What is Chainlink?
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How Premia Uses Chainlink to Create On-Chain Options
Chainlink is a decentralized computing platform that enables smart contracts to securely connect to external data sources and systems, APIs, and off-chain computation.
By bridging the gap between on-chain and off-chain environments, Chainlink has successfully made smart contracts more useful for practical on-chain applications.
Chainlink is essential infrastructure that helps power part of users’ day-to-day interactions within DeFi. Even if you haven’t realized it, the protocols you use are most likely utilizing Chainlink!
What are Oracles?
Oracles are off-chain information sources that supply data and computation to blockchains.
They play a crucial role in enabling smart contracts to interact with the outside world, as blockchains by themselves aren’t able to access or verify external data.
Oracles are integral to the functioning of most DeFi platforms. They provide necessary data such as price information, which is crucial for the execution of smart contracts in lending, derivatives, and other on-chain financial protocols.
Even if you’re not directly aware of it, you’re probably using a Chainlink-powered protocol every day. Every time a user takes out a loan, trades derivatives, or engages in other financial activities on-chain, oracles provide the necessary data to help execute these transactions.
Chainlink Is Much More Than Price Feeds
Chainlink’s industry-leading decentralized computing platform offers a full suite of services for blockchain developers.
1. Data Streams: Chainlink Data Streams provide DeFi derivatives protocols with sub-second, tamper-proof data. These data streams aggregate data from a multitude of high-quality sources to ensure accuracy and reliability.
2. Price Feeds: Chainlink Price Feeds are used by various financial applications to access decentralized, high-quality market data for options pricing, synthetic assets, and other market-based applications.
3. Cross-Chain Interoperability Protocol (CCIP): Chainlink CCIP facilitates secure communication and value transfers between different blockchain networks, unlocking a new era of cross-chain applications.
4. Automation: Chainlink Automation automatically triggers smart contract functions in a secure, reliable, and decentralized manner, providing an alternative to centralized, black-box automation solutions.
5. Proof of Reserve: Chainlink Proof of Reserve enables the reliable and timely monitoring of the reserves underpinning cross-chain wrapped assets, off-chain real-world assets, and more.
6. Verifiable Random Function (VRF): Chainlink VRF provides provably random numbers to smart contracts, which is essential for applications like gaming, mystery boxes, and other use cases requiring fair randomness.
7. Functions: Chainlink Functions enables developers to easily access any API and perform trust-minimized computations on the data before delivering it to a smart contract.
Importance of Price Oracles in DeFi
Chainlink's decentralized computing platform is pivotal for supplying reliable price data to DeFi platforms, which helps ensure that smart contracts execute accurately and fairly based on verified real-world data.
In DeFi, the demand for reliable oracles is also expected to rise. Chainlink’s established network and continuous innovation position it well to meet this growing demand and contribute to the maturation of the DeFi ecosystem.
As an easy example, Premia Blue, a DeFi options exchange, is able to leverage Chainlink Price Feeds to help price options for any ERC-20 with a Price Feed.
How does Premia Blue utilize Chainlink's price feeds?
Chainlink's VRF function allows Premia Blue to provide verifiable randomness for the on-chain casino.
The price feeds provided by Chainlink allow Premia Blue to find optimal supply- and demand statistics for spot markets.
The Price Feeds provided by Chainlink allow Premia Blue to accurately price options for any ERC-20 with an oracle.