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Speaker A: The end case of what on chain finance will ultimately look like, where it'll be a hybrid of both on chain executing code, as well as these off chain collateralized assets or natively issued on chain assets like tokenized bonds. Moving through the system using Chainlink price data, using chain link proof reserves, using identity data, like all these useful data inputs, is ultimately the economy that we're trying to create. And a lot of that will end up settling on Ethereum itself as like this neutral meeting ground between different distrusting counterparties where each counterparty has their own chain, but they want some settled ground to execute their contracts upon. So, like, this is a bold case for the whole industry. It's growing the pie for everybody, effectively, is really what Chainlink's trying to build towards.

Speaker B: Bankless nation. Welcome to the bull case for Chainlink. A few weeks ago, we hosted a long awaited interview of Sergei Nazarov, the founder of Chainlink. We got the pitch for why Chainlink, what it does, what it wants to do, and what economic activity it potentially unlocks for the on chain world. If you haven't listened to that episode yet and you're going down the chain link rabbit hole, I definitely recommend listening to that episode. This episode you're currently listening to is what I feel is the second half of that first conversation with Sergey. During our episode with Sergey, we stayed pretty high level about chain link and what it is and what an Oracle network is. We never really got the chance to talk about the link token specifically. Chainlink is understood to me now, but the role and function and upside of the link token, specifically inside of the Chainlink system, was a stone we left unturned in that episode with Sergey. In this episode, we attempt to turn over that stone. What is the link token? How does it fit inside the Chainlink system? How does it capture value? Who is going to pay fees to Chainlink, and why? And how do those fees become reflected in the link token? Sergey said that Chainlink wants to unlock the hundreds of trillions of dollars of real world assets and bring them on chain with Chainlink as the conduit. Of course, if that happens, how does link token capture that value in that process? These are the questions I asked two of Chainlink's most prominent community members, Chainlink God and fishy catfish, two crypto Twitter anons who have seemingly committed their online lives to spreading the good word of Chainlink. So I brought them on the show so I could hear from them directly. What exactly is the bull case for link bankless nation? I am putting on my bull cap today. That means that this conversation is biased to bullish. I am here to understand the bull case for link and share that with you all. And if you want to understand the bear case for Link and the risks that the link token has, this episode will not provide that you will have to do your own research. Bear hats don't fit very well on my head. I prefer making bullish content. So that is what you'll be getting today. Disclosures before we get into the episode with Chainlink God and fishy catfish. Nothing in particular. I don't hold any link tokens. I'm just here to help articulate the bull case. I do own a bunch of ETH and we frequently talked about Ethereum in this episode, but that likely comes as no surprise to bankless listeners. There is a link to all bankless disclosures in the show notes bankless.com disclosures. So let's go ahead and get right into this episode. The bull case for Link with two of chain links most prominent community members. But first, a moment to talk about some of these fantastic sponsors that make this show possible. Bankless nation, I'm super excited to bring to you Chainlink God, a chain link community ambassador focused on breaking down the information asymmetry on the role of decentralized oracle networks. We're going to talk about them today with Chainlink and the role that they play in the on chain chain economy, commonly seen in the wild jungle of crypto Twitter role playing. As a frog wizard, you probably know who Chainlink God is. If you've ever encountered the link marines. All opinions from chain Link God are his and his alone. Chainlink God, welcome back to banklets. It's been a while, my man.

Speaker A: Yeah, it's been a couple years.

Speaker B: Thanks for having me on and coming in as well. We have fishy catfish. Fishy Catfish has been a minor investor and all around crypto enthusiasts since about 2013. In 2016, one of his friends recommended him to get on Twitter and he's been trapped in the mental asylum that is crypto Twitter ever since. In 2017, he happened to find chain link on Slash biz, a four chan forum, and he has been link pilled ever since. Fishy Catfish welcome to Bank list for.

Speaker C: Your first time, David, thank you for having me, bud. Appreciate to be here and thank you for extending the invitation to us to come on here. Is this the part where we say that this is not financial advice? And that goes doubly for me because I'm just a guy who found off the streets of Twitter.

Speaker B: Yes, this is certainly the place it'll also be at the end. This is not financial advice. This, I think, is just like the other half of the conversation that we did with Sergey not too long ago. Sergey, we got the big download on what is chainlink? What is an oracle network? What is its ambitions? But we were never really able to talk about the link token specifically. I want to take a moment to talk about one of the largest communities, one of the biggest tokens that's had just this crazy reputation over the years. I want to approach that subject head on. The link token specifically. Uh, and so we have to get two members of the community to help, uh, navigate that question. You guys, uh, guys ready to do that?

Speaker A: Let's dive in.

Speaker C: I think we are.

Speaker B: Okay, so I kind of want to first set the stage. Um, we did the what is chainlink? Episode with sergey. Uh, and I I learned, uh, an immense amount of, uh, material all throughout that podcast. Uh, but that was 90 minutes of saying, what is chainlink? So I kind of want to just try and get the two sentence version, the three sentence version of what? What is chainlink? How do you very simply explain what chainlink is? Chainlink. God. You want to take this one?

Speaker A: Yeah. So I'll keep it brief. You know, if you want the full explanation, then definitely check out the bankless episode with Sergey. Very in depth, but basically at a very high level. Blockchains are very decentralized, secure networks for processing transactions. But through their security model, they can't connect to external systems. So they can't connect to external data sources to trigger a contract. They can't connect to external data servers to trigger events in the real world, like IoT devices or any kind of other devices. And oftentimes, blockchains can't even connect to each other. So they're kind of these isolated islands. So what Chainlink ultimately aims to solve is what's called the blockchain oracle problem, providing a secure, decentralized source of both inputs and outputs. So smart contracts can extend their capabilities beyond what's just possible on chain and connect to all the external data resources, the institutional back end systems, and to other blockchains in a secure way. So you can create this interoperable, secure Internet of contracts where all the systems, web two and web three, combined, create more useful on chain applications, like at a very high level. That's what chain link's aiming to achieve. But, you know, watch Sergey's interview on Banklist to get the full deep dive there.

Speaker B: Yeah. Sergey's interview will explain how chain Link gets that done. But I thought that explanation was pretty, pretty powerful. Just the blockchain oracle problem. This is a problem that exists. If we reroll the dice of crypto, like that is a fundamental constraint of what blockchains have is blockchains know about themselves, but nothing else. And so the problem of bringing external data, external state, external events onto a blockchain is not a solution that a blockchain produces internally endogenously. It needs an external source, an external system to bring that data into a blockchain system. So, like, if we were to reroll the dice of crypto and like, there would be a different bitcoin or in a different ethereum and a different Solana, there would still be the blockchain oracle problem and there would still be some version of Chainlink, is this correct? Chainlink God, yeah, absolutely.

Speaker A: Because it just comes down to the security model. Like, the reason blockchains are so secure is because they're isolated. And the only thing blockchains validators care about is, is this transaction valid or is it not invalid? Then that's what makes them so robust against attacks. But you still need these external inputs and outputs. And so you want to replicate basically the blockchain security model, but apply it to all these external data points that are fundamentally required for all the amazing use cases people love. Like Defi is probably the biggest one that if we didn't have oracles, Defi would basically be uniswap. Like, you wouldn't have basically any of these other financial applications that people want to do. And in my mind, at least 90% of useful for useful smart contracts fundamentally need oracles in order to exist in the first place.

Speaker B: Fishy, what would you add to this definition?

Speaker C: I view it as this kind of heterogeneous general purpose framework for compiling together these external validator sets to basically provide services that blockchains need but can't do themselves.

Speaker B: Beautiful, beautiful. And I think before we go on and start talking about the way that the link token plays a role in this, it's worth talking about these two potential futures that existed, the potential for crypto, blockchain defi that exists without something like chainlink. And then there's the version that exists with something like Chainlink. My aspirations for crypto is that it is the global financial fabric that blankets the world, right? Everyone's using it, but there's two different paths. There's one that takes and has external data, and then there's one that's just like insular, maybe Chainlink. God, you can talk about the difference of cryptos success story with external data, with something like Chainlink or without, and why we need it to be the one with it.

Speaker A: Yeah. So when you look at what blockchains do and what you can do natively with just a blockchain, you can kind of bucket it into like three different things. You can mint a token, you can move a token around, you can swap a token for another, and I guess also a fourth. You could do dao voting with private keys. But if you want to do anything else, you need some other type of trigger or some other type of external connection. So in that world, crypto would be very useful as a medium of exchange for payments. Since you don't need external data resources, you just move tokens from one wallet to another. So like stablecoins would be a good use case for that. But if you want to go and use those stable coins and you want to lend it out, or you want to collateralize a loan, or you want to do any more complex financial application with that, then that's the world where you need to start stepping into oracles. If you want to deposit your ETH onto Aave, and then you want to borrow some USDC, AVi needs to know what the price of ETH is, so it can keep the loan collateralized, and it needs to know what the price of USDC is. So if there's a spike in value, it can liquidate the position to keep the protocol solvent. That's where oracles fundamentally come in. But it also comes in in terms of when institutions start to step in and they start tokenizing trillions of dollars of tokenized assets, they need to be able to access the most amount of liquidity across all these different chain environments. So they need a secure cross chain solution to do that. And cross chain solutions are just oracle networks where the data source is another blockchain, like if you boil it down. So if we want to create this interconnected economy where all these blockchains are connected together, assets can move from a bank's own private blockchain to another bank's private blockchain, or even to a public blockchain like Ethereum. You need this interoperability solution to move these tokens around and inject the data that's required, like identity data, proof reserves, pricing, net asset value, all these data points that institutions require for their assets, those are oracles. You need oracles to do that. So in my mind, the future vision of blockchains is that they're the ultimate settlement layer for all the assets in the world. But if we want to actually achieve that vision, you need the oracles and all these external services to make that possible. From off chain data, off chain compute, cross chain interoperability. That's the world I want to live in. We can have a world with bitcoin where bitcoins value prop is that it's its monetary policy, it's the store value meaning of exchange. It's very useful, but that's a subset of what blockchains could be used for. And I think the vision is way grander once you start to have oracles in the mix here.

