Chainlink Is Building a Billion-Dollar Bridge to a Multi-Chain World

Chainlink Labs founder Sergey Nazarov today announced the blockchain oracle solution provider’s blueprint for the Cross-Chain Interoperability Protocol (CCIP), a "new global standard for decentralized inter-blockchain messaging, data and token movements." Alongside the protocol, Chainlink also announced the launch of a Programmable Token Bridge that makes use of CCIP, and its automated smart contract service, “Keepers.”

Chainlink (LINK) securely connects blockchains to real-world data, and has built out an enviable reputation for doing so. It’s known primarily for securely connecting blockchains to real-world data, such as price feeds, and is the dominant decentralized oracle provider within Ethereum's Decentralized Finance (DeFi) ecosystem. Over 300 projects have now integrated its oracle technology.

Speaking to Decrypt ahead of his keynote speech today, at the startup’s annual conference SmartCon, Nazarov explained how Chainlink was building out its smart contract tools, and decentralized oracle networks (DONs,) to solve a growing clamor within the crypto ecosystem for secure and reliable inter-chain solutions that could secure billions of dollars.

Chainlink’s "universe of capabilities" is expanding, said Nazarov. "It's basically doubling, or even tripling.”

A multi-billion dollar bridge

Chainlink used the publication of its second whitepaper last April to lay out an ambitious manifesto, and these plans are now coming to fruition.

Chainlink's CCIP won’t be launched for a few months yet, but the bridge project already has “billions of dollars soft-committed from some of our biggest users,” said Nazarov. (The projects involved will be announced during his SmartCon keynote.)

Chainlink proposes a universal connection between hundreds of blockchain networks, tapping into the unique assets or advantages of each.

“Just the same way that different applications on Ethereum use each other, now, different applications across different chains can use each other,” said Nazarov. For instance, a lending platform would benefit by being able to offer its users the best possible return across multiple different protocols.

Chainlink has produced a design “to avoid the security problems of existing bridges,” per Nazarov. And it’s one that has “already been evaluated by certain top teams in the industry, some of the largest protocols in the industry, and found to be secure; found to be acceptable for controlling and moving billions of dollars in value for them,” he said.

CCIP has already onboarded crypto lending and borrowing platform Celsius, with co-founder Alex Mashinsky stating in a release accompanying the announcement that the integration will "allow our community to capture more value across multiple blockchains."

A better class of node

Building bridges to create interoperability between the hundreds of blockchains that make up the crypto ecosystem is no easy task.

Many current bridges are application-specific, and link only two chains. Sometimes, their level of decentralization is in question, leading to concerns around security. High costs and long processing times are other factors that can adversely affect bridge infrastructure.

Cross-chain swap platform Thorchain was hit by three attacks in July, incurring $8 million in losses. The Cosmos-based protocol had to be paused, while the exploits were evaluated.

Similarly, in July, cross-chain bridge Chainswap suffered over $8 million in losses after two attacks targeted its Ethereum to Binance Smart Chain bridge.

Nazarov points to the small number of, often anonymous, nodes used to sign transactions by some of the exploited platforms.

“What we want is hundreds of high-quality signers that are made up of the best enterprises, the best crypto devops teams that already secure billions of dollars,” he said. “Just like Chainlink data networks have completely sidestepped all flash loan attacks," he added, the oracle provider has "completely sidestepped" exploits that have affected other oracle systems, "because of our fundamental secure systems design.”

At the root of Chainlink's bridge design are two new measures.

The first is increased decentralization, thanks to an upgrade to Chainlink’s Off-Chain Reporting, OCR 2.0. It overhauls the way Chainlink oracle nodes pull data, reduces costs and increases the number and quality of nodes validating the network.

Chainlink networks could now scale to hundreds of nodes “pretty efficiently,” said Nazarov, adding that the number of enterprises running its nodes was on the rise. A recent addition is T-Systems, which is behind mobile communications giant T-Mobile.

The cross-chain, anti-fraud police

The second development is the introduction of risk management, in the form of a feature called the “anti-fraud network,” or “anti-fraud DON.”

This network of nodes is completely separate, and does not control any funds. Instead, “it sits in parallel to the bridge. It monitors every single signature, every single movement to every single on-chain activity, and even certain off-chain activity, to decide if the bridge should continue to operate. So it basically does risk management,” explained Nazarov.

The anti-fraud DON can take actions such as slowing down transfers—or speeding them up, or temporarily locking the bridge, if something’s not right. Eventually, it could include artificial intelligence and even more advanced computing.

“This innovation is going to make it so that bridges can scale to secure billions and eventually trillions of dollars,” said Nazarov.

Eventually, Nazarov said bridges will become increasingly compute-enabled, thanks to OCR 2.0, off-chain computation and cross-chain messaging.

So, further down the line, they’ll be “smart bridges,” or agents, able to monitor events across chains and move tokens. One application would be cross-chain yield aggregators that automatically move user funds to the highest-earning protocols.

New applications opening up include protocols that go to one blockchain for scalable computation another for liquidity, and a third for the security needed for governance.

Not founders, “Keepers”

Chainlink’s second big announcement is the launch of “Keepers” on the Ethereum mainnet—a service designed to enable ever-smarter smart contracts that can automate increasingly complex instructions.

There are huge benefits in taking control of many functions away from the developers of an application, said Nazarov; it eliminates security issues, makes it more decentralized and thus more attractive to users. He highlighted an example where developers may seek to save on high gas prices by delaying transactions, even though it’s at peak demand that reliable services are most needed, whereas Keepers execute [transactions] “as expected .”

The definition of smart contracts continues to expand, both on-chain and in respect of the off-chain systems that they need to interact with, Nazarov said, adding that it “creates unlimited options.” Keepers is already being used by Aave, PoolTogether and Bancor, some of the biggest names in the DeFi industry, as well as other developers keen to build the next-generation hybrid smart contracts.

Functions that can be automated include executing limit orders, minting tokens when reserves increase, harvesting yield from vaults, and liquidating undercollateralized loans.

A universe of hybrid smart contracts and blockchain bridges

Chainlink’s growing collection of oracle nodes already secure around $30 billion for the smart contract ecosystem, and the startup is now ready to flex its muscles and expand its services into the wider arena of multiple blockchains and industries such as insurance.

It could potentially go much further. With Keepers, smart contract developers can build more advanced smart contract applications, and the CCIP means that the multitude of decentralized applications (dapps) being developed by the crypto industry may soon no longer be solely available on the chain for which they were built.

And the wider world of blockchains, including supply chain platforms, could link with decentralized insurance protocols. Some version of CCIP could even be adopted by central bank digital currencies (CBDCs) if they move onto a blockchain—although whether they would want to achieve that level of decentralization is an open question.

Nevertheless, said Nazarov, a collection of interoperating chains and off-chain systems is surely, as Nazarov said, “a very important and powerful thing.”