📺 SotN #45: Chainlink 2.0 with Chainlink God

bankless nation welcome to another episode of state of the nation we've got crypto prices up we've got a lot going on in the crypto and d5 and ethereum space and we've got chain link god on the podcast today this is the episode that we live stream generally on youtube it also comes out on the podcast we dive into one particular topic that has made the headlines recently today the topic is chain link 2.0 and david i don't know about you man but like i really want to

understand uh chain link and i want to understand link the asset it is being used by many d5 protocols if not most d5 protocols and i think we're going to dig into that with chain link god i didn't ask you how you're doing though how are you doing david i'm doing just a fantastic casually launched a dow today but that's a conversation for a different start uh state of the nation uh today like we said like you said we're all talking all about uh chain link uh and uh and this is actually the first uh piece of

content about chain link that we've put out on the bankless podcast and bankless youtube uh so that's that's pretty exciting and we have a chain-link god himself uh the unofficial i would say crypto twitter face of channeling to come and uh tell us all about chain link 2.0 and how chainlink 2.0 can improve upon oracle's in ethereum this is going to be an awesome episode guys so stay tuned as well before we get into it david we got to talk about what's new in the bank list ecosystem the first is an announcement that you just alluded

to an announcement that we made on the bank list uh website on the bankless newsletter and that is bank list the community is officially launching a dow david i remember when i started the newsletter and you and i both started the podcast uh we realized very early that we had a like quite an incredible mission right like trying to bring trying to educate the masses on crypto trying to bring a billion people into the ecosystem and uh become bankless uh

empower them with self-sovereign money technology and from inception when we started this thing we knew that it needed to be bigger than just us and so we recruited kind of you know excellent people and bankless media media studio like lucas campbell and others but even that is not enough to accomplish this vision so the bankless community for a very long time has been talking about organizing itself coordinating in a dao and so we have an opportunity now to

figure out what that looks like so we are throwing our support behind a genesis team that has launched an initial distribution for a bankless dow and that dow is aligned with the bankless mission which is basically to onboard the world to bankless money systems like ethereum like bitcoin like defy we're going to play a role in that i hope that's really up to the bankless community to decide and now the dow members so we'll include some links

about that in the uh in the show notes including to a link to the newsletter that i mentioned where where we're kind of announcing our support for this thing but david it's a big day for the bankless community like i'm super excited that we are uh decentralizing ourselves we are essentially um giving the entire bankless community full permission to execute on this vision because bankless at the end of the day isn't just a media company it's not just a podcast not just the show that you listen to this is a worldwide movement

so the dow is an excellent opportunity for you to get involved yeah the best trick we ever pulled was uh by going through and talking to every single industry expert who's focusing on the power of tokens the power of internet scaled organizations and the the desire to create something new in and uncharted lands and in in this process i'm reminded of our podcast that we did with jesse walden who talked about the big tent mentality we uh podcast about chris burnisky and and also our podcast with

joel monegro and really getting down to the heart of people who are really paying attention to what it means to create digitally scaled internet scaled organizations because i i think i could speak for both of us when i when i said i have no desire of making some like large c-corp company like that's not what i want i don't want a bajillion employees under bankless llc i just want to be one part of a broader revolution which is what the bankless dow can facilitate uh and so if i i'm i

long live bankless dao yeah i'm super excited to see where they take it and uh once again guys there'll be some links in the show notes for you to get involved and see what's up with that david we also have to mention upshot today so this is super cool this is a perk for members of the bankless community as well i think of upshot as what they're trying to build is almost like the zillow of nfds so you know how zillow will evaluate homes and will come up with a zestimate like a price what's the value of your home they're trying to do that with the nfts and they are enabling

all bankless members who have a a badge token to to exclusive access to their beta right now for the next seven days or so before it goes public so this is me with a bankless badge in my account i'm signing in i get exclusive access no one else upshot beta no one else gets this except for the bankless community members uh and what can i do here i can start to appraise uh nfts uh that means like figure out and answer questions

about how valuable they are so here are some nfts on super rare and here i am i can answer questions about these nfts i can choose to skip which of these nfts is more valuable maybe i think it's this one maybe i think it's that one and the net of this david is it's like working for a protocol so as an nft appraiser you get paid by upshot to do this uh super cool tech here and uh we're excited to uh to to announce it's it's beta launch to the bankless community with upshot yeah the mechanism here is