Speaker B: Yeah, I think to put on my Oracle network bull hat, the world in which crypto only has data about itself is one where it remains kind of niche and a curiosity, and only services a small fraction of the total spectrum of what could be financial activity on a blockchain, which I think that financial and financial activity on a blockchain is fundamentally better for all the reasons why people are crypto people. But without having data about the world, like the world of finance, the world of Wall street, they can make statements in their financial contracts about the state of the world because of just the nature of pen and paper contracts. It's all subjective. It can be contested in court. And so they kind of have this world of, like, the state of the world, state of finance much more accessible to them. So maybe it's a little bit harder in the world of crypto networks, because cryptography is inherently just math and numbers, and that is harder to get data about the world in order to be interoperable with DeFi, with smart contracts. But nonetheless, if we were just confined to a world in which DeFi was about itself and not about the rest of the world, then in my mind, the crypto experiment is kind of failed. Like, we want to be the global financial system for the entire world, and that needs means that we need to be able to ingest state and data about the world in order to have a fully fledged financial system that does operate on a blockchain. That's kind of how I would articulate the most bullish version of crypto's future. Uh, chain that got anything you would add to that?

Speaker A: Yeah, I mean, I think one thing is that people, you know, the crypto market cap in the ecosystem is about a trillion dollars. And I think people don't see how much value actually exists in the traditional system. Like, Sergey kind of touched on this as well. But, like, it's not about adding another trillion. It's about adding the hundreds of trillions of private and public assets that exist in the financial system and importing them into an on chain format like that is finance is where all the money lives. And so if we want blockchains to actually reach a global societal scale and really impact people's daily lives, even if they don't realize they're using a blockchain, you have to connect with the external financial system itself. And it's not like a, all the institutions are going to go away. They're going to replace the whole infrastructure with the blockchain, and that'll be the world. Like, that's not, it's not very practical. So you have to, like, take these baby steps of connecting more and more systems to blockchains, bringing more and more assets on chain to the point there's not going to be on chain finance and tradfi. It's just going to be finance and assets will be represented in whatever the most efficient format is. And, you know, our bull case is that it's going to be on chains, more transparent, it's more efficient, it's faster to settle, it's cheaper to move. Like all these great properties, it'll naturally just converge towards an on chain format. But this is hundreds of trillions of dollars we're talking about. This is not like, this is not a small bull case that we're talking about here. It's a large opportunity.

Speaker B: I think this was a really good setting at the table and just providing context for the vision for what ChainLink wants to go after. And I want to start to narrow this conversation about specifically the link token and the role that the token plays in this future, this future version of the world that we all want. So let's talk about actually where Link came to be. Like, where did it come from? What's the genesis story of link? How did it come to exist?

Speaker C: So, before Chainlink was even a thing, Sergey and Steve Ellis had founded, and they ran a company called Smart Contract back in 2014, which was actually a centralized Oracle as a service company. And so I actually got a chance to even meet Sergey before Chainlinks made out of launch back in 2019. And we actually got a chance to even talk a little bit about smart contract itself. And one of the points he made to me was that it doesn't make any sense to use a blockchain that has large numbers of nodes executing your on chain contract code. And then you just combine that with three guys in a basement somewhere who control your oracle, and then they end up triggering your smart contract with external inputs. Right? And so I'm kind of like, speculating here, obviously, but I took his comments to mean that they had likely realized that the path they were on was sort of destined to end with them being the three guys in the basement where they would eventually sort of hit this hard ceiling in terms of the scale of adoption and value secured their system could safely support, and that this service provider model would not be the correct path if they wanted to fulfill their larger vision, as we now know it, of enabling a cryptographically secured, verifiable web. So it's impressive that they were able to recognize this so early in their journey, and they began their pivot towards repurposing and transforming their centralized, organized service company into the initial building blocks of what became Chainlink, which is this open network, general purpose protocol for putting together these decentralized validators to perform off chain services that blockchains need but can't do themselves. So it was impressive that they kind of figure that out and basically start.

Speaker B: From scratch and really just to set the stage of the era that that was in crypto 2013. That was two years before ethereum. And so I think that when you are. You mean to say that it was impressive that they just thought they ran through this idea maze so early? There wasn't a lot of clay in crypto to work with prior to, like, Defi. Defi didn't exist. Ethereum didn't exist. Smart contracts were a concept, but not in production. And so, like, fishy, what you're saying is that they kind of just ran through, simulated in their brains what the future of crypto would be, and kind of came to the conclusion that we're going to need something like a decentralized oracle network in order to get this job done.

Speaker C: Yeah, it was actually a year. That was 2014. I'm not sure if you misheard me, but I don't know the full kind of tech stack of what they were using at the time. I know, I've heard later on Sergey talk about that he came across Ethereum and realized that they'll be building this portion of the tech stack. So then they kind of focused on the other pieces of the tech stack. But I think back then, they may have even been kind of been building the piece of where the code executes. So these were kind of very centralized types of services. And I even remember back on biz, I occasionally come across screenshots of past work they actually done as part of smart contracts. Right, where they had kind of built these smart contracts. I think I came across, I remember, like, two or three of them. I think one was like a smart contract they built that was tied to SEO performance, where basically they built a smart contract that said, hey, if your company is right now ranked 30 on the search rankings, let us do SEO for you and then pay us for the performance, moving you from the number 30 slot up to the number ten slot kind of thing. It's basically a paper performance smart contract where somebody does SEO services on behalf of your business or company, and then you basically have a smart contract that can just measure the delta of, hey, your company used to organically come up in the search rankings at this number. Now it's at this number. You don't pay for performance kind of thing.

Speaker B: Okay, so how did we get to the link token? Where does the link token enter this story?

Speaker C: Before we get into that, I kind of just kind of back up for just one more second. So to kind of set the stage for how protocols work in their kind of early stages, and then we can kind of time specifically the role of the link token within the link ecosystem. Every single protocol kind of has this two sided marketplace of consumers on one end and suppliers on the other end. So on bitcoin, those are miners, invalidators on Ethereum, liquid providers in Defi or the Chainlink, you can think of them as independent contractors who are these self interested, economically rational agents that fulfill a set of purposes for a protocol and they keep performing those services as long as it's profitable for them to do so. And that's independent from the profitability of the overall network. Right. And so there's only two ways to pay them. You either have fees from users or you have inflation of the protocol's own token. Right? So your protocol needs to have a source of funds to pay these independent contractors on day one. So the protocol uses inflation to pay them to kind of solve what's known as like the cold start or chicken egg problem, right. A well run team is using this token allocation to basically find product market fit for their protocol to build up a self sustaining source of user fees to, over time, replace the inflation of its own token. Most protocols are designed to have pre programmed declines in their inflation schedules, but that doesn't necessarily mean they're going to have proportionate growth in their user fees to kind of offset that declining inflation, right? So if the protocol is not able to generate utility that users are willing to pay for, the fees will stay low, inflation eventually runs out, and then you'll be basically left with a token that's not worth anything, right. You'll have a kind of dead two sided marketplace, no users, which means no user fees, obviously, and then no more inflation left to pay the validators, or like the LP's of your protocol. Right. Alternatively, if our protocol is able to build up a lot of user fees, and then sort of like taper down its inflation, and then sort of achieve the revenue needs to pay its validators entirely from user fees, and if revenue still keeps kind of growing past that point, then you're kind of setting the stage to have what becomes kind of an attractive token basically. Right. And so I basically just kick over back to CLG in a second here, but I, I first want to set the stage for what CLG and I see as what are the desirable properties of a token in general, and then we can talk about how does the link token do that itself. And so to me at least a token that's desirable is one whose inflation rate is small as possible, and then on top of that, it has real yield, meaning that's yield generated from protocol use and not simply inflationary issuance of its own token. Right. So you kind of combine these two metrics into one, and you have basically real yield net of inflation. I dont know if CLG wants to talk a little bit about the link token, not specifically, but I want to set the stage for this general definition for people, its mental model of what protocols are trying to do in the early days of their starts with their tokens, and how the tokens are used to basically work towards this self sustaining equilibrium.

