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CCIP And The Convergence Of TradFi And DeFi

Yesterday, Chainlink launched its Cross-Chain Interoperability Protocol (CCIP) on the Ethereum, Optimism, Polygon, and Avalanche blockchains, with availability on multiple testnets slated for later this week. Top DeFi protocols have already announced CCIP integrations; Synthetix is using CCIP to secure cross-chain liquidity transfers, while Aave will use CCIP to future-proof its multi-chain governance mechanism.

Chainlink co-founder Sergey Nazarov appeared on The Breakdown podcast with Nathaniel Whittemore to discuss details of the announcement, as well as Swift’s collaboration with global banks to transact with blockchains through CCIP, in order to examine how CCIP would ultimately enable the convergence of traditional finance (TradFi) and decentralized finance (DeFi) into a more secure and efficient global market. 

CCIP is an interoperability standard engineered to connect all of web3’s previously siloed blockchain ecosystems – much like TCP/IP enabled a globally connected internet. By facilitating cross-chain communication and value transfer, CCIP allows developers to combine multiple smart contracts on multiple chains into more valuable cross-chain smart contracts.

At the same time, CCIP would enable traditional financial institutions to transact with the full spectrum of private and public blockchains using their existing Swift private key infrastructure (PKI). Nazarov said he believes this technological advancement will incentivize banks to create their own stablecoins, as well as their own private blockchains, and ultimately a range of tokenized real-world assets

Nazarov envisions CCIP fostering a “bank-grade internet of contracts” for private bank chains alongside an internet of contracts connecting key DeFi applications. As CCIP incentivizes interactions between these two worlds, he believes the blockchain industry’s value could ultimately increase tenfold. 

“That’s how much value we’re talking about moving into the blockchain world when we’re talking about connecting the bank internet of contracts with the public blockchain internet of contracts into one global internet of contracts,” he said. 

In Nazarov’s view, the fundamental value of blockchain infrastructure like CCIP is “so many orders of magnitude better than what exists today” that its adoption is likely inevitable. Comparing web3 to the internet, he predicted banks’ ability to interact with the blockchain economy will eventually be an imperative.

“It won’t be a choice,” he said. “It will be like having email or not having email.”

Listen to the full conversation on The Breakdown.

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