like hot or not where you are presented with two nfts and you don't have to your job isn't to assign a dollar value your your job is to pick your favorite nft between the left and the right so it's actually really kind of like easy and you don't really have to think too hard about it i mean you do need to go and look at like token supply you go need to go look at the artists but it's really just like you know pick your favorite other two which one do you think is more valuable and as there's and this is kind of like a big data like movement right like all you have to do is input data

into the system uh and get you get rewarded for for doing so and so i think this is a really unique and uh genius way to get some sort of emergent behavior actually instantiated into you know ethereum and actually dictate what nfts are valuable more valuable than others guys another yet another way that you can work for a protocol today david i've got to ask you the question before we get to chain link god that i ask you at the start of every state of the nation and that is this what is the state of the nation this week my friend the state

of the nation you actually created this one ryan so tip of the half of you is coordinating the state of the nation is coordinating and like many good states of the nations it means more than one thing bankless dow is being coordinated under a new doubt and so that's cool chain link is this off-chain data coordination system for getting data onto ethereum and really all we are doing when we are talking about crypto economics talking about tokens is we are coordinating capital and labor in goals

and objectives uh and so today's state of the nation ryan is coordinating awesome that sounds awesome well we're really excited to get into this with chain link god but before we do so we want to thank the sponsors that made this episode possible bankless is proud to be supported by uniswap uniswap is a new paradigm in asset exchange infrastructure instead of a cumbersome order book system where trades are matched with other humans uniswap is an autonomous piece of software on ethereum which is what ryan and i call a money

robot no human counterparties or centralized intermediaries just autonomous code on ethereum input the token you want to sell and receive the token you want to buy something brand new in the uniswop ecosystem is the uniswap grants program is now accepting applications for grants we have been saying this for a while and we'll say it again dows have money and they are in need of labor if you think that you have something to contribute to the uniswap dow apply for a grant to uniswap just look at the size of the uniswap treasury it's almost 3 billion

this mountain of capital is looking for labor do you have something of value to contribute to the uniswap dal no matter how big or small your idea is you can apply for a uni grant at unigrants.org and help steer unit swap in the direction that you think it should go that's exactly what we did to get uniswop to be a sponsor for bankless and you can do the same for your project thank you uniswap for sponsoring bankless gemini is the world's most trusted cryptocurrency exchange i've been a customer of gemiini since i first got into crypto in 2017 and it's been my

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days after sign up you'll be gifted a free 15 bitcoin bonus check them out at gemini.com go bankless guys welcome back we've got chain link god here we are gonna talk about all things chain link including the recent chain link 2.0 news figure out what oracles are figure out why chain link is important talk a little bit about lengthy acid and i've got to admit i'm a little bit of an oracle noob in some respects i'm hoping chain link god could educate us as well if you don't know who

chain link god is are you even on twitter because he is everywhere particularly uh when it comes to the link community he is a voice for the link community and uh has a ton of excellent information about chain link how it works and is the perfect guest to explore this topic with us today chain link god how are you doing today i'm doing great thanks for having me on guys happy to share all the knowledge that i've accumulated about chain link over the time it is great and i think like uh for me personally i don't know

about you david but like pseudo-anonymous guests are some of my favorite to to talk to because you guys can say whatever you want right that's the beauty of it isn't it yeah absolutely that's the beauty of the internet as well you know what let's start with um actually defining the problem set here i want to like zoom all the way out chain link god and talk about um oracle's the role and the purpose of oracle's i know david alluded to the ability of chain link to bring off chain data back on chain

is that the purpose of oracle's tell us what why oracles are necessary important and useful for this industry absolutely so when you're looking at a blockchain blockchains are designed to generate a large amount of security consensus on like specific transaction types so transferring tokens that's what it's defining security around blockchains inherently can't connect to external data resources you know the price of ether or the weather in san

francisco or any other external resource that doesn't live on the blockchain already you need some kind of entity and oracle to deliver that data on chain so it could be actually consumed by the smart contracts within that environment so blockchain miners can't do that themselves because if there was if there wasn't consensus about the data the entire network would break and that's obviously not ideal so you want to have a separate oracle network that relays this data onto the blockchain and it's critical that you don't just use like a