Speaker A: Preston? Yeah, what I consider decentralized infrastructure protocols, that's a protocol with independent validators said to come to consensus about some service, that's blockchains, but that's also oracle networks, and they use tokens and basically very, very similar reasons. Fishy touched upon like the chicken or egg problem, where node operators aren't going to join a protocol unless it's profitable. Users can't pay to use a protocol unless there's already profitable node operators providing service. So tokens bootstrap a network into existence in the first place. So you cant even have these networks without a native token in the first place, unless you raise debt or equity that has to be paid back. And thats just not credibly neutral or scalable way to achieve that. The other side of this coin, I would say, is the crypto economic security that a token can provide. A decentralized infrastructure protocol. Specifically, what I cut a bucket down to explicit incentives, and implicit explicit incentives would be something like node operators, service providers have to lock up the token, stake it, and they're slashed if they don't meet certain protocol requirements of them. So I think people generally understand that mental model. The other aspect that I think people don't see as much, or it's more implicit, it's not necessarily protocol enforced, but it's when service providers have financial exposure to the network's native token, they are financially exposed to the network's health overall. So like an example that you sometimes is like bitcoin miners, they have exposure to bitcoin both. That's what they generate in revenue and that's what they hold on their books, as well as their ASIC mining equipment itself, which is tied to the value of bitcoin itself. So if miners colluded and attacked the network, they would effectively devalue their holdings, both their bitcoin and their ASIC. So each independent actor within the bitcoin network independently has their own financial incentive, to be honest, because it is more profitable, to be honest, bitcoin doesn't have staking, but bitcoin is still secure because of these strong economic incentives. So it's kind of more of a nuanced point. But that's kind of a key aspect of how even if you don't have staking or you don't have slashing, because a lot of networks have staking without slashing, it's still secure because of this financial exposure to the token itself, which I think is a really, really key aspect to the story here.

Speaker B: Okay, so I think what you guys are doing is you're starting to like draw us a map of how link maps itself into the chain link ecosystem, right where chainlink is the bitcoin system. Link is the, the incentive mechanism that keeps everything cohered. Let's go into specifically the link tokens role in Chainlink. So what does the link token do in the system? How does it fit?

Speaker A: Yeah, I can hop into this one. I kind of bucket this under two different things. On the one side of the coin, you have link as a payment token. So link is the standard form of payment for all chain link services. And that's both directly users or applications paying in LinkedIn to network service providers for some service like data, compute or cross chain. But also, Chainlink is increasingly working on what's called a payment abstraction solution, where end users applications can actually pay in the assets that they already have. And on the backend, it gets converted to link and paid to the node operator. So it abstracts that whole process away. In web three, that could be users paying in native l one, gas coins or stable coins that they already hold. And this can even expand in web two you do paying with a credit card or paying with a bank account using something like account abstraction. It abstracts that whole process away while on the backend still enshrining link as the currency paid to network service providers, which basically means as services are consumed, that means more link has to be consumed and acquired in order to pay the service providers who then have their performance tied to the value of link itself. That's always been the historical utility of link, ever since the day one launch. The other side of this coin, I would say, is link as a staking token, which that's something that's increasingly expanded over time. Chainlink launched initial version of staking last year in December, and a new version is rolling out later this year, V 0.2. But that's effectively network service providers locking up Lync to back as a commitment the performance of their, of the Oracle services that they power. And it's very similar to blockchain staking in the sense that you're locking up tokens. But it's also very different because blockchain validators that stake, they're securing the validation of transactions and network state, which can be done in a very deterministic, predictable way using historical state and cryptography. But in Oracle networks you're dealing with a very non deterministic, a very unpredictable environment. It's a little bit harder to come to a ground truth. So like you have some metrics like uptime and latency and participating consensus that you can track. But when it comes to each individual chainlink service, data cross chain or computer, there may be different attributes that a user cares about, like data accuracy matters for data feeds, for transaction automation, that's not really a concept that exists that you can slash node operators for. So each service can have different, basically service level agreements defining this is what a node operator needs to do. But I think what people would really be interested in here is that eventually chainlink node operators are going to basically be on par in terms of performance, 99.99% uptime reliability, participating in consensus. So how do node operators differentiate themselves? Because Chainlink is not one monolithic network. It's actually this two side marketplace for building networks. Ultimately that's how much staked link that they can actually put up as collateral to back the performance that they can offer users. And so it becomes this inner competition between node operators competing with one another who could provide the most collateral, and ultimately eventually even competition between different chainlink networks within the whole Chainlink ecosystem of different service providers, launching their own price feeds with their own properties, all operating on the same economic layer, but different independent networks competing with one another. And the staked link is effectively how they compete with one another. As Chainlink services become more sustainable and more economically profitable, basically the surplus revenue gets paid to stakers to increase the crypto economic security of those networks, whether through higher yield, attracting more stakers to come participate and secure that service, or just higher p and l for the node operators themselves, because that means a higher opportunity cost if they're for malicious, for whatever reason. So it's really these two different sides of the coin. So it kind of takes elements from bitcoin, it kind of takes elements from ethereum, and it's also kind of its own name, because oracle networks just operate in a fundamentally different way than, than blockchains do. But it takes a lot of the same properties because why reinvent the wheel if we know that crypto economic security already works in blockchains? It just needs to be kind of modified to work in this oracle universe.

Speaker B: I think that was really well said. The patterns that I'm seeing between chainlink and other blockchains are pretty clear. So link is the native currency of chain link in the same way BTC is the native currency of bitcoin, or ETH is the native currency of Ethereum. And when you want to pay for economic activity on any of these chains, including Chainlink, you need to use the currency of the native system. So you pay link for the services to link validators. But what you're saying chainlink got is like the nature of being a chainlink validator is a little bit more like unwieldy versus an Ethereum validator, where Ethereum validators pretty like step a, step b, step c, pretty objective, pretty straightforward, pretty binary, whereas Chainlink validating is a full broad spectrum of potential validating services. And that's a little bit more chaotic and hard to crowl. And that is the nature of the Chainlink project, which is trying to set up this system that can validate more than just cryptographic transactions. Is that a fair summary?

Speaker A: Yeah, exactly. The way I think of it is blockchains ideally are set and forget. You set up your validator, you make sure it's reliable, you have redundancies and backups, and you set up correctly. But then it's kind of, it runs on its own. You don't really have to touch it. Having an oracle node is basically running a business like if you spin up a chain link node. You need to go do bd and marketing to go attract consumers for your oracle services that you're providing. You know, it's when you join the network, you're like Fishy said, you're like an independent contractor and you have to actively manage it. You have to choose what data sources you can provide to people, what types of computation, what blockchains even you want to connect to and provide services a way more heterogeneous environment. And staked link is one of these differentiating factors that once everybody's basically the best node operator possible in the chainlink ecosystem, how much staked link that they can offer, which is basically how much can be slashed and even paid out to users who are harmed if you don't perform very well. That's a huge differentiating factor, and that'll be a way a lot of these oracle node operators compete as a service provider within this economy.

Speaker B: Fishy, is there anything you want to add to this?

Speaker C: Yeah, there's a couple of things I'm going to add. The fundamental value prop of the link token is you can think of it like this, is that the link token, when staked, is essentially a claim to a portion of the cash flows from the services provided by the Chainlink networks. The aggregate bundled service provided to a chain link user, meaning the apps using it, is this combination of the off chain service itself provided by the chainlink dons, plus the economic guarantees of state collateral being put up as additional security. So a portion of fees are paid to the service providers and then a portion of fees are paid for the economic security through the staking portion, right? So the value prop to a token holder can kind of be thought of as like for every dollar the link token costs, how many dollars worth of cash flows can I potentially try to earn through providing my portion of the bundled service through staking? That's how I kind of think about it as the mental model. Now, some people also will naturally wonder, okay, how does the token accrue value if you aren't staking yourself where you'll be directly getting cash flows if it doesn't have, let's say, a burn feature like Ethereum with EIP 1559 or maker Daos buybacks through protocol profits, right? And the answer to that is simply by just having a market where people can buy the token. And so what I mean by that is even though you personally may not want to stake yourself, others are willing to stake in your place and they will buy the token to then earn those cash flows themselves through staking. So let's say we imagine that the staking yield on something like ETH is like 2%, somewhere between two 3%, right? If link presents a higher yield earning opportunity, let's say five, six, 7%, people will bid up the price of the tokenization until the yield falls back down to some kind of like market determined equilibrium rate. Then as the yield once again kind of falls back down to that rate because the cost of the token now went up again. As more and more services are spun up using the chilean protocol launched on more and more chains integrated with more and more users, all that once again translates into more and more aggregate fees, which again translates into more yield opportunities to be earned by stakers, which will once again drive the yield back up again above that market equilibrium rate, which again entices people to want to earn that outsized yield once more and once again kind of bidding on the token, right? So, you know, given Chile's kind of flexible general purpose design and it's chain agnostic, it's also future proof to be able to kind of deploy additional services which are kind of conceived down the line, which again creates more revenue and staking yield opportunities in the future.

Speaker B: This feels like a bond market where price and yields are related to each other. If more economic activity is going through chainlink, yields are going to go up because more fees are being paid through chainlink, and therefore the link token has a claim on more fees. The prices go up, but does that make yields go down? If the price responds to the higher yields, does that make yields go down?

