KEY TAKEAWAYS
- Chainlink has launched its Payment Abstraction system on the mainnet, enabling cross-chain payments with alternative assets converted into LINK tokens.
- The system initially focuses on converting fees from Chainlink Smart Value Recapture (SVR), benefiting DeFi applications like Aave.
- Payment Abstraction uses Chainlink Automation, Price Feeds, and a DEX to streamline the conversion process, enhancing economic sustainability.
- Future plans include consolidating node operator rewards and expanding Payment Abstraction to more Chainlink services.
Chainlink has officially launched its Payment Abstraction system on the mainnet, a cross-chain-enabled payment solution designed to reduce payment friction within the Chainlink Network. This new system allows users to pay for Chainlink services using alternative assets such as gas tokens and stablecoins, which are then automatically converted into LINK tokens. The conversion process utilizes Chainlink Automation, Price Feeds, Cross-Chain Interoperability Protocol (CCIP), and a decentralized exchange (DEX).
The initial deployment of Payment Abstraction focuses on converting network fees generated by Chainlink Smart Value Recapture (SVR). SVR is an oracle solution that enables decentralized finance (DeFi) applications to recapture non-toxic Maximal Extractable Value (MEV) from their use of Chainlink Data Feeds. The fees recaptured are split between the integrating DeFi applications and the Chainlink Network. Currently, Aave is the first user of Chainlink SVR, with a fee split of 65% to the Aave community and 35% to the Chainlink ecosystem.
How Payment Abstraction Works
The Payment Abstraction process involves four key steps. First, users pay for Chainlink services using various tokens across supported blockchains. These tokens are allowlisted for security and liquidity purposes. Initially, ETH and its ERC20 wrapped version, WETH, are supported due to their predictable onchain liquidity against LINK.
Next, fee tokens from different service chains are consolidated onto a single blockchain network, known as the payment chain, using Chainlink CCIP. Ethereum is used as the payment chain to minimize costs and optimize liquidity. The consolidated fee tokens are then converted into LINK using Chainlink Automation, Price Feeds, and a DEX, with Uniswap V3 being the initial DEX used due to its liquidity profile and integration capabilities.
Finally, the converted LINK tokens are deposited into a dedicated smart contract for withdrawal by Chainlink Network service providers. Initially, Payment Abstraction will be used for Chainlink SVR, with plans to expand to additional Chainlink services in the future.
Future Developments and Economic Sustainability
The Chainlink Network portion of fees collected from SVR services will initially help cover existing oracle rewards for node operators. Over time, these fees are expected to transition to LINK Stakers, including both node operators and community stakers, once Chainlink Staking secures the node set powering an SVR service.
Additionally, Chainlink plans to consolidate existing node operator oracle rewards from over 40 blockchains onto a single blockchain network, starting with CCIP. This consolidation aims to simplify the reward process and create time and cost savings for service providers within the Chainlink Network.
The launch of Payment Abstraction, along with the ongoing conversion of Chainlink SVR fees into LINK, marks a significant milestone in Chainlink’s efforts to enhance the economic sustainability of its oracle networks. More details about these developments can be found in the official announcement here.
Why This Matters: Impact, Industry Trends & Expert Insights
Chainlink’s launch of its Payment Abstraction system on the mainnet aims to streamline cross-chain payments by allowing users to pay for services with various tokens, which are then converted into LINK tokens. This development is part of Chainlink’s broader strategy to enhance economic sustainability and reduce payment friction within its network.
Recent industry reports indicate a major trend towards payment abstraction in DeFi, emphasizing technologies like smart accounts and cross-chain interoperability. This aligns with Chainlink’s Payment Abstraction system, which simplifies user interactions across multiple blockchains, enhancing accessibility and efficiency in the DeFi space.
As per insights from PR Newswire, Chainlink’s Payment Abstraction is crucial for reducing payment friction by automating the conversion of service fees into LINK tokens. This reinforces the economic sustainability of DeFi and oracle infrastructure, supporting protocols like Aave in recapturing MEV and enhancing revenue streams.
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