I’ve been called off the bench to give my two cents about Chainlink (CCC:LINK-USD), the cryptocurrency, not the fence material you use to keep your dogs from straying off your property.
Chainlink’s current market capitalization is $10.8 billion. That makes it the 14th-largest cryptocurrency in the world.
So, why should I care about this particular cryptocurrency? But, more importantly, why should I spend my hard-earned dollars on Chainlink?
I’ll consider both questions.
Why Should I Care About Chainlink?
Seeing as I’ve never written about Chainlink, or even heard of it for that matter, I better educate myself tout de suite.
InvestorPlace’s Thomas Niel recently discussed seven cryptocurrencies that could derail Ethereum’s (CCC:ETH-USD) dominance in DeFi (decentralized finance). So naturally, anything about DeFi immediately captures my attention.
Niel’s take is that Chainlink’s part to play in developing DeFi smart contract technology could be a tailwind for its LINK token. Then again, it might not. Like everything crypto, there are always two sides to the coin (pun intended).
My next step is to go right to the source. That’s the Chainlink website. That’s where I find all kinds of information about what it can do for the future of smart contracts. But, unfortunately, most of it goes through one ear and out the other.
You know what they say, “Garbage in, garbage out.” However, I did read one section that actually would make sense to a layperson.
Chainlink greatly expands the capabilities of smart contracts by enabling access to real-world data and off-chain computation while maintaining the security and reliability guarantees inherent to blockchain technology.
Celsius Network, one of the largest crypto lenders anywhere, worked with Chainlink to help it maintain its decentralized financial services. Celsius’s services include paying interest on crypto deposits while also lending out crypto and U.S. dollars based on the crypto collateral provided by borrowers.
As Celsius likes to say, “Unbank Yourself.”
So, it’s clear that the smart contract audit trail created for Celsius’s lending operations will go a long way to creating trust with customers. As the ad says, that’s priceless.
That’s why I should care.
Why Should I Buy?
That’s the million-dollar question.
InvestorPlace contributor David Moadel discussed Chainlink’s potential to disrupt traditional finance in an article in late May. In it, he separates the technology Chainlink offers from the token itself.
He points out that Chainlink co-founder Sergey Nazarov believes the DeFi ecosystem could be worth $1 trillion by the end of 2022, up from estimates between $58 billion and $80 billion today.
That’s some serious growth. Should LINK benefit from that growth, it’s easy to see why its current price of $21 might seem cheap to its supporters. However, it’s not a certainty that it will. That’s because Chainlink has competition.
In November 2020, API3 (CCC:API3-USD) raised $3 million in seed funding so that it can develop open-source software to lower the cost of oracle data, and in the process, become a major thorn in Chainlink’s side.
Decrypt contributor Alexander Behrens stated the following in a Nov. 13, 2020, article:
The funding round shows that, despite Chainlink’s dominance, the oracle problem is far from solved, and that there’s still plenty of debate over the best way to bring real-world data into decentralized applications.
According to CoinMarketCap.com, API3’s token has a current market cap of $40.98 million and a fully-diluted market cap of $295.8 million based on the maximum supply being in circulation. That’s still a fraction of Chainlink’s market cap.
So, the question becomes a matter of valuation.
Is Chainlink a better buy because it’s the undisputed leader in oracles? Or is API3 worth exploring because it’s trying to correct what’s not working with oracle data.
It’s a subject worth exploring another day.
In the Meantime
From what I can tell, Page 1 of the API3 whitepaper indicates that the token holders who stake their tokens will receive a portion of the dAPI (decentralized application programming interface) revenue, inflationary staking rewards, and potential additional benefits in the future.
While I’m still trying to understand cryptocurrencies, I’m assuming that Chainlink’s compensation is not all that different from API3. As such, I assume stakeholders receive a portion of Chainlink’s future revenue.
Although I find both organizations’ missions interesting, I’m still having a hard time evaluating the future revenue generation possibilities. Not because I don’t think there’s any potential. I do.
I can’t quantify it. At 14th spot, Chainlink doesn’t make the cut. The same goes for API3.
That could change. When it does. You’ll be the first to know.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.