Neutrino will integrate Chainlink Proof-of-Reserve

Yellowblock January 15, 2021
Updated 2021/01/15 at 1:30 PM
6 Min Read

The collaboration will lead to improved security and robustness of cross-chain bridges between Waves and Ethereum.

We are eager to announce the upcoming integration between Neutrino protocol and the Chainlink Network, which serves as a crucial element for seamless transfers of Neutrino USD (USDN) and other tokens between the two blockchains.

The Chainlink Proof of Reserve oracle network will provide regular, on-demand verifications of the reserves backing USDN across the multiple blockchain networks where USDN is issued, ensuring that full collateralization is maintained.

A mature oracle system like Chainlink is essential in maintaining the overall reliability of the algorithmic stablecoin as a secure, fully collateralized form of inter-chain liquidity.

Since USDN was ported to the Ethereum network as an ERC-20 token last year, the issuance of USDN in the Ethereum blockchain has been accompanied by locking an equivalent amount of USDN in the gateway account on the native Waves blockchain.

Therefore, it is necessary to introduce an external off-chain service (oracle) that monitors the locked balance on the Waves gateway account and verifies that there is exactly the same amount of USDN tokens issued on Ethereum.

Chainlink oracles are essential to creating such a Proof-of-Reserve (PoR) oracle network for USDN and other Neutrino assets. The main goal of Chainlink PoR is to prove that the reserves and minted token balances are equivalent across two or more disparate blockchains that have different APIs. As a secure and reliable data relayer between systems, Chainlink oracles are perfectly designed to facilitate inter-chain communication between Waves and Ethereum.

Chainlink nodes accomplish this by continually pinging the Ethereum-based USDN contract and Waves API off-chain for their current balances. Whenever a deviation in balances is spotted beyond a specific threshold, Chainlink oracles will trigger an on-chain update to the balances stored in the Proof of Reserve Reference Contract. The Chainlink PoR oracle network will be initially set up to update every six hours or when there is a 2% balance deviation, although these parameters can be adjusted in the future. A prototype of such an oracle is currently in the works.

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DeFi protocols leveraging USDN in their on-chain products can call the Proof of Reserve Reference Contracts to check the current collateralization of USDN before executing certain on-chain functions, such as issuing a loan collateralized by USDN. This allows DeFi protocols to obtain automated audits on-demand regarding USDN’s collateralization, and then deploy customized logic to swiftly protect user funds, should an unexpected event occur that causes USDN to be undercollateralized.

We chose Chainlink Proof of Reserve because of its flexibility and maturity. To guarantee correlation between cross-chain asset balances, the oracle network needs a level of versatility, reliability, and security that can only be provided by Chainlink, as it’s the most secure, reliable, and straightforward oracle solution in the market, with an impeccable track record of securing billions of dollars in value for top DeFi projects.

Chainlink utilizes a decentralized network of security reviewed oracle node operators run by leading blockchain DevOps, ensuring no single oracle node is a centralized point of failure. All oracle networks and nodes are transparent, wherein USDN users can independently monitor their performance in real-time. Finally, Chainlink is highly flexible in getting data from any off-chain API, and has thorough developer documentation that makes it easy to integrate. We’re confident that Chainlink technology will allow us to completely automate the monitoring and management of cross-chain gateway operations while also scaling to support more assets and users in the future.

The most useful feature of Ethereum-based USDN is the ability for users to collect rewards from their USDN locked in a staking contract on the Waves blockchain. ERC-20 USDN holders who purchased the token on services, such as 1inch, Uniswap, Curve, Balancer, Bancor etc., can simply store those tokens in a wallet (e.g. Metamask), with staking rewards automatically credited to the account balance.

In this regard, we are also exploring the use of Chainlink as a way to manage the flow of staking rewards from Waves into Ethereum, which will automatically be accumulated by owners of liquidity pools.

We are very excited to spearhead the adoption of inter-chain DeFi between Waves and Ethereum with support from the Chainlink Network Proof of Reserve. We believe this integration will significantly advance the expansion of inter-chain DeFi as a whole, allowing liquidity to freely flow between blockchains in a highly secure and transparent manner.

About Chainlink

Chainlink is the most widely used and secure way to power universal smart contracts. With Chainlink, developers can connect any blockchain with high-quality data sources from other blockchains as well as real-world data. Managed by a global, decentralized community of hundreds of thousands of people, Chainlink is introducing a fairer model for contracts. Its network currently secures billions of dollars in value for smart contracts across the decentralized finance (DeFi), insurance and gaming ecosystems, among others.

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