Chainlink versus Band Protocol: The Oracle ShowdownLincoln Murr
As the DeFi sector continues to grow at an unstoppable pace, oracle platforms are becoming increasingly important in ensuring access to reliable data. Recently, the two biggest projects in this space, Chainlink and Band Protocol, have been gaining lots of investor attention. How do these two oracle protocols compare to one another, and which one is superior?
What are oracles and why are they needed?
When Ethereum was created in 2015, its main selling point was that it allowed the creation of smart contracts. According to Investopedia, a smart contract is a “self-executing contract” whose terms of agreement are in lines of code. These contracts allow for transactions to take place without the need of a middleman, which makes them faster and cheaper than a traditional contract. For example, smart contracts could be set up to transfer the deed of a house from the seller to the buyer as soon as the buyer sends their money to the contract, creating an instant and frictionless transaction instead of a process that could take months of arbitration and expensive legal fees.
Since smart contracts are purely code, they have no way to interpret information and are unable to interact natively with data not found on the blockchain. Oracles were created to alleviate this bottleneck in smart contracts. An oracle acts as the middle layer between a blockchain and real-world data. A centralized oracle gets data from one company to feed to the blockchain, which although efficient comes with risks of inaccuracies or hacks. The solution is to use decentralized oracles, which collect data from multiple sources, called nodes, and to incentivize these nodes to provide correct data. Chainlink and Band Protocol both specialize in the creation of these decentralized oracles, which allow smart contracts to cooperate with the real world and data off the blockchain in a trustless and decentralized manner. For example, a smart contract could utilize an oracle to create an insurance platform that pays out automatically when a tornado is spotted in the user’s area, using data from multiple sources. Another example would be sports gambling, where the scores are not only aggregated from ESPN, but a multitude of other sources to confirm the validity of the data. If there is an error at ESPN, gamblers will not be cheated out of their winnings due to this backup system. Additionally, in order for decentralized exchanges to offer competitive prices regardless of liquidity, they can utilize oracles that gather the latest prices of assets from hundreds of exchanges, ensuring users get the fairest market value for a specific asset. In summary, decentralized oracles offer far better security and reliability than centralized oracles.
Now, let’s take a look at Chainlink and Band Protocol side-by-side to determine which decentralized oracle project has the greatest potential to dominate the space.
Chainlink’s whitepaper was authored by Steve Ellis, Ari Juels, and Sergey Nazarov and was released on September 4, 2017. It detailed the ways in which the project hoped to bridge off-chain data and the blockchain, the tokenomics of the LINK token, and the decentralized oracle system. Two weeks later, the project held an ICO on Ethereum, where they distributed 35% of the tokens at 11 cents a piece, raising a total of $32 million. The Chainlink mainnet was released on May 30, 2019. Since then, the project has continued to be in development and create partnerships around the blockchain industry.
Band Protocol is a much newer project, as their white paper was released on May 1, 2019, and written by Soravis Srinawakoon and Sorawit Syriyakarn. The four main areas covered in the whitepaper are the protocol’s overview, the BAND token, data collection, and future use cases and goals. On September 17, 2019, almost exactly two years after Chainlink’s ICO, BAND held an ICO on Ethereum. They distributed 27.37% of their tokens at $0.47, raising $10 million. This ICO took place on the Binance Launchpad, which provided immediate liquidity for the token on one of the largest exchanges in cryptocurrency. They are in the process of moving to their mainnet and new blockchain, BandChain, which will allow for oracles and staking.
Between the two protocols, Chainlink is the clear winner here. They have much more experience in the space and have had a mainnet available for over a year, whereas Band Protocol is just getting started with theirs.
Chainlink was co-founded by Sergey Nazarov, current CEO, and Steve Ellis, CTO. Nazarov graduated from New York University with a Bachelor’s in Philosophy and Management. He hopped around a multitude of cryptocurrency jobs starting in 2011. His foresight into what cryptocurrencies would become led him to acquire the domain smartcontract.com in 2014, a full year before Ethereum and decentralized smart contracts were invented. In 2014, Nazarov also co-founded SmartContract, the company that would later become Chainlink’s parent company. The other co-founder, Steve Ellis, worked with Nazarov on one of his previous projects as a software engineer and at Pivotal Labs, though no information can be found about his academic history.
Chainlink has listed ten employees and seven advisors, including Hudson Jameson, the Ethereum community manager, and Tom Gonser, founder of DocuSign.
The Chainlink Team. Nazarov in the lower middle, wearing a blue jacket.
Band Protocol’s website lists three co-founders. Soravis Srinawakoon, CEO, has a Bachelor’s in Computer Science and a Master’s in Management Science and Engineering, both from Stanford University, one of the most prestigious universities in the world. He has worked as a software engineer and management consultant before Band Protocol. Srinawakoon is also a member of Forbes' Asia 30 under 30, an extremely prestigious honor. Sorawit Suriyakarn, CTO, has a Master’s degree from MIT in Computer Science and was a software engineer for Quora and Dropbox. The third co-founder, Paul Nattapatsiri, chief product officer, has a B.S. in Computer Science from Rensselaer Polytechnic Institute, worked for TripAdvisor as a software engineer, and created a crypto game with over 800,000 users. Though this team is young, they have plenty of experience and lots of academic achievements, making them the perfect leaders for a blockchain company.
