Binance supports the growth of Decentralized Finance (DeFi) by connecting a wide variety of cryptocurrency data on our platform to blockchains through a collaboration with Chainlink.
Decentralized Finance (DeFi) is one of the hottest markets for building new financial products. DeFi protocols use blockchains and smart contracts as backend infrastructure to create new forms of financial applications commonly found in traditional finance such as lending, derivatives, and decentralized exchanges. Instead of requiring a central entity to create products and facilitate the movement of markets, smart contracts open up markets to global consumers and automate the process using coded open-source logic and tamperproof backend execution based on predefined events.
While base layer development is accelerating, it’s important to remember that the smart contract’s logic is totally reliant on the data it receives. The code can be flawless, but if the data triggering the contract is not reliable then the smart contract fails. If the functionality and market demand of DeFi is to expand, then developers need access to highly reliable and trusted data via secure oracles.
Binance is one of the world’s largest cryptocurrency exchanges and it’s critical that DeFi smart contracts have easy and direct access to Binance’s market data. “At Binance, we are committed to growing the blockchain ecosystem. We support the development of Decentralized Finance as an important part of the ecosystem. Binance works with many blockchain projects, including Chainlink, to bring freedom of money everywhere, and through the help of Binance data and Chainlink’s network, we can help accelerate the growth of DeFi,” said Binance CEO CZ (Changpeng Zhao).
We explore in more depth how connecting Binance, a high-end data provider for a wide variety of cryptocurrency data, to blockchains via Chainlink brings significant new value to DeFi projects.
Exploring the Value of Binance’s Data
Along with being the most liquid exchange in the world, Binance offers an industry-leading API, covering 637 price pairs via websocket and rest API. For high-frequency traders, having a powerful, dependable API with low latency is essential to staying competitive in fast-moving and constantly fluctuating markets. With the most expansive coverage of coins in the cryptocurrency ecosystem and a registered user base in the millions from over a hundred countries across all timezones, Binance is an extensive breeding ground for 24/7 price discovery. As such, this wealth of information about pricing in the cryptocurrency world ought to be available to power all DeFi Dapps. Gone are the days of trying to create a price oracle with just a few illiquid exchanges on a DEX.
As Binance’s ecosystem grows, its data will continue expanding to cover more projects, more jurisdictions, and more derivatives. Making these datasets available on public blockchains allows interoperability across centralized and decentralized worlds, whereas DeFi Dapps can greatly benefit from data produced by highly liquid centralized exchanges.
Bringing Binance’s Data On-Chain
Due to the underlying consensus mechanisms underpinning blockchains, blockchains cannot interact with off-chain data without threatening their underlying security. For this reason, most smart contracts are built around tokenization because all the information needed to create it is on-chain. However, many useful applications in DeFi, Insurance, Trade Finance, Gaming and more need access to off-chain data to replace backend business processes. In DeFi specifically, market prices are different across exchanges, but some hold more weight than others, given their differences in volume.
An oracle is a digital agent employed by a smart contract to retrieve and/or connect it to data and systems outside its native blockchain (off-chain). Oracles enable this off-chain connectivity for the smart contract by reformatting external connection points (APIs) so that two different software applications are compatible for data exchange. The oracle then pulls data into the smart contract and/or pushes data out based on predefined instructions and endpoints outlined in the Service Level Agreement (SLA).
Chainlink is a decentralized oracle network that gives smart contracts secure and reliable access to data providers, web APIs, enterprise systems, cloud providers, IoT devices, payment systems, other blockchains and much more. Leveraging the Chainlink network, smart contracts can directly access Binance’s data, employ various aggregation strategies, and incorporate different security designs to secure the connection. Ultimately, Chainlink offers users a variety of customization tools to determine how they want to connect with Binance’s API, as well as making integration simple, given that the data is already formatted for consumption and can be implemented into any smart contract by adding in a simple function.
To allow smart contracts to integrate data from the Binance API, Chainlink has built an external adapter to enable connectivity so that any node operator can provide data. External adapters extend the functionality of a Chainlink node by providing application-specific services from an API to smart contracts. This external adapter is built with serverless architecture in mind, allowing for node operators to run as many external adapters as they like, and only be charged by the cloud provider when that external adapter is used. Binance’s API is available for anyone to connect to their unauthenticated endpoints and the external adapter makes it easy for smart contracts to request and consume the data it provides.
Allowing DeFi Applications to Automate Transactions on Binance
A potentially powerful combination is creating DeFi applications that trigger automated transactions on Binance based on predefined conditions. With Binance possessing the world's highest liquidity for the most expansive range of digital assets, DeFi products can use oracles to relay exchange instructions from the smart contract to Binance's API. These payment instructions can automate certain actions on Binance such as peer to peer exchanges, market buys/sells, and even involve multi-user transactions.
Leveraging Binance's exchange opens up a whole new range of products not previously available in the current DeFi market. For example, users wouldn't be limited to smart contracts built solely around a particular asset, but instead could create very customizable terms around the 100 plus cryptocurrencies listed on Binance. This could include direct exchanges of different assets or derivatives instruments such as futures, options, and swaps. Not only will this bring greater flexibility to application development, but it can open up different hedging strategies for assets outside of the current infrastructure that's limited to top marketcap coins.
DeFi applications using Binance can introduce a plethora of new options for traders who want to automate trades around a variety of different data points. That could include trades triggered by large transaction alerts, hashrate fluctuations, or automated portfolio adjustments based on market data. The possibilities are really limitless given that the Chainlink oracles can use any data point to trigger some type of action. This is particularly appealing on Binance given its liquidity will ensure less slippage on transactions, its large selection of assets offers more expansive product creation, and its industry-leading API provides more reliability of users with time-sensitive trades.
Bringing Binance into the DeFi Ecosystem
The key to Binance being one of the premier cryptocurrency exchanges in the world is our proven track record of successfully evolving with dominant trends in the space and meeting that demand with tangible solutions. With DeFi quickly emerging as intriguing markets for viable real-world applications, it’s essential to bring the valuable and wide-ranging datasets of Binance on-chain so they can be used to power next-generation DeFi products. Without Binance, a foundational component of the cryptocurrency ecosystem, DeFi contracts miss out on key data resources they need to evolve and meet new market demand.