Jul 16, 2020

8 min read

Fusion and Chainlink to provide a plug and play component for blockchain interoperability, greatly enhancing the capabilities of Defi.

Building complete Defi applications gets one step closer to reality.

Fusion’s vision is to serve the world as the infrastructure for digital finance by solving three key problems in finance industries:

1. extract time value with financial instruments through technologically enforced time-locks

2. Break data and system silos via blockchain interoperability

3. Automate finance through data-driven smart contracts

In order to realize the multi-trigger and interoperable smart contracts discussed in Fusion’s white paper, a key requirement is to have oracles that can attest to events in the physical and digital worlds. After researching numerous oracle solutions, Chainlink stood out because of its large pool of security-reviewed Sybil resistant nodes that have credential management capabilities for connecting to premium APIs. Additionally, Chainlink has experience bootstrapping provably secure and reliable decentralized oracle solutions in production that now secure hundreds of millions of dollars in value in DeFi.

By distinguishing itself as the market-leading decentralized oracle network, Fusion has decided to integrate Chainlink natively into its platform.

Combining Chainlink’s decentralized oracles and Fusion’s interoperability network (DCRM), Fusion’s vision of data driven smart contracts interfaced with the real-world take one step closer to realization.

The Chainlink integration comes on the heels of Fusion’s upgrade to Mainnet 3.6 on March 31st, which enables smart-contract support for our time-value market and assets, as well as the successful implementation of cross-chain transactions from the decentralized custodian pilot built by the DCRM Alliance. Pairing Chainlink’s decentralized oracles with Fusion’s recent protocol developments substantially increases the toolset available to developers to build next-generation Dapps and digital finance solutions on Fusion.

What is DCRM?

DCRM (decentralized control right management system) is a fully interoperable protocol which enables any assets to be exchangeable on-chain. The technology has been developed by Fusion’s R&D team in Shanghai, with feedback from the some of the best cryptographers in the world like Rosario Gennaro, Professor of Computer Science at CUNY; Steven Goldfeder, Ph.D., Postdoctoral Researcher in the Department of Computer Science at Cornell University; Louis Goubin, Professor of Computer Science at University of Versailles; and Pascal Paillier, Ph.D., senior cryptography expert at CryptoExerpts.

DCRM transactions are expected to reach a large amount of volume quite rapidly and are already being tested in our beta, with over 29 community nodes and 5 organizations taking part. To date, ETH and BTC have been exchanged in a completely decentralized fashion on DCRM.

Integrating Chainlink Price Reference Data for Cross-Chain DeFi Applications

Developers can use DCRM to exchange any asset from any blockchain. All DCRM transactions and swaps will be registered in the Fusion network and connected to off-chain APIs through Chainlink oracles.

The initial focus will be integrating Chainlink’s Price Reference Contract model, a proven framework for building reliable price oracle networks. Fusion will be able to leverage any of the 35+ price reference contracts currently securing market data for cryptocurrencies, FX, commodities, indices, and more. Developers can trust these oracle networks to trigger high value contracts as they are highly decentralized at both the node operator and data source levels. Additionally, there are strong quality control standards that ensure only the most secure node operators and premium data sources are utilized.

A variety of metrics for Chainlink’s Price Reference Data Contracts like the current price, update frequency, node operators, etc are available through their visualization and third party services, which pull data directly from the blockchain. This allows real-time monitoring of the performance of the oracle networks securing applications.

Fusion developers can also opt to build their own Chainlink Price oracle networks using their 100+ available nodes at market.link and their external adapter technology to integrate any off-chain data resource desired. This ensures the Chainlink network can support Fusion with the flexibility to build customized oracle networks that connect to any collection of data feeds for any use case.

Chainlink’s Price Reference Data will be invaluable for powering decentralized value exchanges by providing high-quality pricing data to trigger swaps of tokens, check collateralization ratios of loans, enable advanced automated trading strategies and more.

For instance, developers can build cross-chain financial applications for issuing bonds, loans, and cash advances on future revenue streams, which are augmented by off-chain market data, e.g. changes in asset prices which cause adjustments to interest rate payments. This will become even more valuable when paired with our innovative time-value monetization channels.

Since Fusion’s DCRM allows any external token to exist on the Fusion blockchain, Chainlink node operators can get paid out directly in LINK, while Fusion’s native token FSN will be used as gas for transactions happening on the Fusion ledger.

Integrating Chainlink Oracles Beyond Price Feeds

Chainlink can be used in Fusion far beyond simple price feeds, such as monitoring off-chain bank accounts to confirm Fiat payments.

This also includes decentralized validation procedures within Fusion’s interoperability protocol. We are exploring three additional implementations that highlight unique opportunities to use Chainlink oracles to attest to off-chain events within Fusion’s DCRM.

External blockchain transaction information: Retrieving accurate information about transaction completeness on any other blockchain is essential to DCRM and will be generated in any Lock-in and Lock-out Operation from DCRM
DCRM Key Generate: Confirming data from the API used for decentralized creation of custodial accounts (ECDSA and EDDSA) that support assets from different blockchain
DCRM Sign: Connecting to the API that enables transaction signing from only one fusion key and managing any asset from any blockchain.

