On a recent episode of the Fidelity Center for Applied Technology (FCAT) Crypto Brief podcast, Chainlink co-founder Sergey Nazarov detailed how Chainlink is working to connect traditional finance (TradFi) and decentralized finance (DeFi) now and into the future.
With the GENIUS Act establishing the first federal guardrails for US dollar-pegged stablecoins, he anticipates a watershed moment for stablecoin adoption that will in turn accelerate the market for tokenized real-world assets.
Chainlink is already facilitating such transactions. A recent use case illustrates how Chainlink’s Cross-Chain Interoperability Protocol (CCIP) enables the simulated secure exchange of ANZ Bank’s A$DC stablecoin with Hong Kong’s e-HKD CBDC to purchase Fidelity International’s simulated tokenized fund using the Visa Tokenized Asset Platform (VTAP).
Chainlink also provides net asset value (NAV) data for tokenized funds as well as Proof of Reserve data for stablecoins, while the Chainlink Automated Compliance Engine (ACE) integrates existing identity systems with onchain infrastructure to support cross-border policy enforcement.
As a platform, Chainlink comprises a set of standards for defining blockchain transactions. This is particularly important for traditional financial institutions with higher security, identity, and regulatory requirements.
“The thesis of Chainlink is that if you’re going to make hyper-reliable, blockchain-based financial applications, then you need hyper-reliable services for data, cross-chain connectivity, legacy system integration, and all kinds of other things like identity and compliance,” Nazarov explained.
In a multi-chain world, CCIP is designed to unite DeFi and TradFi on a single global standard akin to how TCP/IP gave rise to a single internet.
“The interoperability question should become a nonissue,” Nazarov said.
As a unified standard for creating compliance-focused digital assets, Chainlink ACE accelerates the intersection of TradFi and DeFi by laying the groundwork for more than $100 trillion in institutional capital to enter the onchain economy.
Nazarov believes DeFi’s permissionless innovation and TradFi’s highly regulated environment are mutually beneficial.
“The institutional world and the DeFi world are basically each other’s best customer,” he said.
ACE is built on the Chainlink Runtime Environment (CRE), a comprehensive computing platform that streamlines access to Chainlink’s essential tokenization services. CRE allows developers to write a single piece of code that manages their financial application’s relationship with hundreds of chains alongside various data sources, identity and compliance contracts, multiple regulatory regimes, and offchain systems for risk management, etc.
Chainlink, Kinexys by J.P. Morgan, and Ondo Finance recently announced the success of a cross-chain delivery versus payment (DvP) test transaction powered end-to-end by CRE.
“What usually would have taken months now takes weeks, and we’re now in the process of getting it down to days and eventually hours,” Nazarov explained.
“When you can get it down to that level of efficiency while providing the security and reliability that institutions want, that is what leads to mainstream institutional adoption of blockchain technology. Chainlink is well-positioned to be at the epicenter of that, both in terms of providing the key services but also providing the abstraction layer and the environment in which you manage and define the relationship between those services, those chains, and your institution.”