Speaker C: Yeah, because the yield is sort of like a ratio between the cost of the token and the dollar values that are earned through your portion of the service fee. So it's the ratio between dollars paid on a particular node versus what the cost of the link token. What's the dollar value of the link token you have staked right now versus what are the dollar inflows you're being paid by applications for you putting up that economic security.

Speaker B: But is the services provided by chain link denominated in dollars or is it denominated in LinkedIn?

Speaker C: It's denominator in dollars is my understanding. I think that's my understanding of it is because I think they wanted to have this implicit hedging design built into it so that the volatility of the link token doesn't be a prohibitive source of friction towards applications using services, because I think most applications want to have predictable operational costs. If things were spiking up and down with the volatility of the token thats a source of friction. So I think its smart to have a denominator in dollars so that youre not creating this additional unpredictability with something like consuming a service basically, yeah.

Speaker A: And just to expand upon this, theres different payment models within the chainlink network. Theres a standard usage based payment model which is either you pay out request or you fund a subscription contract thats drawn down upon. And like Vishi mentioned, its denominated in USdeZ, but it's payable in link or payable in other assets like Gascoins that's ultimately converted to link. So if link becomes more expensive, that doesn't mean Chainlink services become more expensive. It's still the flat rate model. And because Chainlink offers price feeds, it knows how much the tokens that people are paying with is worse. So they can charge accordingly. But there's also other unique models like user fee sharing, where there was a recent proposal to the GMX community that they approved wherever GMX V two would use Chainlink's new data streams product, which is a poll based low latency data feed solution, and the GMX protocol would pay 1.2% of the fees that they generate into the Chainlink network. So there, it's not tied to the price of USD, the price link or anything. It's just 1.2% of the fees GMX generates goes into the chain link network. And that's for using data streams and getting technical support. But there will be protocols, very early stage pre revenue protocols. They don't have a lot of fiat or they don't have a lot of cash flows to pay for oracle services. They have their own chicken rag problem, basically. So Chainlink has what's called the Chainlink Build program, which is kind of like an accelerator program where projects allocate a percentage of their token supply, usually about three to 7%, into the chain link network. And they get access to chain link services and they get support from chain link labs on like their go to market strategy on technical roadmap development, creating custom oracle solutions for their team. So it's like a very tight knit early stage connection to basically try and grow these protocols so that they can eventually become revenue generating and they can sustainably pay for the Oracle services, they could pay for the blockchain, they could pay for all these different operating costs. So Chainlink has multiple tiers, different types of payments, depending on where the protocol is in its lifecycle. And this will probably even expand in the future. There's a whole other one I didn't mention the Chainlink scale program where blockchains commit. Basically, they cover the operating costs of Chainlink Oracle networks operating on their network. So the end users, or rather the applications, basically have their Oracle costs covered. So they basically have time to start generating revenue themselves until they can start paying the on chain transaction fees. So the blockchain becomes sustainable and pay the fees to the oracle network. So that becomes sustainable and basically bootstrapping these blockchain ecosystems. So there's already eight blockchain ecosystems covering chainlink operating costs in their network. And there's 70 to 80 projects in the Chainlink build program that are very early stage, and that a portion of those tokens will end up in the hands of stakers for providing the security over the services used by build projects. There's a whole list of different economic programs of how do users pay within the Chainlink economy that have already rolled out.

Speaker B: Right. I think you're illustrating one of the differences between paying for block space in a blockchain system versus paying for services from Chainlink. I kind of want to drill down this, this one little nuance here. Uh, if I want to pay for a transaction on Ethereum, I pay ether and I calculate the gas, and then there's a number that spit back out at me, and I, and then, uh, based on the market rate of what gas is going for for that block, and then I just pay it in ether. And it's completely objective. It doesn't sound like chain link, and paying for chain link services is all that kind of cut and dry. So can you guys explain how does the fee for what I'm paying for or get determined? I want to ingest some data. I need to pay for that and link tokens to some data provider, and then I need to pay some amount. How does that amount get determined?

Speaker A: Yeah, so within the Chainlink network, Chainlink is this framework for building decentralized Oracle networks. And so Chainlink Labs is like one entity who helps build Oracle networks and works with node operators and basically wants to make sure that those independent service, those independent set of validators become sustainable. But ultimately, Chainlink is a framework. So there's this inner network competition where anybody can step in and launch their own decentralized Oracle network within the chainlink economy and work with node operators and basically set the rates that are the most competitive within that economy itself. And ultimately, the value flow happens on chain and flows down to the node operators and flows down to the stakers who are providing those services. But ultimately, the goal is not value extraction of just generating lots and lots of money. But it's generating sustainable, economically sustainable oracle services with the surplus going towards paying greater security, whether that's higher rate of yield for stakers, so you get more staked collateral or higher p and l for the node operators because that's a higher operating costs. But ultimately, you know, there's going to be different types of entities who want to be able to pay in different ways. And if you can reduce the payment friction for users as much as possible, then they're much more likely to be able to pay for greater crypto economic security for the oracle networks that they consume themselves directly. So like, it's very different in that regard where like with blockchains, blockchains, like you mentioned, have block space, which is a finite resource on a per chain basis because chains have to deal with state bloat. They can't have unlimited block space because then the network will centralize. And that kind of defeats the whole purpose of having a blockchain. But oracle networks are, most of them are stateless, so they don't have to deal with that problem. So they can operate at the native speeds and scale of any blockchain network. And so they don't have to deal with these congestion spikes that blockchains have to deal with when they get really widely used, and then they have to scale vertically via l two s and rollups and expand out horizontally. Rather, every chain like service can basically scale up and down each node operator can allocate more resources and basically scale with the demand that's required. And if more oracle services are required, then it can scale horizontally. Chainlink has these two ways of scaling vertically and horizontally, so you don't get these congestion fee spikes that users have to deal with because you have all these independent networks that provide some particular service to some particular specific chain. So it's kind of a, it's like a different economic paradigm than people are, I think, used to with blockchains and block space.

Speaker C: When blockchains get lots of applications and lots of users on the same network or same even ecosystem of networks. Right. You know, you get positive network effects on certain variables like increased liquidity or potentially synergistic composability between all those apps, even combined with other apps. But it also creates this negative network effect when it comes to cost because of chain congestion. The same transaction that cost you a dollar with a five second wait time last week, now it costs dollar 20 with a minute wait time. You can analogize that to Uber when we have congestion pricing with Uber, when there's too many riders trying to get a ride and not enough drivers. You get congestion pricing where the price of getting a ride kind of spikes up. Right? And so, but Chainlink Oracles, again, don't have that kind of same congestion spike because, again, there's no single chain link network because this is kind of like horizontally sharded, infinitely replicable protocol that keep making more shards of itself. And so networks kind of scales horizontally. And like, you know, CLG said, like, it doesn't have to deal with the cost and the detriment of state bloat, right? And so as a result, you know, the per user fees can kind of stay flat regardless of usage. So you can kind of think of that as like, let's say Netflix launches a super popular show like, like squid games, and it comes out, everyone wants to watch squid games at the same time. Netflix doesn't charge you more money personally because a million other people want to watch squid games at the same time. And there's even other networks where not only is it neutral, but it actually have positive network effects when it comes to usage, right? Because certain oracle networks can have like, you know, effects where multiple users are actually splitting the cost of the same network. So think of that as like, let's say you order like a UFC pay per view events, you know, and then the more friends you have over to watch it with you, more people kind of pitch in on the cost of it and you can split the cost with more friends. So here, the more users you get, the cost per user actually comes down. So on the worst end scenario, cost per user stays flat. In a better case scenario, cost per user actually comes down once you get more users using that same resource. That's one of the powerful scaling benefits of the way Chiang is designed, basically.

Speaker B: Right? And I think that was all interesting juxtaposition between chainlink and typical blockchain economics. But the question I'm really trying to go for is, how does fee price discovery happen? So there's a two sided marketplace. Say I'm aave and I need to buy ingested the ether price for a particular moment, or I'm a different ingester of different kinds of data. And some oracle network, a part of the chainlink system, is providing me that data. How is the fee determined? Who determines the market rate for the fee? How do I know how much link to pay to get the data that I want?

Speaker A: Ultimately, what Chainlink is effectively building towards is this decentralized computing marketplace where you have node operators listing their services. They're listing their pricing. Users come to this interface, they say, hey, I need seven nodes, I want these seven data sources, do this computation with this consensus model, then deliver this result back to my preferred blockchain. And so it's kind of the users meeting with the node operators and meeting this market equilibrium between these two providers. Currently during the early stages of the network, Chainlink Labs is one entity spinning up basically pre built oracle networks where a lot of developers, they don't want to manage infrastructure, they don't want to deal with the complexities of it. They want to pass off, basically outsource the Oracle team development to another team, which is actually more decentralized than everything being centralized in that core applications development team. They basically help provide those pre built oracle services that they can plug into with the rate set based on what node operators need to become economically sustainable. That's the early stages of the network itself, just to bootstrap it into existence, because if there's no coordinator type entity, it would be this cold start problem of nobody knows what they're doing. But the end state is that users configure everything they want, node operators set their own pricing and it becomes this truly inner competition between all these service providers on who could provide the best services at the lowest cost. And that becomes a really efficient market towards basically paying node operators based on how much stake link they could provide because every node operator will eventually become the same performance wise.