Fusion will also leverage the latest functionalities of the Chainlink protocol including Service Level Agreements (SLAs) for the grouping and threshold definition of the DCRM participants, Trusted Execution Environments (TEEs) for establishing privacy and reinforcing security of contract execution, Oracle contracts to power the three essential methods of DCRM services, and Consumer contracts to encapsulate DeFi business logic connected to traditional external API services like price information.

Two Real-World Use Case

Use Case 1: Tokenization of Securitized Loans

The institutional and retail lending industry will benefit greatly from asset tokenization. Whether it’s helping underbanked people get access to more affordable financing or providing investors with alternative high yield opportunities, the benefits to decentralized finance are clear and well documented. For example, through our partnership with AXP, Fusion aims to securitize hundreds of millions of quality automobile loans and utilize Fusion’s time-locked smart contracts to capture and automate loan payout activity.

Chainlink’s decentralized oracles play a crucial role in three areas within this framework:

1. Issuing debt tokens from investor deposits: Lenders will likely supply collateral using traditional fiat payment rails, although we also expect some crypto investment. Chainlink’s decentralized oracles will monitor off-chain bank deposits to underwriter accounts, and upon receipt, smart contracts will issue the equivalent value in debt tokens to investor wallets.

2. Monitor cash payments from borrowers: Borrowers, as in the retail buyers of cars, will also likely pay their loans via fiat payment rails, especially in the beginning stages of adoption. Smart contracts will use decentralized oracles to monitor off-chain bank payments in order to trigger investor payouts or mark the specific loan as delinquent in case of missed payments.

3. Calculate and disburse payments to investors: Certain investors are interested in floating-rate payments to offset what is known as “interest rate risk”. For example, if a central bank raises interest rates, the investor wants to make sure their cashflows can capitalize on the increasing interest rate. The most common approach is pegging the payment to a floating rate set by banks, such as the infamous Libor rate. Smart contracts will use Chainlink oracles to access this data and recalculate payments accordingly .

Oracles monitor real world payments and finance rates to power Smart Contract distributions of debt on blockchain.

Use Case 2: Dapps for Decentralized Custody

The previous use case demonstrates how Chainlink pulls data into Fusion’s smart contracts to trigger on-chain transactions. While undoubtedly a powerful functionality for Fusion developers, we can do more to expand the impact of this integration. Chainlink oracles can be used to push data produced on Fusion to other blockchains, allowing all other ecosystems to benefit from the information and activity taking place on Fusion.

Our next use case involves our groundbreaking DCRM Alliance pilot: a decentralized (non-custodial) and interoperable custody solution operated by different entities within different geographies.

One application for the DCRM pilot is to be the de-facto decentralized escrow solution for the wider DeFi ecosystem, which can hold any asset — BTC, ETH, ERC-20 tokens, and more. Dapps on any external chain can leverage decentralized escrow to lower their barrier to adoption and manage payments or exchanges in the major cryptocurrencies and/or stablecoins.

For example, a lending Dapp on external chain “C” wants to accept BTC as collateral and issue a wrapped version of BTC on their own chain to power native use cases. The Dapp can utilize Fusion’s DCRM non-custodial solution to manage BTC between the two disparate environments. Chainlink’s decentralized network of oracles monitors and publishes BTC deposit activity to the Dapp, which triggers actions on Chain C, such as issuing or invalidating wrapped BTC, as well as liquidating BTC holdings when the collateral ratio falls outside of the liquidation requirements.

Oracles monitor Decentralized Custody deposit to trigger external chain actions.

“By integrating with the Chainlink Network, the entire Fusion ecosystem gets secure and reliable access to a variety of web 2.0 data and off-chain resources with minimal delay. We look forward to expanding our DCRM solution using Chainlink to provide data to and from the Fusion ecosystem; greatly benefiting existing users while simultaneously onboarding new ones as our technology can now be made available in new markets..” — Dejun Qian, Founder and CEO of Fusion

About Fusion

If you want to learn more about or build with Fusion’s interoperable decentralized custody solution, DCRM, visit our GitHub here.

Fusion Foundation is a non-profit organization building the next-generation infrastructure for decentralized global finance. With Fusion network， the world will enjoy financial transactions that are more accessible, efficient and transparent than previously possible. Fusion’s seasoned team of industry veterans led by Founder and CEO DJ Qian), is working to collaborate with financial institutions, cryptocurrency companies, businesses, peer-to-peer lenders, third-party app developers, academia, and the broader blockchain community. Its technologies are used behind the crypto mass adoption Dapp WeDeFi (www.wedefi.com) and decentralized interoperable exchange Anyswap (https://anyswap.exchange/swap).

Website | Twitter |YouTube | Telegram | GitHub

About Chainlink

If you’re a developer and want to connect your smart contract to existing data and infrastructure outside the underlying blockchain, reach out to us here!

Chainlink is an open source blockchain abstraction layer for building and running decentralized oracle networks that give your smart contract access to secure and reliable data inputs and outputs. It provides oracles to leading DeFi applications like Synthetix, Aave, and Kyber Network, numerous blockchains such as Ethereum, Polkadot, and Tezos, and large enterprises including Google, Oracle, and SWIFT.