Band Protocol Team. Srinawakoon pictured top middle.
Chainlink has a larger and more experienced team, but Band Protocol has extremely educated co-founders and an impressive list of accolades which make up for their shortcomings in number of employees and age. There is no clear winner when looking at the teams of each project.
Chainlink’s network design uses the Request-Event-Response mechanism. In this design, a smart contract asks for data, which triggers an event to ask for the data from the data source, then the data is sent back to the smart contract. The nodes on the Chainlink network are responsible for waiting and responding to these requests. All of these nodes are connected through the Chainlink Oracle, which is the center of the design and acts as the bridge between the nodes and the smart contract.
In order to achieve honest results, the LINK token, which is an ERC20 token on the Ethereum blockchain, offers two incentives. The first incentive requires nodes to deposit LINK as collateral in order to provide data, and if the data is found to be incorrect the node has its deposit locked (20). The second incentive is a price set by the nodes that the smart contract has to pay in order to get data.
There is a six-step process for a typical data request on Chainlink. First, a smart contract asks for data and states the parameters, such as price, for the job. Then, this request is sent to the Oracle, which then sends it out to all nodes. Fourth, the node best suited for the job begins to execute. For the final steps, the node sends the data to the Oracle, which then sends it to the smart contract, where it is used as needed. This complex technology behind Chainlink’s network is responsible for ensuring the right data is efficiently given to the requestor.
When a user asks Band Protocol for data, a six-step process occurs, similar to Chainlink. First, a user requests data, then the oracle asks the validators to assemble the data. Next, the validators find the data, and the data source gives a result to the validators. The fifth step is when the Oracle collects all the responses from the validators. The final step can go two different ways: either the data collected is sufficient, and it is returned to the user, or it is insufficient and is a failed request.
Band takes a slightly different approach to tokenomics than Chainlink: Their method allows holders of the BAND token to delegate tokens to a specific data provider. These data providers are the ones who accumulate data for the blockchain applications, and they earn fees from the dApps when they ask for information and block rewards from BandChain. There is no set number of data providers, and the role is open to anyone who stakes on the protocol. Furthermore, the BAND token has an inflationary model to incentivize users to stake tokens instead of trading or HODLing. Depending on how many tokens are staked, the staking return on investment can range from 7% to 20%.
It is important for BAND delegators to do their due diligence on who they delegate their tokens to, as a misbehaving validator could lead to tokens getting slashed.
BandChain is built on the Cosmos SDK, meaning that it is a separate blockchain from Cosmos but shares a lot of the same characteristics, such as staking, validators, and fast transactions for low fees. One of Cosmos’ main goals is to be an interoperable blockchain, making it easier for the Band Protocol to cooperate with many smart contract platforms, such as ICON or EOS. This is a huge advantage over Chainlink, as Ethereum suffers from high transaction costs and low speed, though this will likely change with the release of Ethereum 2.0 in the coming years.
Overall, BAND appears to have stronger tokenomics. The staking will take tokens out of the circulating supply, thus lowering volatility and increasing demand. Furthermore, being built on the Cosmos SDK gives Band Protocol a huge advantage in the speed and scalability of their transactions. Besides the staking aspect, both tokens appear to have a similar use. Although LINK’s tokenomics are solid, they are not as impressive and multi-faceted as BAND’s.
As the more well-known and established project, Chainlink naturally has more partnerships and connections within the blockchain sector. They have worked with almost 250 projects and are rapidly expanding their connections. Some of their notable partners include SWIFT (the international banking service), Binance, Oracle, Intel, and Google. A full list of partnerships can be found here. It seems like Chainlink announces a new collaboration almost every other day, and these announcements will only become more common as their network effect of being the largest oracle platform continues to grow.
A few of Chainlink’s partnerships
Although Band Protocol is fairly new, they have not wasted any time securing partnerships and collaborations. They have about 25 partnerships in the blockchain sector, including ICON, Elrond, Waves, and Kyber Network. They also are backed by investors such as Sequoia Capital, a Silicon Valley venture capital firm, and Binance. Unfortunately, none of these partnerships are the same caliber as some of Chainlink’s partnerships, and they do not have nearly as many. On a positive note, partnerships in the oracle space can overlap and projects can take advantage of oracles from both Band Protocol and Chainlink, so this is not an insurmountable problem.
Chainlink is the clear winner in this category, as they have almost ten times as many partnerships as Band Protocol. This is a key factor in choosing which oracle platform to support. Without partners, the project has no one to serve. On the other hand, even though Band Protocol is behind, they can still catch up and potentially get the same partners as Chainlink. Two years is a large advantage in networking in the cryptocurrency space, but some are confident Band Protocol can overcome this hurdle.