Speaker B: Okay, so like say I'm some DeFi applicant like Aave and I am a buyer of the ETH price or the data that tells me what the ETH price is and I need that to be secure and ungameable. So I need to buy it by the ETH price, the data that is the EtH price from more than one oracle because I need decentralization, I need to make sure that I'm not dependent on this one oracle. So I'm actually going to buy the data that is the ETh price from seven different oracle providers. And so I'm going to go onto this like ebay, kind of like maybe just using your imaginations. Like I'm going to go onto the ebay of Chainlink and I'm going to see all of the providers who are selling the ETH price as an oracle, as data. And I'm like, well, I'll buy the cheapest seven oracles that are going to sell me the price of ETH in this one particular moment. I'll add to cartoon and they are all charging a fee. I'm going to buy those seven because I selected them. And then that's going to be the determining rate. And then if somebody who's like 8th who didn't make it onto my list is like, oh, I wasn't selected. I didn't get any link because my price was too high. I need to become a better oracle. I need to lower my costs. I need to charge a lesser fee so I can start to get the revenue. And then that's how market discovery happens. Is that kind of like the experience?

Speaker C: Yeah, you're definitely on the right track, but there's other variables to compete on other than just price. There's also the past performance of the oracles. Also what's the economic stake being put up by particular node operations versus others. So you're not just competing on price where they're kind of racing to the bottom to who can offer for the cheapest. There's also variables tied to performance and quality that kind of justify a higher price premium compared to other oracle. So if you have a track record of never having your oracle ever go down, you've never behaved maliciously, you're willing to offer higher slashable collateral than other providers, then you actually have a justifiable case to charge a higher price than somebody else. So you're not just gonna be on price, but a whole roster of variables and to basically who's offering a particular application, the highest overall value, not who's offering the lowest price.

Speaker B: And one of those variables that you talked about, fishy, that was super helpful, by the way, is the amount of link that this one oracle is staking, correct?

Speaker C: Yes.

Speaker B: Okay. And so, like, if I'm trying to be selected as a seller of data, I can compete with other sellers of data saying, well, I've got like ten times the amount of link staked that they do. And so I have ten times more link at stake that might be slashed if I give you a bad, bad data. Is that correct?

Speaker C: I can't speak to this on specific terms because this is something that's like Sergey just sort of introduced recently at Smartcon this kind of, he had a slide called decentralized computing marketplace. And obviously, you know, I'm not part of the chain link team, so I don't have any insight, but I can speak kind of in a, in a, in a general sense that basically, you know, you have no, you'll basically have this kind of marketplace where nodes can basically advertise. Here's the, again, because remember, Chainlink isn't just price fees, it's also this whole roster of services. So I just kind of, the way I conceptually imagine it is like I'm a node operator. Here's the list of services I provide. Here's my past track it. Just like on eBay sellers, right? They have the number of stars, past track record. Here's like my customer reviews, here's like, you know how much I'm asking for this service, this service, this service, and then somebody will basically come together and they can kind of compile their own validator set. So like saying like, I want I'm an application. Here's my security budget. How's my security budget best spent to buy me the most amount of security, the most amount of performance for the lowest price, which gives me the highest amount of overall value then. So should I buy ten oracle nodes of this quality, or should I buy 20 nodes of a slightly lower quality? Should I ask for this much state collateral? Do I prioritize having 10 million link tokens staked or 8 million tokens staked and then having a lower price so each person can be, the whole idea is not for Chainlink to dictate to applications. Here's how we want you using our services, but rather to put all the building blocks together so you can show up with your own personal utility curve to determine, here are the things that I value. Here's my security budget, here's, here's how I want to configure this for each application to define for itself how it wants to spend its own security budget.

Speaker A: And I think another dynamic here is both. You can go to the marketplace and you can choose, hey, I want these nodes and I want these properties. But you can also take existing oracle networks that already exist and pay for those. And because Chainlink offers all these different services, I kind of think of it as almost like a decentralized AWS platform where you can compose different services together. So you can have like a pipeline, you can have chain link functions basically reading an event that, hey, some user needs some data and computation, they fetch the data that's required, they run computations over it, they pass it over to CCIP to go bridge data between different blockchains and tokens between different blockchains, and then use Chainlink automation to go deliver the transactions automatically on chain to these different environments. So you can kind of like define this pipeline of pre built services composed together with Oracle networks. You defined yourself. So if you're a user, you can go into the nitty gritty details of like every single property and configuration, but not every developer necessarily knows, like fishy mentioned, I want a smaller amount of high quality nodes. A larger amount of lower quality nodes. How much stake do I need? Like you can compose yourself with pre built application or pre built Oracle networks that you can compose together with and then compose these Oracle networks together so you can compose access to off chain data, off chain computation and cross chain interoperability, as well as connections like enterprises and whatever else other services that Chainlink Oracle networks end up providing. You can combine those together and eventually the lines between, in my mind, what a smart contract is will be defined not just by what the on chain code is, but what all the off chain code is and what all the Oracle networks that it connects to is. And that'll be defined as the smart contract itself because you can't just, just rip out one part and look at that part. It'd be like an incomplete contract, basically. So it's really both components at the end of the day.

Speaker B: Go for it. Fishy.

Speaker C: Yeah. I also want to add another point too. I don't know if this is like a different topic, but it also kind of ties into the fact that like, because Chainlink is kind of designed as being this kind of giant, kind of decentralized platform of services, that that's also one of its largest kind of comparative advantages to other protocols in the ecosystem that I think kind of gets under recognized by most people kind of looking at it. So I kind of want to just give a little piece about that. When you think of, let's say, Google competing with Microsoft, each one of them competes with the other, tit for tat by having a product offering in almost every vertical you have Google search versus Microsoft, Bing, Chrome versus Explorer, cloud versus Azure, Google workspace with 365. Chainlink, on the other hand, they have competitors, but they only have competitors within specific verticals. They have, let's say, pith band API three within the price feeds category. They have gelato in the smart contract automation category, API three again in the randomness category. Obviously numerous competitors in the interoperability space like layer zero, Axlar wormhole. Right. But there is no vertically integrated equivalent platform that competes against chain link the way Microsoft competes against Google. Right. And there's actually like several like large advantages that actually kind of come from that. Right. So the first, I'd say there's three. Three ones that kind of summarize it down to one, is network effects. So Chainlink is now the only platform that devs can go to to get all their data, compute and cross chain connectivity services all in one place, which I think is usually the hallmark of what the ultimate category winner ends up looking like. So again, tying it back to that marketplace. If I can come to this one marketplace and I kind of compile together all my validator sets all in one place to get all my service needs that my app needs all in one place, that reduces the friction and the amount of work required for me to design the tech stack of my own application so I can focus on building, writing the core code of my protocol. I don't need to spend a bunch of time sourcing and figuring out how do I source infrastructure from all these various fragmented providers. The other big thing that also comes to you, and this is also a big theme in web three, is about trust assumptions and trust minimization. So most web three apps need a combination of cross chain compute and data services. So again, price feeds, automation, durability, blah blah, and then just an unbounded amount of future services as innovation and demand continue to permeate. So using just Chainlink for that entire roster of services is much more trust minimized than getting all those same services from a combination of fragments and alternatives like Pith API three, gelato, layer zero, because then you're actually layering on additional honest majority trust assumptions of more and more validator sets, along with some of them introducing potentially kind of centralized points of failure in their tech stacks. Right. So when you're evaluating, so as a developer, as a web three app developer, when you're evaluating the actual total trust minimization of these combined services, you need to aggregate together all the separate trust assumptions each separate service introduces because they all add their own individual trust towards this kind of cumulative trust metric that the application has onboarded. Or if you get them all through Chainlink as a one stop shop, you aren't layering on additional trust assumptions while you're adding on additional cross chain compute data services. Oftentimes when I see analysts or researchers or even other teams put forth analysis about the varying degrees of trust monetization between. Right now, interoperability solutions are a hot topic in crypto is that they sort of analyze the trust assumptions of the user in a vacuum. So, meaning that they sort of like start measuring from this assumed starting point of the user has no trust assumptions, and then they measure and estimate the marginal amount of trust assumptions that be added if, let's say, a particular interoperability solution will be integrated and they just stop their analysis right there. Right. But the reason that's sort of disconnected from reality is for twofold. Most applications need, again, the combination of numerous cross chain compute data services, which would all add more trust assumptions individually. So just analyzing the bridge by itself kind of gives you an incomplete picture. And b, mostly applications are already using compute and data services as far back as 2019, which means they've already onboarded. Those are trust assumptions. So you'd actually need to know what default trust assumptions does a particular application already have from the other services it's using before? You would then determine how trust minimized is this cross chain protocol you're about to add on to what they're already doing? And so mostly, let's say, interoperability teams, they only offer the bridging protocol as their only product. So when they write up analysis, they view every user as someone who has zero trust options. They figure out what sort of trust in their brain bridge now introduces to them, and then they view their bridge that they're offering as the only add on service that the user will ever be using from now until the end of time. So that's kind of like the powerful effect that chainlee has from kind of being this kind of combined, integrated platform. And the last point is also because chain link is sort of like economies of scale, is that because Chainlink validators are offering all these other types of services, they actually don't need to charge as much money for each individual service because they have multiple streams of revenue. So if you're a building some kind of infrastructure protocol, and you only offer randomness, or you only offer proof of reserves, or you only offer the bridge, you sort of have to charge more money because that's the only thing you can offer, right? But if I'm a validator and I can offer this kind of integrated complete package where I get some money on this service, some money on this service, on this service, I don't need to quite charge quite as much on any one service. So you kind of put all that together, you kind of get this great value prop of having lower trust minimization, economist scale, and network effects.