centralized oracle some server in someone's basement somewhere because that entirely defeats the purpose of using a decentralized smart contract on a decentralized blockchain if a single entity can just corrupt the execution of that contract so what you really need is some type of framework for creating these decentralized oracle networks that fetch a specific data point maybe the price of bitcoin against ether aggregate it from many sources and then deliver a single data point on chain so that it

can actually be consumed so that's kind of like one example but really oracle's it's pretty much just connecting the on-chain world of contracts and connecting that to the off-chain messy world of non-determinism and all this messy data out there so you can really think of it as like the bridge between those two environments so let's keep going with some of these easier questions just to really set the the foundation here so uh chain link god uh uniswap has oracles why can't we just use unit swap

oracles for everything that's a good question so the primary obvious one is that uni swap specifically only gives you like token data prices of tokens it's not going to help you if you want to know like the price of like gold somewhere or the weather somewhere or the election results but specifically when you hone in on price feeds there's like four or five key issues of why you can't just use a uni swap time weighted average price and they're kind of nuanced but the first one in the primary one is that

a t-wap feed which kind of provides some context you can't just take the spot price from uni swap because it could easily be manipulated you need the time weighted average price to prevent that manipulation but when you take the time weighted price it be that data point becomes inaccurate during times of extreme volatility so really a t-wop is a lagging indicator that becomes out of sync with the market-wide price during periods of time when you need accurate data so it's like this inverse correlation that you really

don't want and so that kind of gets into the security of it where a t-wap you can only really increase security if you take a larger time sample but the larger time sample you take the more inaccurate it becomes so if you want to scale security you have to decrease accuracy if you want to increase accuracy you have to decrease security that inverse correlation is like the exact opposite of what you would want for a good price feed so with chain link it doesn't have that limitation because

it's not a t-wop it takes the volume weighted average price from all of the exchanges around the world all the decentralized ones all the centralized ones aggregates into a single value to get the current spot price and then delivers that on chain if you want to scale security you can add more nodes you can add more data sources you can add more collateral to it you don't have to trade off some accuracy for your security and so the third point that last one i'll hit on is market coverage when you take data from a single exchange you're getting like a tiny

sliver view of what the price of an asset is and that market can become illiquid over time it can be manipulated cheaper to attack the entire market-wide price so chain-link specifically with its price feeds is designed to generate a market-wide volume-weighted price that accurately reflects the state of reality about a specific asset price so t-waps and uni-swap it's okay if like a token just trades on uni swap and it just launched but once

it gets more liquid and trading more you're going to want to upgrade to a chain like feed to get that full coverage and actually scale your security so yeah there's definitely a lot of nuances there and why i heavily recommend a decentralized oracle network rather than on-chain t-bob right yeah so so that's really the nuanced conversation between on like on-chain data that ethereum does know but what you're saying that you know even though ethereum already knows it a chain-link oracle system could provide some competitive advantage versus what you could get naturally on chain and

that's one conversation and the other conversation is that uniswap like you said you alluded to unit swap doesn't know the weather or the temperature in argentina or it doesn't know the outcome of the presidential election of 2020. uh and so but why can't we just you know we everyone knows the outcome of the election in in 2020 or in the other or like the the outcome of a world series event why can't we just input that and data into into the chain why does it need to be this decentralized network pitch us on the decentralization side of things

so when you're looking at an oracle network what it's fundamentally doing is it's delivering the data a contract needs to execute and when that contract executes it's going to be moving a lot of value you know upwards of billions of dollars if you allow anyone to just input that data then they're just going to put data that favors them that doesn't actually represent the state of reality so if you want to actually generate a strong consensus you want to take the same approach that blockchains do about transactions but use that decentralization about data sources because otherwise you would be

relying on a single source of truth which means it's a single point of failure which that centralization is you know the anti-thesis of what we're trying to get after with smart contracts so decentralization the main goal is to increase the tamper resistance so we can create contracts that secure billions and eventually trillions of dollars that counterparties can't manipulate into their favor like they can today with centralized agreements so decentralized oracles is the way you get accurate information

