What Is Chainlink (LINK)?

Blockchains cannot access data from the outside world on their own; this is known as the oracle problem. Chainlink tries to solve this problem by having many independent node operators collect the same data from different sources and aggregate it. This reduces dependence on a single data source or a single operator. The project was developed by a team whose co-founders include Sergey Nazarov.

The network's main use case is providing price feeds to DeFi applications such as lending protocols and derivatives platforms. In addition, it offers services such as verifiable random number generation (VRF), the Automation service that triggers contract actions automatically, Proof of Reserve, and CCIP, a cross-chain messaging protocol. For example, a lending protocol can calculate collateral value and its liquidation threshold based on a Chainlink price feed.

Oracles are a critical link in smart contract security: faulty or manipulated data can force even a correctly written contract to produce wrong results. For this reason, the diversity of data sources, the independence of node operators and the update frequency are important parameters for protocols that use oracles.