Speaker A: I think just to add on to that, setting this into context, what would an application that would require multiple services look like? I think tying this to tokenized real world assets. First, institutions need to be able to connect to all the hundreds of different blockchains that exist, and they can use chain like CCIP as an abstraction layer, a single integration point to connect to all these chains, but then they need to be able to inject those real world assets with external data. So that's a whole other set of services that Chainlink natively provides where you can inject it with proof reserves, identity data, pricing and Nav to keep that asset updated so institutions can actually interact with it and becomes a useful, updated real world asset. Then those institutions need to be able to move across chain between different environments so they can buy and sell real world assets between counterparties who aren't in their permission blockchain, or they can interact with public chains as a neutral meeting ground. So then that's something that chain, like CCIP, also offers. But when you move tokens cross chain, you need to make sure that those assets continue to get updated with the real world data that it requires to stay updated and relevant. So you really need a platform that offers both cross chain and data at the same time so that your asset doesn't get bridged to a chain, it loses all its context, and the golden record on chain gets broken. So you really need a platform that offers both. And Chainlink is basically the only platform that offers both of those solutions securely at the same time, so that you can use real world assets in a very useful manner, both cross chain and updated so that users know exactly what the token that they're touching actually is. So that's like one tangible example of how you would compose these different services together.

Speaker B: I think the explanation that fishy just went through and the way that you finish it off chain of God just really rhymes well with why kind of Ryan and I aren't poly layer one enthusiasts. Whereas just like there's every single new layer, one just adds in another risk dependency, especially when there's a bunch of bridges and you bridge your ETH to Solana, and then you bridge your Solana eth to avalanche, and all of a sudden you have three chain dependencies and that we've only talked about three chains. The whole idea of putting composability inside of this one single system, I think, has a lot of just the network effect benefits that I see when we articulate kind of why we think that one chain will rule them all, is kind of like the same articulation for what you guys are saying. Well, don't unbundle Chainlink into 17 different services. Put it all together, because it's all the network effects, and efficiency is just better if we put everything under one roof. I definitely resonate with that reasoning.

Speaker C: And then also what I also point out, too, is that Chainlink is able to offer value and generate value and capture fees at all these different parts of the modular tech stack. By acting as a layer zero, it can offer certain things at the layer one, at the layer two, but another thing that's also unique to chain link, unlike other things, is that chain link is also able to capture fees in the private chain ecosystem as well, too. So I know it's kind of like a taboo subject, but I mean, obviously, as we're trying to kind of like work, as we're trying to see kind of Sergey's vision of this kind of Internet contracts materialize, it's going to require kind of incremental stepping stones before that happens, you know. And so right now, the first step for many enterprises on their ends is beginning with their own private chains. And there's also lots of regulations that are still in place that are restricting these enterprises from being able to dabble, maybe as much as they even like to in the bloody gene ecosystems. One of the things that recently at Smart Con too, they had represented from Euro clear, which is the big european, a settlement clearinghouse for Europe. And he was actually mentioning that they have such restrictive regulations in Europe that they, as european based entities, as EU entities, they can't even share a ledger with non eu entities, okay? And so he was even making the point that you're going to have all these chains amongst the entities that they work with, that are sort of defined by geography, by asset class, by types of counterparties, until regulations are laxed a bit to make that more accommodating, they're going to be operating in this more restrictive ecosystem. And then Chainlink, CCIP is what acts as the connective tissue that connects their ecosystems to being interoperable with public chains. But in the meantime, though, going back to where can Chainlink offer value and capture fees? Chainlink actually has inroads to be able to offer not just CCIP, but also its other services to update the NaV with proof of reserves, price, data, chain functions to service this ecosystem of private chains until it's more integrated with the public chain ecosystem. What other protocol, which has a publicly traded liquid token can you buy right now that has potential for value capture in the private chain ecosystem? I can't think of any for right now other than link. I just want to point out this other unique advantage the link token has in that it's able to capture revenue and offer utility to this isolated ecosystem for now, that no other project can really tap into it for the time being because of the restrictions that's imposed upon them.

Speaker A: Expanding on the point of the scope of fees, when you look at blockchain l one coins, you're basically betting on that specific blockchain ecosystem being the dominant blockchain ecosystem that will have all the useful applications people want. When you look at specific applications and their tokens, you're not only betting that that use case vertical will take off and users will want it, but that that application you chose will be the winner. Within that market, it's much more of a concentrated bet. But when you're kind of looking at link in the chainlink network, ChainLink offers services across data, compute and cross chain, and offers those services across any public chain and any private chain. And so any smart contract application across any use case vertical, any winner in that vertical on any public or private blockchain, more likely than not, is going to need a chainlink service, either directly because it's required for that use case, or would benefit from using a Chainlink service to be more efficient, more trust minimized, or just more accessible and interoperable. And so the scope of fees that can flow into the chainlink network is basically the most diversified across the whole ecosystem. So at the end of the day, link is effectively a bet on smart contracts as a concept or technology itself, because it doesn't matter. Is NFT gaming going to take off? Is it going to be defi on chain finance with permissions? Is it going to be social tech? It doesn't really matter because each one of those services that takes off is going to be using chain link services at its base layer. Chainlink's basically positioned itself and really focused on growing the ecosystem during its very early stages. Chainlink launched price feeds in 2019, and that price data being made available on chain is ultimately what allowed to defi summer to explode as large as it could, because those applications required price data to exist in the first place. So it's not only powering these existing use cases, but enabling entirely new markets and use cases to exist as well across any of these different verticals itself. So that scope of fee, I think people don't necessarily see or realize, because a lot of it happens in the background. As an end user, you may not necessarily realize you're using Chainlink, but in the payment pipeline, as a user, a portion of your fees is flowing to the Chainlink network and turning into the format of lync to pay those service providers. So at the end of the day, the scope of fee is like the broadest possible funnel that could exist across the ecosystem.

Speaker B: There's something in the link economics that I want to close the loop on. We've talked about all these different possible ways of being a validator, all the different Oracle services that they could provide. Then we also talked about the marketplace competition to being the best Oracle provider across a variety of different ways of measuring that. Say I'm a really good chain link operator, node operator, Oracle validator operator. I don't know what you call these things, but say I'm a really, really good one and people are paying me a ton of link in order to consume the data that I'm providing them. Why? And so, and so, therefore my yields or my revenue is strong, my yields are strong, but why does buying more link create more revenue for me? Like how does link actually turn into a capital asset? Does that question make sense?

Speaker A: Yeah, I mean, when you're like a node operator and you subscribe to a job, it may have some collateral requirement of like a thousand link or something. So you have that link locked up in that service. And if you want to expand your services and offer other jobs and capture other jobs, you may have to put up additional link to back those services. And ultimately it kind of comes down to as node operators compete and they stake more and more and they compete on this basis. You can fall behind if you're not meeting up your collateral requirements over time compared to other node operators. That's one dynamic in addition to performance. But that's a key attribute. If I want access to more jobs that want their own isolated collateral because they don't want to be slashed by some other service, or there may be some jobs that are okay taking staked link that's already put up for multiple services. If you want to be the most competitive, you need to be able to meet both of those types of jobs and ultimately meet the collateral requirements by the marketplace of users. You could stay a small node operator and not meet those requirements. That's your prerogative. If you choose to go down that route, it's not forced upon you. But if you want to compete with the other node operators, then ultimately you have to basically play the same economic game as everybody else.

Speaker B: Okay, so generally speaking, producing more economic activity through my node, again, generally speaking, requires more link collateral and more unrehypothecated link collateral is just better. And so there's a general loose connection between me providing more services to more people and the amount of link that I have staked inside of my system.

Speaker A: I would say like there can be a loose connection, but I think a lot of it could be like directly tied to it, where if I don't have the link to offer a particular service or get access to a job listing, I just fundamentally can't service that job itself. So my revenue would basically be capped at some kind of ceiling if I can't provide that service.

Speaker C: Because basically, let's say you take on like five, six jobs and all your clouds are already allocated to those jobs and now jobs number seven, 8910, come through the door, but now all your clouds already kind of like allocate to those other jobs. You would not lose out on the revenue that you could have captured additionally by servicing these additional jobs.

Speaker B: Understood. And this is the way that link actually becomes hooked into yield. And it's kind of like a market force forces mechanism, whereas ether, it's hooked into Ethereum's yield very directly. The protocol pays, the yield is objective, there's no subjectivity there. But with link in the system, it's kind of like, well, the market forces connect the link token to the yield that you get. The chainlink system does not provide link the yield, but it is meaningfully that way in a roundabout fashion derived by all the market influences that create the demand to stake more link when there's more fees generated by the system. Correct?