about the world that can't be manipulated by any single entity or small group of entities daily god i'm wondering if you might agree with me on this so i often think that the world of public blockchains and crypto defines scalability in a very limited sense so often when people talk about um bitcoin scalability or ethereum scalability they're only talking about um scalability of of transactions per

second that is like trustless transactions per second um but there are so many other axes for scalability that are important if we want a truly decentralized permissionless money system and i just want to just paint this picture for uh listeners that i think what you're saying i would agree with you is that oracles are actually a scalability technology um for a couple of reasons like one they allow us to scale to real-world off-chain assets

which is incredible and maybe you could say more abstractly off-chain events which is even a larger aperture for us so like that's an element of scalability but their scalability is only as good as their level of trustlessness and decentralization right because it would be very easy for us to get some of this price feed data from a trusted provider say you know nasdaq or new york stock

exchange or something like that but that is again not scaling uh trustless price fees it's not scaling trustless on chain data and that is the true vector of scalability for this entire system do you agree with that and like can you talk about that anymore do you think that people understand that oracle's specifically trustless oracles are key in order to scale permissionless open money networks like ethereum yeah i would entirely agree people usually think of

like like you said scalabilities and doing more transactions but scalability also applies with how much value is being secured you know if you have a very low security oracle network and you keep increasing the value without scaling your oracle solution you know it that contract is going to end up being corrupted eventually anyways so what you really need is the ability to scale the crypto economic security of not just you know the network on which the contract operates but the oracle network which

delivers the data to that contract and if if you think of it as like a more broad abstract concept you can think of the combination of oracles and blockchains as scaling the amount of value that humans can create just in general so if we want to be able to take over the global economy into a better state where it's not controlled by any single entity we have to scale not just the transactions per second but also scale the amount of security that

we can actually provide to secure these contracts so that's kind of a large aspect of chain link is how do you scale security because as the value within contract rises you need to increase that scalability of security so chain link has various different mechanisms for increasing the node count for increasing the amount of data sources the amount of explicit stake or the amount of implicit incentives but generally you're scaling security that's like the primary goal of oracle's so let's get into the details of how

that is actually actually done uh chain link is a cryptoeconomic system and on bank list we like crypto economic systems that's generally how we scale trust minimization and therefore more value to further and further corners of the globe so uh chain link can you start us down the path of explaining how chain link is a cryptoeconomic system and how it uses crypto economics to secure data sure so with the crypto economics there's kind of two different paths you can take there's the implicit incentives

path which chainlink has today and then there's the explicit staking path which is kind of what was laid out in the white paper so with the implicit incentives aspect this is kind of a dynamic that i don't i'm not sure if people fully grasp the the power of where if you look at the network chain link nodes are being paid in and they hold link tokens and they have a strong financial incentive to uphold the value of those tokens to ensure that their financial holdings are not devalued and that their future cash

flows are not devalued either so it makes it so it's more profitable to be honest and continue providing uh real operational work to the network because you want to maintain the value of the tokens you are extremely financially exposed to so you can kind of look at this dynamic the same way as how bitcoin and ethereum does it where miners are paid in that native token both the subsidy and the fees paid by users and they want to maintain the value of their holdings and their cash flows in both the tokens they hold in

the asics and the miners that they hold and this applies just as much to chain link where nodes want to maintain the value of their link and maintain the ability to use their link to generate more link in the future and that gets into the explicit staking aspect where that's where you deliberately deposit your linked tokens to a service agreement and it gets slashed if you do something the service agreement says you weren't supposed to do if you deviated or you didn't respond that's a much more direct financial penalty to a specific node who is

specifically being malicious but the implicit incentives is kind of wrapping the whole network to be overall reliable and healthy because there's a financial incentive for everybody within that ecosystem to maintain the value of that token they hold and they will continue to get paid in because they want to continue these cash flows in their revenue chain link god i have a quick follow-up with for you about that implicit incentive so i see exactly what you're saying with uh the implicit incentive right so somebody's not going to uh cheat if they

