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DeFi DeFi Digest OKEx Insights Privacy

Chainlink 2.0 aims to bring scalability and privacy protection to DeFi protocols

2021.04.22 Matthew Lam

OKEx Insights looks at Chainlink 2.0 and examines how it aims to bring scalability and privacy to the DeFi ecosystem.

The decentralized finance ecosystem grew modestly this week, despite a pullback in the wider cryptocurrency market. The total value locked in DeFi protocols stands at $53.95 billion, as of the time of this writing — though Compound decreased its market dominance to a 16% share of the sector's total value locked.

The total borrowing volume of DeFi protocols posted 2% growth this week — clocking in at $17.17 billion. The lending market is currently being led by Compound, which has a 37% market share.

Decentralized exchanges grew rapidly this week as the average weekly trading volume surged by 24% to $4.35 billion. Curve Finance surpassed Uniswap as the leading DEX with a 23.5% market share. At the same time, Curve also overtook SushiSwap as the largest liquidity pool — with the former's TVL reaching $1.85 billion.

CategoryKey statisticsAmountWeekly % change
OverallTotal value locked (USD)$53.95 billion2%
Market dominance (%)Compound (16%)
LendingTotal borrowing volume$17.17 billion2%
Market dominance (%)Compound (37%)
DEXsWeekly avg. trading vol.$4.35 billion24%
Market dominance (%)Curve (23.5%)
Yield farmingLargest liquidity poolCurve ($1.85 billion)
Curve surpassed Uniswap in average weekly trading volume and became the largest liquidity pool this week. Source: DeFi Pulse and DeBank

Chainlink releases white paper for Decentralized Oracle Networks

Chainlink, the leading oracle provider in the DeFi sphere, released a white paper for its upcoming protocol upgrade — commonly called Chainlink 2.0.

While the Chainlink team first introduced Decentralized Oracle Networks in its initial white paper, smart contracts offered limited functionality. Chainlink 2.0 addresses these limitations by enabling hybrid smart contracts in DONs — allowing blockchain protocols to access off-chain data sources and perform off-chain computations.

Chainlink 2.0 makes oracles more scalable

The advent of Chainlink 2.0 aims to improve the scalability and privacy of price oracles adopted by various decentralized finance protocols.

Hybrid smart contracts are a combination of on-chain smart contract codes and off-chain data computations in decentralized oracle networks. For DeFi protocols, the major scalability enhancement in Chainlink 2.0 is the ability to perform off-chain calculations. Offloading the data computation from the main blockchain helps lower latency and increase transaction throughput.

The Chainlink team introduced a transaction-execution framework for Decentralized Oracle Networks, which processes off-chain transactions and oracle reporting. The off-chain transaction data, bucketed in batches, is synced from DONs to the main blockchain regularly. This lowers on-chain transaction fees and allows for more timely oracle reporting.

The Chainlink 2.0 white paper also highlights wrapped tokens in DeFi as a use case for scalability improvements. For instance, Chainlink 2.0 improves efficiency when reporting wBTC deposits. Chainlink's oracles help to relay the status of wBTC reserves from the Ethereum blockchain to the Bitcoin blockchain in a more timely and accurate manner.  

Privacy enhancements in Chainlink 2.0

While blockchains provide data transparency, there is often a privacy trade-off when data providers publish sensitive or proprietary data on-chain. Chainlink 2.0 aims to combine blockchain's transparency with three additional privacy protections:

  • Confidentiality-preserving adapters
  • Confidential computations
  • Support for confidential Layer-2 systems

Adapters fetch off-chain data and encrypt reports sent to the main blockchain. Chainlink 2.0 plans to deploy DECO and Town Crier, two privacy-oriented adapters that enable oracle nodes to retrieve off-chain data confidentially. Through the usage of confidential computations, DONs may conceal their off-chain computations from their relaying blockchains. Furthermore, the DONs in Chainlink 2.0 may support Layer-2 scalability solutions that offer privacy protection, such as ZK-Rollups.

OKEx Insights reached out to the Chainlink team for further elaboration but has not received a response.

While Chainlink 2.0 enhances scalability and offers privacy protection for DeFi protocols, it plans to achieve interoperability among multiple decentralized oracle networks. Going forward, Chainlink aims to extend its oracle network in other areas, such as gaming and nonfungible tokens.


OKEx Insights presents market analyses, in-depth features, original research & curated news from crypto professionals. 

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Disclaimer: This material should not be taken as the basis for making investment decisions, nor be construed as a recommendation to engage in investment transactions. Trading digital assets involve significant risk and can result in the loss of your invested capital. You should ensure that you fully understand the risk involved and take into consideration your level of experience, investment objectives and seek independent financial advice if necessary.

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