Speaker A: Yeah. And I think it's kind of down to the topography where Ethereum is this like unified protocol. Wherever I, you join the Ethereum network as a validator and you have this specific job you're supposed to perform and the protocol pays you, where Chainlink is more of a framework for building oracle networks and it provides the tools for people to define, hey, I want this amount of collateral, I need this amount of configuration for my job. And as applications secure more and more value over time, they're going to need more security over their oracle services. So they'll have to pay more in order to attract more collateral because people aren't going to put up collateral if they're not getting paid to, to put up that collateral in the first place, right?

Speaker B: Certainly. And I would assume that also due to market forces say Chainlink succeeds all of its wildest hopes and dreams. And the link price absolutely moons the magnitude of collateral that people would need to put up in link terms would naturally come down because the link token went up in price. And so it actually doesn't price anybody out. If the system is pricing link in dollars or just understands that as link goes up in value, the amount of collateral in link terms goes down.

Speaker A: Yeah, but there's a network effect where if the chainlink network is becoming more valuable, that usually means it's securing more value itself because it's becoming a more useful protocol. So it may not be directly tied, but as Chainlink securing more value and that improves the economics, then that ultimately means you probably will need more staked collateral to back those services in us dollar terms itself.

Speaker C: Yeah, I was also just a little bit more about the hot topic right now. Also into crypto is kind of like tokenization of the rwAs. And so I just wanted to talk a little bit about that too. And so Sergey, when he spoke with you, he explained that tokenization rwas is a very direct path of how the amount of capital within our industry and on chain can grow by orders of magnitude. Right. There's several good reasons why I think that's a very plausible scenario and why Chainlink is positioned to be the big catalyst for it. At their core, blockchains are asset ledgers. The most practical way to foster their adoption is to simply pursue use cases that highlight who owns what assets and facilitates the trading of those assets. Banks and investment managers like BlackRock, they obviously, they own more assets than anyone else. So it only makes sense to get the people who have the most assets to use the technology that's best used for keeping track of assets. It's a natural pairing then, if we also look internally within crypto at what found success in becoming the killer app for crypto, I think most would agree that stable coins are arguably cryptos most dominant killer app thus far. But what people sometimes tend to overlook about stable coins, again, speaking about centralized stable coins like USDC or tether, is that they are actually tokenized real world assets themselves, with the asset being the us dollar. Right. So it only makes a lot of sense to further iterate upon the vertical that's been the best demonstrated product to market fit within our industry. And then again, go back to the first point. It's the sheer size of what's available to become tokenized also kind of justifies it as being like a, you know, a market worth pursuing. There's lots of, you know, studies have been put forth by, you know, Northern Trust and HSBC that they predict that by year 2030, somewhere between five to 10% of global assets we tokenize. Even recently, you know, Blackrocks Larry Fink, I know a lot of people have been talking about him with regards to the bitcoin ETF, and I would not be surprised to see Ethereum ETF surely behind it. You know, he was also interviewed by Andrew Ross Sorkin, and he also, Larry Fink was saying that, but he believes the next generation of capital markets will be tokenizing security. So, you know, Larry Fink is also very bullish on this kind of tokenizing of rural assets. Right. And so another point to also make is, I know, on the, on among bank lists. I know, like one of like the big ethos you guys have is sort of like democratizing access to like, to investments and, you know, the financial system across the board. I listened to also like a webinar from a gentleman by the name of Richard Walker. He works at Baindez. And so he made the point actually, that over the past 20 years, the compound growth rate of assets in these kind of private markets, meaning that like the private debt market, private equity and global real estate in the private market has four times outperformed that of public assets. Right. And access to those private markets is kind of heavily restricted from sort of being accessible by a wider kind of range of people. And so if we were able to tokenize those assets to kind of make them more liquid, programmable, increase transparency, interoperability, reduce risk, worse cost, it was sort of democratize access to those asset classes, which I think is a net win for investors. And I know initially retail buyers would not have access to them at first, barring regulatory concerns. But I think over time I think those would also be made available. I think the eventual goal or vision that these institutions and banks have for these private market assets is that if you think about how easy it is for you to buy a share of Tesla stock on Robinhood or e trade, you can do that in a few minutes from your phone. Theres layers and layers of friction before a retail investor could get access into these better performing asset classes, the way they get access to publicly traded stocks through these brokerage accounts on these mobile apps, I think the goal is eventually to use tokenization to make those asset classes as accessible as these publicly traded equities are on mobile apps on these brokerage firms. I think that's the eventual vision they have for it.

Speaker A: Just to tie onto that, tying it back to Chainlink. A lot of what fishy is talking about is not theoretical. Please, please, institutions get interested in rwas. Chainlink has been working with an array of institutions to make this feasible. Where there was a recent collaboration between Chainlink, Swift and twelve plus of the largest financial institutions and market infrastructure providers on how do we bridge these public and private blockchains, connect them to institutions and move these real world assets between different environments. That was a collaboration earlier this summer and from that came other collaborations where Chainlink is working with the australian and New Zealand bank. They have like a trillion dollars assets under management and they're working on or ANZ is creating a tokenized asset marketplace. And what they are doing with Chainlink is allowing those RWAs that they're issuing or allowing to trade on that marketplace to move cross chain and cross currencies, swapping currencies in the process. And ultimately because of blockchains, it's cross border as well. Then basically scaling that out. And there was also announcement where the DTCC, which is a CSD settling 2 quadrillion, which Sergey mentioned on the last podcast, where they're working with Chainlink on basically bringing these capital markets on chains. This is not really a theoretical concept, but this is something that Chainlink is actually actively pushing towards. And I think one thing that when people look at the market opportunity rwas, they look at what's the size of this existing market, and if we tokenize it, that would be $10 trillion, and we could probably do this within ten years. But I think what people don't see is that tokenization is like securitization, where you create entirely new financial products. So what are the new types of financial products that are only possible because of the properties of tokenization itself? How large will those markets be? And how large will existing markets grow because of the efficiency offerings from tokenization itself? So I've seen various numbers of, like, if we bring this market on chain, it'll be massive. But I think even that underscoring the creation of entirely new markets that will fundamentally require something like CCIP, so institutions can connect to those chains and so they can move those assets between different blockchains and keep them updated at the same time. And, like, that's ultimately like, the end case of what on chain finance will ultimately look like, where it'll be a hybrid of both on chain executing code, as well as these off chain collateralized assets, or natively issued on chain assets, like tokenized bonds, to moving through the system using Chainlink price data, using Chainlink proof reserves, using identity data, like all these useful data inputs, is ultimately like the economy that we're trying to create. And a lot of that will end up settling on Ethereum itself as like this neutral meeting ground between different distrusting counterparties, where each counterparty has their own chain, but they want some settled ground to execute their contracts upon. So, like, this is a bold case for the whole industry. It's growing the pie for everybody, effectively, is really what, what Chainlink's trying to build towards.

Speaker B: Yeah, ultimately, all of these trillions of dollars that Sergey was talking about, the conduit is chain link and the settlement layer is ethereum, is, is the case for that I potentially see here, which, I mean, I like people buying as much ethereum block space as possible. Are there any sorts of, like, numbers that we can model out or scope out back of the napkin math, like, put some numbers onto paper here about just like, the magnitude of economic activity that potentially could flow through Chainlink. I know this is all super speculative. A lot of the markets aren't established yet. A lot of the partnerships aren't fully fledged yet. But are there any sort of numbers we can talk about when it comes to, like, dollars flowing through Chainlink, economic value created through Chainlink, is there any sort of numbers we can talk about?

Speaker C: Well, I mean, I think Sergey has said that he thinks that tokenizing rwas will ten x the amount of capital, like the dollar value. So in a Sergey sounds like he was saying at least $10 trillion worth of assets can come on chain. And then he also, in your podcast, he used the word quadrillions. But again, that's just the DTCC total selling volume. So again, like you're saying, it's hard to know exactly what's going to happen on chain, but it seems that I think we're talking at least, I don't know how many zeros that is, but tens of trillions, if not hundreds of trillions of dollars worth of capital eventually making its way on chain.

Speaker A: Yeah. And when you look at what are the institutions themselves saying, like, there was a BNY Mellon report that said, like, 97% of institutional investors agree that tokenization is going to revolutionize asset management itself. Like, basically, that whole asset management industry is looking towards tokenized assets, and that's hundreds of trillions of dollars sitting within Blackrock and these other asset managers. The WEF has a number of 867 trillion of traditional assets and markets that could be disrupted through tokenization itself. That's basically the global financial system here that we're talking about itself. Even Citi is saying for private markets and tokenization, that's likely to grow 80 times by 2030. So each of these institutions, they have their own projections based on what markets that they serve themselves. But unilaterally, you look at the existing markets, most likely those markets are going to be converted to an on chain format, or benefit from the transparency of smart contracts from specific processes happening, converting more and more of that on chain, even if it's not the whole financial product that occurs on chain itself. So you could basically look at the financial products itself, and you can come up with estimations like, how much is that market going to grow itself? And trying to estimate entirely new markets that we can't think of how much will that grow? Is trying to think of Internet use cases in the nineties where it's like thinking, how much can electronic mail scale the global economy? Well, like, email was like one primary use case, but obviously the use cases went way, way, way beyond that. To use cases, we couldn't even imagine. So, like, even trying to project it is a little bit difficult because we can't imagine all the possible use cases that could be on chain because there'll be entirely new products that are created. Because you have this non custodial, automated, transparent financial system where previously agreements that involve too much risk and trust couldn't be created, but now can be created. Plus, you have all the developing nations where they don't have a very robust legal system. So a lot of institutions can't operate in that environment because they have no system to fall back to. But if they can fall back to a blockchain that's automated, that's billions of people that we're talking about being introduced into a global financial system that previously they had no access to in the first place. Like, this isn't just like, can we make security settlement ten times faster and cheaper. It's also, can we just bring everybody else into the financial system itself? Which is ultimately what I think. And correct me, I'm wrong, it's ultimately the bankless vision of everybody should have access to financial services, no matter who you are.