Areas of Concern
Recently, Chainlink was a victim of an organized attempt to drastically lower the price of their token. Seemingly overnight, a company called Zeus Capital released a 60-page exposé stating that Chainlink is a fraudulent company creating vaporware. They boldly claimed that they were shorting the token and thought the fair market price was $0.07. Their report was mysteriously sent out to users’ emails on July 15, 2020. Bots were also used all over the internet to further their agenda and call the creators Nazis and con artists. The report was quickly debunked and had no real impact on the price of the token, but these types of controversies are definitely too big to not be considered when looking at a speculative asset with no regulations against market manipulation. The Twitter account for Zeus Capital is still active and tweeting LINK FUD daily.
Band Protocol has not had any major controversies since their release.
Even though the Zeus Capital fiasco seems like a random entity simply trying to make a quick gain by shorting the LINK token, it is still an important point to bring up when choosing which oracle platform to support. As the identity of this anonymous actor is still unknown, the future actions of this group are a complete mystery, and they could have something even bigger planned to try to take down LINK. To be fair, this action from a third party does not reflect poorly on the Chainlink team, but only on the short-term price of the token. If Chainlink really was a scam, they probably would have left with investors’ funds by now instead of waiting for a massive market cap and real partnerships. Band Protocol wins this category, though it is much less important than other considerations, especially since any future controversies are yet to be seen.
Price Appreciation/Future Potential
Since its ICO, LINK has risen a staggering 151.47x since their ICO in USD, and 105.22x in ETH. The current market cap sits around $6 billion, with a price per token of about $17. It sits at the number 5 spot on CoinMarketCap, below Tether and above Bitcoin Cash. At this price, many would argue that there is not much upside left for LINK, but any future price predictions are pure speculation, and no one truly knows what the value of an oracle platform is. If Zeus Capital is to be believed, LINK should be sold as soon as possible. On the other hand, some YouTubers are insistent that LINK will hit $1000 during the next bull run, which is almost as unbelievable as Zeus Capital. With the recent price spike from it’s low of $2.20 in March, some would be hesitant of buying now, and instead waiting for the dip that always seems to come in the crypto space.
In comparison, BAND has returned 30.15x in USD and 14.29x in ETH. These are significantly less returns than LINK, but also points to the potential of future gains to come. Typically, the lower a project’s placing on CoinMarketCap, the greater the speculation and risk. BAND currently sits right inside the top 50 coins, and has recently seen a gain of 14x since the beginning of July. Much like LINK, many wary investors are waiting for BAND to drop to a more reasonable price before buying in, as a lot of recent price action appears to be related to DeFi hype and not actual value from the Band Protocol. However, as stated above, price speculation in cryptocurrency is one of the hardest tasks imaginable, especially with relatively new coins. Moreover, the staking aspect of BAND may drive lots of retail investors looking for passive income to the protocol, even if the staking acts more as an inflation mechanism than free tokens. Additionally, the increasing supply of BAND tokens could lead to a decrease in each token’s price, hurting BAND investor’s bottom line if they are not staking on the network.
The real winners of this category are the investors of either cryptocurrency’s ICO. For an investor with a greater risk tolerance and purely looking at price, BAND appears to be the better investment. For a crypto investor who wants a more polished and stable project with less potential for future 10x gains, LINK would be the better choice. Regardless, potential investors should choose a project to support based on fundamentals rather than hype and recent price movement.
Both Chainlink and Band Protocol are poised to disrupt the smart contract sector and help make smart contracts truly useful for real-world applications. They both use an oracle system and token incentives to get the most accurate data possible, but use different design methods to get to that point.
Though it may seem like Chainlink and Band Protocol are competitors, some would argue that both are needed in the blockchain space for the most accurate data possible. Indeed, projects could implement both Chainlink and Band Protocol in order to ensure the utmost accuracy in their smart contract. Competition between these two projects does exist, but everyone wins when both of these protocols push each other to be better and more accurate.
The better investment depends on the investor. For someone who wants a less speculative and more established project, LINK clearly wins. They are farther along their roadmap, have a mainnet release, and hundreds of enterprise partners and collaborations. Even though LINK is a top 5 cryptocurrency, and a 100x from this point is unlikely, but they won’t be going anywhere anytime soon.
For the investors looking for a project that could still 50x from today’s price, BAND is better suited to their needs. As a relatively new project, they still don’t have a mainnet available, but have more potential to grow and receive constant good news. Partnerships are in the works every day, and each one makes Band Protocol a closer competitor to Chainlink. The staking on the network, albeit an inflation mechanism, promises stakers a chance to get a larger share of the network, as long as everyone isn’t staking.
Regardless of which project one chooses to support, the real winners are the smart contracts that will utilize these platforms to revolutionize the many industries that blockchain is poised to disrupt.
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