Since September, Chainlink (LINK) has shown considerable price gains, outperforming major cryptocurrencies such as Bitcoin (BTC) and Ethereum (ETH). Being the leading decentralized blockchain oracle solution, Chainlink currently holds the 15th position in terms of market capitalization, excluding stablecoins. However, despite its recent success, there are concerns about the project’s future and the possibility of a downward price correction.
Market Correction and Support Level
In October, Chainlink experienced a 10% correction, leading to concerns among investors. The breaking of the $7.20 support level is seen as a potential trigger for further downward pressure, which could potentially wipe out all the gains made in the previous month. Although the price reached a high of $8.21 at the end of September, it is important to note that Chainlink’s price still remains significantly below its all-time high in May 2021, with an 86% decrease. Additionally, compared to Ether (ETH), Chainlink has shown minimal growth over the past 12 months, with Ether gaining 21.5% in the same period.
Chainlink’s bullish run started when SWIFT, a global leader in messaging for international financial transactions, released a report titled “Connecting Blockchains: Overcoming Fragmentation in Tokenized Assets.” In the report, SWIFT suggested that linking existing systems to blockchains is a more feasible approach than unifying different central bank digital currencies (CBDC). SWIFT tested Chainlink’s Cross-Chain Interoperability Protocol (CCIP) and reported its ability to provide a single access point to multiple networks, reducing operational costs and challenges for institutions supporting tokenized assets.
The successful testing of Chainlink’s CCIP solution by the Australia and New Zealand Banking Group (ANZ), using their Australian dollar stablecoin, further contributed to the surge in Chainlink’s value. ANZ described the transaction as a significant milestone that highlighted the potential value of tokenizing real-world assets, which could revolutionize the banking industry.
On September 21, Chainlink announced the mainnet launch of its CCIP protocol on the Ethereum layer-2 protocol Arbitrum One. This launch aims to drive cross-chain decentralized application development, providing access to Arbitrum’s scalable and cost-effective solution. Notably, StarkWare, another Ethereum scaling technology firm, has previously utilized Chainlink’s oracle services.
Despite the positive developments, concerns were raised when a user on X social network accused Chainlink of reducing the number of approvals required on its multi-signature wallet without proper communication. This change, which was viewed as a security measure, raised questions about the possibility of compromising the entire decentralized finance (DeFi) ecosystem if Chainlink’s signers were to act maliciously. Chainlink downplayed these concerns, stating that the update was part of a regular rotation process for the signers.
Additionally, Chainlink’s revenue generated by its price feeds, a significant metric for the protocol, has been declining over the past four months when measured in LINK terms. In September alone, Chainlink price feeds generated 142,216 LINK in fees, representing a 57% drop compared to May. While a portion of this decrease can be attributed to Ethereum’s decline in total value locked (TVL), there are still concerns about Chainlink’s revenue sustainability and its ability to maintain its revenue model in the long term.
Comparing Chainlink to other projects in the decentralized finance space, such as Uniswap, raises further questions about its market position. Despite having a higher market capitalization than Uniswap, Chainlink’s revenue and total value locked (TVL) fall short. Uniswap, with market capitalization of $2.38 billion, has $3 billion TVL and generated $22.8 million in fees in September alone, according to DefiLlama. These comparisons lead investors to question whether Chainlink can sustain its market capitalization of $4.1 billion and maintain its $7.20 support level.
While Chainlink has shown impressive performance in the recent months, there are valid concerns and potential challenges it may face in the future. The price correction, declining revenue, and comparisons with other projects raise doubts about the sustainability of Chainlink’s market capitalization and its ability to maintain its support level. It remains to be seen how Chainlink will address these concerns and navigate the ever-evolving blockchain oracle market.