these transactional protocols are becoming more apparent. Among the chief issues facing smart contracts, costs and security are the main factors in the spotlight.

To continue growing and scaling these unique protocols while not only addressing the accompanying shortcomings, smart contracts will effectively need to be “smarter.†Yet, given blockchains’ validation constraints, which are intended to preserve stability and security, there is a barrier to off-chain information by design.

Concerning smart contracts, satisfying contractual conditions may depend on external data (like pricing for instance), which may not be available on the corresponding blockchain hosting the contract itself. Besides creating a unique headache for developers, it corresponding restricts the use cases of smart contracts.

Chainlink stepped in with one answer among the pioneering solutions after introducing “oracles†to the blockchain universe. The main idea behind oracles involves connecting trusted external data sources to smart contracts, providing the missing link between the onchain and offchain worlds.

Smart Contract Adoption Depends on Data Access & Availability

Just like an API can connect two separate systems and share information, Chainlink can connect smart contracts to external data sources in the same manner. Akin to the premise that centralized sources of information can have a slant or bias, the idea behind Chainlink is to decentralize information inputs and outputs. This helps maintain a commitment to building open-source resources for developers that a single, controlling entity can’t compromise.

One of the main applications of Chainlink is pricing information, especially in the realm of decentralized finance (defi) applications. Borrowing and lending protocols like Aave already pull their rate pricing information from Chainlink, helping inform decisions and smart contract conditions. The architecture of oracles is such that they effectively provide another layer on top of existing blockchains, meaning they don’t compromise the integrity or security of the first layer.

Still, the oracle has many more applications besides defi. It can pull all manner of information, including weather conditions, sports results, and economic data changes, to name a few. To power these protocols and ensure greater adoption, smart contract access to off-chain data resources will be paramount.

Since Chainlink’s oracle was launched on Ethereum in 2019, it has been a mainstay among popular defi projects. Now the oracle is being adapted for other blockchains as the project attempts to maintain its agnostic stance. The latest iteration, designed for Polkadot and Kusama’s Substrate development framework, will act slightly differently from earlier versions.

The Pallet Module

Unlike the Ethereum version of Chainlink, which has nodes that report price information, Kusama and Polkadot parachains can individually determine whether they want to embrace Chainlink pricing data. By including their specific module, termed a “pallet,†developers can effectively bridge the Chainlink data into their respective smart contract applications.

For Polkadot Defi projects like Acala, this means that their parachain can choose to incorporate the oracle in a modular fashion. Yet, parachain projects that don’t need access to the data won’t be required to integrate the module. By extension, this means they won’t need to allocate any blockchain resources to Chainlink.

As defi projects seek greener pastures for more affordable cost structures and scalability, Polkadot and Kusama’s Chainlink integration will make it even easier for smart contract developers to make the leap. Meanwhile, a great number of alternative oracle-centric projects like Band, DIA, API3 are competing with Chainlink to offer similar services.

How do you see the oracles’ off-chain information impacting smart contracts usage? Let us know in the comments section below.

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