Speaker C: And David, if you want to see how hard it is to predict, just ask no prize winner Paul Krugman about how hard it is to predict the economic impact of the Internet. Who said that the Internet will be no more impactful than the fax machine? It's like, I don't want to be the Paul Krugman or crypto, and to throw out a. A number, that's not going to be realistic, but I'll go on record. I personally think that tokenization of RWAs will end up being by dollar value, obviously the biggest use case in crypto, by just the sheer fact of two things. Blockchains are asset ledgers, and there's just tons and tons of off chain assets that are just ready to be tokenized. They just generate a whole, a slew of benefits for the efficiency of capital markets in general. So just by the sheer size of how much there is to sort of tokenize, and given the fact that blockchains are best used for keeping track of who owns what stuff and facilitating the swapping in that stuff, you kind of pair those together. I think tokenization Rwas will be the biggest use case that will ever see crypto.

Speaker B: I will say that maybe if I, I definitely see that maybe to try to attempt to articulate my bull case for Chainlink is that there's already assets out there, there's already securitization out there. There's already some trillion dollars of assets that are already securitized, which is trad word for tokenized. And all of that can eventually, through Chainlink, make its way on chain fishy. I like the way that you set that up. Uh, blockchains or asset ledgers, we already have the assets out in trad world, and with Chainlink, those can become tokenized on a blockchain because, and then they get imbued with all of the powers that a blockchain brings to the table. And that's like the bear case, because that doesn't include all of the net new economic activity that we can't even imagine yet. So merely exactly tokenizing what already exists in trad world is like the bear case for Chainlink is if I'm putting on my bullcase cap, how's that for an articulation?

Speaker A: Yeah, it's pretty good. That's how they can put it.

Speaker B: Okay, guys, so say I'm a link bull. What catalyst, what short term catalysts would I be looking forward to? Like what's on the horizon over the next, like six months to two years? What would I be looking towards?

Speaker A: I mean, right now, if we look at what Chainlink's doing right now, it's basically making three big bets. Right now you have CCIP for crosse chain interoperability, and that's both defi interoperability, so synthetix and Aave using it, as well as the tradfi interoperability and all the rwas that we talked about. There's another big bet on functions, which is a self service oracle platform for running JavaScript off chain, so you can connect to any API, run computations, any arbitrary computation, and put the results on chain. And then there's data with data streams, which is a pole based low latency oracle, which is very, very useful for Defi perps, which I think are still very small compared to what they could be. I think all perp trading will eventually happen on these exchanges, and that provides the price data to prevent front running and to have these low latency settlement of trades. Those are the three things of basically scaling those three components. And then I think over time, it's hard to tell the timelines with institutions because it's really regulatory dependent and it'll be different environments thank God the US isn't the only environment looking towards tokenization kind of far behind. But I think we're going to increasingly move from tokenization or these POC experiments that institutions want but haven't scaled up to actually seeing main net production use cases of tokenized assets flowing onto blockchains and interacting with defi itself, made possible by CCIP. I think that like we kind of touched upon this, but I think that's like, that's really the bold case of seeing that come to life itself and the realization of this decentralized computing marketplace where ultimately it's completely self service. Everybody can define their own oracle networks and define their collateral requirements within that environment. And just seeing how much the ecosystem can actually grow from that perspective of Chainlink providing all the platform services. Like, I'm, I agree with fishy that tokenized finance, you know, defi, institutional, defi, like whatever you call it, I like on chain finance, that's the ultimate use case in my mind for blockchain. I think, you know, maybe, maybe gaming will take off, maybe nfts, maybe social fi, those will be use cases. But I think it's actually finance that's going to move the needle everybody. You talk about blockchains and people ask what that means, and usually people give some technical explanation about trust minimization and freedom and whatnot. But really it's just like you'll have assets that are ten times cheaper to move, ten times faster to move, and you'll have access to ten times more assets and you won't even realize that you're using a blockchain. Because I think that's the end state. You won't know that you're using Chainlink and you won't know that you're using a blockchain. You'll just be interacting with on chain finance. In fact, you won't even know you're using on chain finance. It'll just be finance and it'll be all abstracted away into the background itself. And consumers will just have access to better financial products. Like that's the end state, I think will be increasingly realized over the next couple of years. It'll probably take a little while to actually scale to like the full hundreds of trillions of dollars in value itself. It'll probably start with private market equity, pre IPO stock like things that are traded literally OTC and over the phone today because they have no traditional structure for how those assets are defined. Those will probably be brought on chain first. Then we start to step into the tokenization of funds, mutual funds, money market funds, hedge funds, like those will start to be brought on chain afterwards. And so I think like, just seeing the scope of assets tokenized on chain will continue to increase over time. Like, we've been doing tokenized dollars since like 2014 with tether. And, you know, we've proven that there's real demand. It's like, what other assets can be tokenized? What other assets can we create? I'm really excited to see these financial markets being brought on chain. And I think that's the ultimate bowl case to look forward here.

Speaker C: And also want to add one more point. I know here in crypto, we've always struggled with regulation and what's the regulatory clarity and why are they doing this and what's going with that bill? And we hate the hostile language in the bills at times. But if I was a betting man and I was trying to figure out, ok, who has the power to change regulations to sort of make this happen, right, I would put my money on the institutions with all the assets and all the money. They have the means to lobby politicians, the lobbyists, they have the contact to move stuff forward and they have, you know, the interest, the financial interest to make that happen. So like, I know, I don't mean to be kind of like, you know, a cynic and, you know, of our, you know, democratic system, but ultimately, at the end of the day, the, the defi team of five anonymous devs sitting in a free discord server is not going to move the needle compared to Blackrock and all the other institutions going to Washington saying, hey, we have all these assets, we want to tokenize. It has all these capital market improving efficiencies that we can generate, we can democratize access. All these benefits make something happen, I think they are much more likely to get something done as opposed to the stuff on the defi that's still kind of, unfortunately, again, I'm saying it's justified, but unfortunately it's kind of seen as this kind of like a parallel niche kind of system. And, you know, we have the Elizabeth Warren's the world that are constantly just kind of demonizing crypto and all those things too. And so, you know, like I said, I think that when it's these large institutions that need laws pass or rules change for their own self benefit, they are the ones that will make it happen.

Speaker B: Well, guys, I think we can leave it there. I feel sufficiently educated on to what Chainlink is trying to do and how link fits into this. If someone listening to this, some member of the bankless nation is interested in becoming further link build where they go. Where would be the top of the rabbit hole that we can show them?

Speaker A: So I don't mean to show my own podcast. On your podcast. It feels kind of fine.

Speaker B: No. Well, within reason.

Speaker A: Okay. Yeah, I have the CLG podcast. I did a podcast with Sergey a little bit earlier this year and also put out a recent one. I think that's one resource that people like to listen to things. If you're listening to this, you probably like to listen to podcasts, so I would recommend that. And as well as the Chainlink blog itself is, like, the deepest dive not only to chain link, but just like, general industry, crypto industry, technology concepts itself, all the way from, like, very top of funnel. What's an oracle? What's a blockchain? All the way down to, like, how does Chainlink enable the tokenization of finance itself? Like, I think that's a very good, definitive resource if you're looking to get the deep dive information on not just chainlink, but our industry itself.

Speaker B: And where can guests find you guys on twitter?

Speaker A: You can find me chandling God on twitter. You'll probably see me talking about chainlink or Defi or just battling the misinformation.

Speaker C: Yeah. And I'm right alongside him there on twitter. As fishy catfish on twitter. Shoot me a Dm. I'm always happy to answer questions about Chainlink or talk about whatever. Just find me. And I love chatting with people.

Speaker B: Well, guys, thank you for coming on the show today and helping me articulate the bull case for Link. It has been a long time coming, but now that, like, I. At the beginning, now that we did the. The show with Sergey about chainlink, I felt like it was only time to do the other half of that conversation with this episode for Link. So thank you for coming on and help me. Helping me articulate that story. Bankless nation, you guys know the deal. Risks and disclaimers. Crypto is risky. Chain links risky. Link is risky. Tokens are risky. You can lose what you put in. But we are headed west. This is the frontier. It's not for everyone. But we are glad you are with us on the bankless journey. Thanks a lot. That.