Chainlink / DCRM  What Does It Mean For DeFi


2 years ago

Most Defi applications require real-time data from off-chain sources to operate swiftly, which Chainlink can act as a bridge between smart contracts and off-chain data feeds. The integration of Chainlink nodes within the Fusion stack will enable Chainlink node operators to provide oracle services for connecting DCRM transactions to off-chain APIs. Oracles are software that acts as intermediaries that translate data from the real world to smart contracts and vice versa.

Through the combined Chainlink/DCRM cross-asset solution, any blockchain can leverage a plug-and-play Chainlink/DCRM node to facilitate the transfer and exchange or digital assets from external blockchains. This solution provides the ultimate interoperable and easy-to-use plugin that the Defi space currently lacks and desperately needs.

Benefits of the Integration

The decentralized trifecta of interoperable cross-chain asset exchange, data validation via decentralized oracles, and decentralized asset custody provides the complete solution for Defi and also the future of traditional finance. Chainlink’s price reference data is invaluable for powering decentralized value exchange by providing accurate real-time pricing data to trigger swaps, monitor collateralization ratios, and more. This feature will become even more valuable when paired with Fusion’s innovative time-value monetization channels.

Beyond the price reference data, the oracles also allow other off-chain information to be assimilated into transactions. For instance, they can retrieve information regarding transaction finality on external blockchains which is essential to DCRM protocol. This information triggers any lock-in and lock-out operations from DCRM, which are two simple and secure processes for depositing external tokens into and withdrawing tokens from the Fusion blockchain respectively.

Oracles can also confirm data from the API endpoint that enables the creation of custodial accounts in a decentralized fashion to support assets from any blockchain that utilize ECDSA and EDDSA encryption.

Tokenization of Securitized Loans

Chainlink integration can unleash many possibilities of smart contracts with lots of compelling use cases. The institutional and retail lending industry will benefit from asset tokenization, which can drive mass adoption in crypto assets. From helping underbanked people get access to more affordable financing, to providing investors with alternative high-yield opportunities, the benefits of Defi are unprecedented.

For example, Fusion aims to securitize hundreds of millions of high-quality automobile loans and utilize Fusion’s time-locked smart contracts to automate loan payout activities. Chainlink’s decentralized oracles will be crucial in three areas within the framework.

First, they issue debt tokens from investor deposits. While lenders can supply collateral in the form of cryptocurrencies, some will supply fiat collateral. Those oracles will then need to track off-chain bank deposits and instruct smart contracts to issue an equivalent value of debt tokens to the investors.

Second, they monitor cash payments from borrowers. Car buyers can pay their loans via fiat payment rails, especially in the beginning stages of adoption. Smart contracts will leverage those decentralized oracles to detect off-chain bank payments and trigger investor payouts or mark a specific loan as delinquent in case of missed payments.

Third, they calculate and distribute payments to investors. Some investors are interested in floating-rate payments to offset what is known as “interest rate risk”. For instance, if a central bank raises interest rates, those investors would like to capitalize on the increasing interests. The most common approach is to peg the payment to a floating rate set by banks, such as the infamous Libor rate. Smart contracts would need to access this off-chain data via Chainlink oracles and recalculate payments accordingly.  

Oracles can monitor real-world off-chain payments and finance rates to empower smart contracts for the distribution of on-chain debts.

Dapps for Decentralized Custody

Chainlink oracles can also push data produced on Fusion to other blockchains, forming two-way channels that allow external blockchain ecosystems to benefit from any information gathered on the Fusion network.

Fusion’s ground-breaking DCRM Alliance pilot is a decentralized, non-custodial, and interoperable custody solution operated by different entities across the globe. One of the aims of the DCRM pilot is to become the de-facto decentralized escrow solution for the whole Defi ecosystem which can hold any digital assets, such as BTC, ETH, ERC-20 tokens, and more. Dapps on any external chain can leverage the decentralized escrow service to lower their barrier to adoption and manage payments or exchanges in major cryptocurrencies or stablecoins.

Say a lending Dapp on external chain “C” wants to accept BTC as collateral and issue a wrapped version of BTC on their native chain to power native use cases. The Dapp can utilize Fusion’s DCRM non-custodial solution to manage BTC between the two disparate environments.

Chainlink’s decentralized network of oracles monitors and publishes BTC deposit activity to the Dapp, which triggers actions on Chain C such as issuing or invalidating wrapped BTC, as well as liquidating BTC holdings when the collateralization ratio falls below a pre-agreed rate.

By integrating with the Chainlink network, the entire Fusion ecosystem gets secure and reliable access to a variety of web 2.0 data and off-chain resources with minimal delay. By expanding the DCRM technology using Chainlink for providing data to and from the Fusion ecosystem, it benefits existing users while simultaneously onboards new users as the technology is made available to more markets.