Chainlink is a vital part of DeFi infrastructure. Its technology allows to track data that is not on the blockchain and provide it to dApps and protocols. This includes price feeds for decentralized exchanges but is not limited to this use-case.

What is Chainlink introducing with it’s Economics 2.0 in December and how will this affect LINK?

Chainlink staking rewards investors and node operators

Chainlinks technology is decentralized. So-called oracles are responsible for collecting, checking and facilitating data. This data such as price feeds is accessed by decentralized applications. The difference between what Chainlink is doing and what a blockchain is doing is that Chainlink is not producing new blocks.

Blockchain technology is mostly about block production to provide security for a decentralized ledger. Two methods are currently dominant and both serve this purpose. One is proof of work and the other one is proof of stake. With Chainlink Economics 2.0 staking is introduced, but it serves a different purpose than usually.

Oracles have to sync with each other whether the provided data is correct or not. Node operators as well as investors can back an oracle by locking or delegating LINK and receive a staking reward in return. Aside from staking, Chainlink will also introduce a trust-based reputation system as well as a framework that is supposed to help developers building on top of Chainlink.

How is Chainlink staking going to work?

By staking LINK the number of trusted nodes is supposed to be increased by incentivizing the system through staking. In order to prevent fraudulent behavior a mechanism that is called slashing will punish malicious actors by burning their LINK if they try to manipulate data.

This system is very similar to Ethereum. Node operators are either rewarded or penalized and investors can choose to delegate their funds to a node that effectively acts as a validator. It is estimated that 7 % annual return is generated with Chainlink staking. Unlike Ethereum, Chainlink staking is not about block production and there is no emission rate of freshly minted LINK. Instead, the LINK that is paid to the stakers comes from fees that are earned by the network.

These fees are paid by all the applications that are using the data feeds, effectively making LINK the ultimate fuel to access the service Chainlink provides.

We are not quite there yet

Economics 2.0 sounds very promising and it probably is. However, Chainlink staking will start with version 0.1 on December 6^th 2022. The first stakers will test the new system in staking pool that is caped at 7,000 LINK per staker and to a total of 25 million LINK that is kept in the pool.

In order to participate in staking, node operators as well as investors have to be qualified. If you like to participate in this early stage, you should check out the official blog post and see if you are meeting the requirements to take part in this.

Once this stage is successfully completed, Chainlink staking will move to version 1.0 approximately in early 2023 removing all limitations. This also includes the absence of slashing which will not be a part of the early access stage.