Last week at Consensus 2024, Chainlink co-founder Sergey Nazarov shared his vision for Chainlink and the new Internet of Contracts. Chainlink’s vision is driven by three intersecting trends: public distrust of the current financial system, the advent of oracles and smart contracts, and the need to modernize the global financial system.
Decentralized Finance and Tokenization
Experts herald decentralized finance (DeFi) as the future of finance. However, the latest trend of real-world asset tokenization (TRWA) has now surpassed DeFi in total locked value. DeFi’s valuation stands at $107 billion, while tokenized real-world assets are valued at $169 billion, showcasing a clear quantitative advantage for TRWA. These TRWA figures are conservative, as they exclude private and bank chain value. The essence of TRWA lies in swift and simple access to financial products. Sergey Nazarov stated, “We are not talking months; we are talking minutes to seconds,” highlighting how these new products will revolutionize asset transfer times.
Chainlink’s Vision
Sergey envisions a future where technology seamlessly merges with existing financial systems to reduce transaction costs rather than replace them. Consequently, Chainlink aims to achieve this by offering its solution as a service, creating unified golden records (GURs) for each asset. Moreover, these records will store every piece of data associated with the product, thereby enabling real-time accurate pricing. Unlike traditional systems, where data is separate from asset value, Chainlink will integrate them to reflect instant changes in value.
Challenges and Solutions
Sergey identified three key challenges for blockchain adoption in banking: inputting data to create TRWAs, moving these assets across multiple chains, and ensuring synchronization of data as assets move. Chainlink addresses these through its oracle services, which provide the necessary data for asset functionality. To scale this globally, integration with existing infrastructure and standards like Swift is essential.
Partnerships and Innovations
One significant example of merging real-world and on-chain financial products is the tokenization of funds. Chainlink and the DTCC identified that onboarding critical data into these assets to create GURs is paramount. NAV data, crucial for fund administration, can be moved on-chain to reduce costs and failure points. Chainlink, in partnership with ARK, created a novel ETF using proof of reserves displayed through GURs, showing real-time claimed and actual reserves. This transparency has attracted investors who value real-time information on their holdings. Blockchain technology has broad applications across financial markets. ANZ bank’s use of a stablecoin for carbon credit transactions illustrates the future potential for handling trillions of dollars in transactions. Sergey aims to bring blockchain technology into the multi-trillion-dollar valuation range by harmonizing traditional finance with new technology, creating synchronized data transactions between public and private chains.
Future Prospects
The future of a combined financial system hinges on rapidly evolving legislation favoring innovative financial technologies like Chainlink’s GURs and tokenized real-world assets. With foreign governments leading the way, the question remains: how long will it take for U.S. legislation to support the innovation the market desires?
Disclosures: Not investment advice. The Author, Sarson Funds, Inc. and its affiliated managers may hold positions in the projects mentioned. Talk with your financial advisor before making any investment decisions or have them contact Sarson Funds directly at info@sarsonfunds.com