are vested in the chain link ecosystem it hurts their bottom line it hurts their wallet um joey crew came on the podcast not sure maybe sometime over the summer from uh pantera he sort of opened my eyes up to to to this concept is basically i'm going to run this by you basically his argument was yeah well uh centralized organizations have the same implicit incentive not to cheat so let's say you are providing an oracle service to the blockchain and you to ethereum let's say and you

are espn for instance right your implicit incentive is to provide the right score to the chain or else what or else there's reputational risk there's cost to your shareholders so if you have any espn you know stock or equity and you know a new story comes out that you've been providing misleading data and trying to cheat the system stock price goes down future cash flows go down it's the same sort of implicit incentives i feel like you're talking about and these exist

in centralized oracle providers uh talk to me about that are aren't we just talking about something that just exists anyway whether it's decentralized or not at least on the implicit incentive side yeah that's a good question that's something i have considered in the past i think the key difference is like when you have a centralized corporation a centralized entity they have complete control over their own operation but when you have a decentralized network of hundreds to thousands of independent civil resistant entities the act of

corrupting the network requires an extreme amount of social coordination to actually pull that off so this implicit incentive it's kind of each node knows that it's in their best interest in everybody else's best interest to continue operating the network correctly so they can continue earning these cash flows and it's not a single entity who can make a single decision say yeah i'm going to be malicious and do this tomorrow but you need you would basically need to majority attack the network and that that honest majority assumption is the

same we see for bitcoin and ethereum and that's what secures those networks is that you have a decentralized network of civil resistant and independent entities so it's it has that social coordination friction that kind of prevents this from happening and that's derived from the uh the selfish implicit incentives that each individual node has themselves so it's it's a little bit different when you compare it to centralized entities who have complete control over their own operation and i want to be clear for listeners because i think we're going to come back to this when we talk about chain link

2.0 but the explicit staking incentive that you were talking about that's not here yet but that is coming in chain link 2.0 is that correct that's correct yeah very good all right we'll earmark that and come back to it later listeners so just doing a more again setting the foundations about what train link uh really is let's talk about all of the ecosystem players who are all of the let's talk about every single participant in the chain link network right so there are data consumers who people who are looking for price feeds or just oracle feeds there are oracle

providers people that are providing this information and staking link who else is involved with these systems and how do they all interoperate with each other yes you can kind of think of it as like a stack almost so what you have at the bottom is like the original data itself wherever that raw data may be you know if it's price data it's all these different thousands of different exchanges and on the layered top you have the data providers or more commonly data aggregators which are professional data aggregation firms whose entire

business model is around generating accurate and reliable data about a specific event a specific piece of data and you they basically like with price feeds they would provide market coverage but you can't just trust one data provider because single point of failure so you have a you have chain link nodes who are responsible for querying multiple data providers for a specific piece of data like etheusd aggregating that into a single value but you can't just use a single node that's a single point of failure so you need to have a

decentralized network where all of these nodes contribute their data into a single data point and that aggregation happens within that oracle network which is one entity then they deliver on chain which is then consumed by smart contract applications and developers like the ave the synthetics the dydx all these other financial applications even the nfts and whatnot so it's kind of like a supply chain from the raw data up into the refined data and then the consumers and then kind of all throughout this entire

stack you have the community of the each individual operator of each piece of infrastructure who is it's kind of like a well-oiled machine if one piece doesn't work the tech stack doesn't work so it's it's all kind of integrated with each other and sometimes data providers are the chain link nodes sometimes you have different ways that networks are set up where there is just a single data source because it's like a enterprise backend system so it's kind of like fluid with who these entities are but

you need all of them otherwise you don't have an oracle network of any use to anyone i see so that that was going to be sort of my my follow-up question because i think uh the the picture you're painting is very clear in my head about kind of this layered you know stack of different service providers my question is kind of like maybe you partially answered that um where does the chain link network start and where does it end off so obviously let's say at the bottom layer the the price providers the the exchanges they're not part of the chain link

network necessarily you also talked about this this aggregator layer of the stack i'm not sure if they're part of the chain link network but certainly the nodes on the network are that are providing the feed to the chain then you have consumers on the top that probably aren't part of the chain link network is it is it mainly the nodes or are sometimes the aggregators part of what you might call the the chain link network yeah that's a good question so by default every chain link node is a part of the chain like network that's kind of what it means to run a chain link node