What is the Chainlink protocol?

Chainlink is a decentralized oracle network, meaning it’s a protocol that helps blockchain smart contracts (code that executes automatically once a certain condition is satisfied) verify data inputs and outputs. Blockchains do not inherently allow for a connection with ‘real-world’ data, so Chainlink helps smart contracts do so in a secure way. Chainlink extends the functionality of blockchains by connecting smart contracts to real-world data, events, payments, and more in a highly tamper-resistant and reliable manner.

Smart contracts rely on data points to trigger certain automated events, and this process can introduce a vulnerability where a single input/output that is not subject to the same consensus protections as the blockchain must be relied upon at the most crucial juncture of the contractual relationship. What differentiates Chainlink from other oracle solutions is that it operates as a fully decentralized network to remediate the single source vulnerability identified above.

Chainlink collects data by having a group of decentralized (but hand-picked) nodes to help smart contracts verify the legitimacy of data that comes from an external source. The data sourcing work often happens outside of a blockchain—like a thermometer that takes temperature, for instance—while the validation work occurs on the blockchain.

What is LINK?

Chainlink node operators are rewarded for their efforts in LINK, an ERC-677 token built on top of the Ethereum blockchain network. ERC-677 tokens inherit functionality from ERC-20 tokens while also allowing for the transfer of data. LINK is used to reward node operators for retrieving data for smart contracts. In order for a smart contract to use a Chainlink node, it will need to pay its chosen Chainlink Node Operator using LINK tokens.

As of May 2021, around 43% of LINK’s maximum supply of 1 billion is in circulation. In 2017, Chainlink sold 35% of minted LINK in an ICO to help fund development. Another 35% of minted tokens were earmarked for distribution to node operators that do the verification work, and 30% is held by the Chainlink core team to pay operations and development expenses.

Put simply, the LINK token is how Chainlink platform participants pay for its services. Conversely, node operators must deposit LINK to demonstrate their commitment to the network and incentivize good service.

Risk statement

Before trading any crypto assets it is important to understand the risks. This overview is a starting point for you to perform your own research prior to investing in a crypto asset.

No securities regulatory authority or regulator in Canada has evaluated or endorsed the Crypto Contracts or any of the crypto assets made available through the platform. 

Wealthsimple has performed an assessment of whether LINK can be supported by Wealthsimple’s platform, including whether LINK is a security and/or a derivative and is being offered in compliance with securities and derivatives laws.

We evaluated LINK based on publicly available information, including (but not limited to):

• The creation, governance, usage and design of Chainlink, including the source code, security and roadmap for growth in the developer community and, if applicable, the background of the developer(s) that first created Chainlink;
• The supply, demand, maturity, utility and liquidity of LINK;
• Material technical risks associated with LINK, including any code defects, security breaches and other threats concerning LINK and its supporting blockchain (such as the susceptibility to hacking and impact of forking), or the practices and protocols that apply to them;
• Legal and regulatory risks associated with Chainlink, including any pending, potential, or prior civil, regulatory, criminal, or enforcement action relating to the issuance, distribution, or use of LINK; and
• Statements made by regulators or securities regulatory authorities in Canada and other jurisdictions regarding whether LINK, or generally about whether the type of crypto asset, is a security and/or a derivative.

Wealthsimple monitors ongoing developments related to crypto assets available on its platform for significant changes that may affect Wealthsimple’s original assessment of those assets, including Wealthsimple’s assessment of the application of securities and derivatives laws. Any significant changes relating to LINK may result in changes to this Crypto Asset Statement and/or Wealthsimple’s ability to support LINK.

Like all other crypto assets, there are some general risks to investing in LINK. These include short history risk, volatility risk, liquidity risk, demand risk, forking risk, cryptography risk, regulatory risk, concentration risk, electronic trading risk and cyber security risk. Please review the Wealthsimple Crypto Product Risk Disclosure for additional discussion of general risks associated with the crypto assets made available through the platform.

We emphasize that this Crypto Asset Statement is not exhaustive of all risks associated with trading LINK. Investors should perform their own assessment to determine the appropriate level of risk for their personal circumstances.

Wealthsimple is offering Crypto Contracts in reliance on a prospectus exemption contained in the exemptive relief decision Re Wealthsimple Investments Inc. dated December 18, 2023 (the Decision). 

The statutory rights of action for damages and rescission in section 130.1 of the Securities Act (Ontario), and, if applicable, similar statutory rights under securities legislation of other jurisdictions of Canada, do not apply in respect of this Crypto Asset Statement to the extent a Crypto Contract is distributed under the prospectus relief in the Decision.

 

Last updated: January 1, 2024