Bessie Liu

Chainlink is switching on its Cross Chain Interoperability Protocol (CCIP), Monday, with Synthetix getting early access to its mainnet. A testnet will open up to all developers on Thursday, July 20.



The protocol builds upon Chainlink’s extensive oracle network to differentiate it from competitors, while it looks to capitalize on connections forged along traditional financial rails.&nbsp;



As blockchains scale — whether layer-2 networks, sidechains or app-specific chains — these networks will need to communicate with each other.



Existing cross-chain solutions — such as bridges, for example — have attempted to tackle the problem of moving data and assets safely, <a href="https://blockworks.co/news/rethinking-interoperability-after-string-of-crypto-hacks">with mixed results</a>.&nbsp;



Other interoperability solutions such as light-clients such as <a href="https://blockworks.co/tag/ibc">IBC</a>, general message passing like <a href="https://blockworks.co/tag/axelar">Axelar</a> and <a href="https://blockworks.co/news/rethinking-bridges-orb-labs-imagines-world-where-every-transaction-is-free">other hybrid schemes</a> have tried to fill the gaps, and now Chainlink is joining in the effort.



CCIP will first be available on Ethereum, Optimism, Polygon and Avalanche.



<h2 class="wp-block-heading">How does CCIP work?</h2>



In an interview with Blockworks, Chainlink founder and CEO Sergey Nazarov noted that Chainlink will use its <a href="https://blockworks.co/tag/oracles">oracle networks</a> to enable CCIP.



“One oracle network is responsible for channeling messages and value. The other one is responsible for monitoring and determining if the properties of the transactions going through the first one are risky or not,” Nazarov said.



Developers who are interested in building cross-chain solutions can build their products on top of CCIP through Arbitrary Messaging.&nbsp;



This means that a smart contract from Chain X will utilize Chainlinks’ messaging router to send messages to Chainlink&#8217;s decentralized oracle networks (DONs). These DONs will then securely and privately communicate with the destination chain messaging router, which will validate the information and send it to Chain Y’s smart contract.&nbsp;



<figure class="wp-block-image"><img decoding="async" src="https://lh3.googleusercontent.com/gdaXVhxYBRPTI7YJzy-VYSOyb-9zIweNTpHzGHQXPyKIaBLclHHFlimB4tt-ydBR8-71-UoeQ0dEJqUo08BT4DW50OquXiW86ozfG0K1_V8BaE_7rjMSWFw-aU9VzyhtlIqOC5FnKDb-jEDZysF4UaM" alt=""/><figcaption class="wp-element-caption">Source: Chainlink</figcaption></figure>



Beyond having basic communication capabilities, CCIP also has complete token transfer capabilities, <a href="https://docs.chain.link/ccip/tutorials/cross-chain-tokens">according to</a> its documentation, which Chainlink says means that developers for token pool smart contracts won&#8217;t need to write customized code.&nbsp;



A separate Active Risk Management (ARM) network aims to detect any malicious cross-chain activity. When found, ARM will automatically pause services and protect user funds.



ARM operates similarly to how banks protect their customers from fraudulent activity, Nazarov explained.



“If you have been sending money to a friend for years, Venmo, PayPal, very quickly approves it, but if you decide to send money to buy a painting from someone in Eastern Europe, they will have questions,” he said. “The fundamental idea is that you can accurately assess risk based on repeat transactions to known parties.”



<h2 class="wp-block-heading">Targeting traditional finance money</h2>



One of the most exciting aspects of introducing CCIP is its potential to link up DeFi with traditional financial institutions, Nazarov explains.&nbsp;



Swift (Society for Worldwide Interbank Financial Telecommunication) is planning to use CCIP to work with multinational banks across the globe to bring institutional-grade, multibillion-dollar real-world asset tokens into the world of DeFi, Blockworks <a href="https://blockworks.co/news/banks-can-10x-the-blockchain-industry-says-chainlink-co-founder">previously reported</a>.



Among the banks signing on are Australia and New Zealand Banking Group (ANZ), BNP Paribas, BNY Mellon, Citi, Clearstream, Euroclear, Lloyds Banking Group, SIX Digital Exchange (SDX), and The Depository Trust and Clearing Corporation (DTCC), according to a press release.&nbsp;



“When those real-world asset tokens become available, they can go over CCIP into the public blockchain world, which will do two things: It&#8217;ll grow the total industry size of the entire blockchain industry and it&#8217;ll provide diversified collateral,” Nazarov said.



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Chainlink

Chainlink founder says CCIP opens DeFi for business

Brianna Beckford

In the latest episode of Blockworks’ podcast “<a href="https://youtu.be/k3cq7f43E74">Empire</a>,” Jason Yanowitz, co-founder of Blockworks, is joined by Sergey Nazarov, the co-founder of Chainlink, a decentralized oracle network provider for advanced smart contracts. 



Sergey and Jason discuss hybrid smart contracts, oracle networks, DeFi&#8217;s total addressable market, how current business models will be forced to adapt and the challenges of developing Chainlink.



They also discuss: 



<ul class="wp-block-list"><li>Why DeFi is better than CeFi</li><li>If an inflection point has come</li></ul>



Check out what they had to say in the video below. 👇



<figure class="wp-block-embed is-type-video is-provider-youtube wp-block-embed-youtube wp-embed-aspect-16-9 wp-has-aspect-ratio"><div class="wp-block-embed__wrapper">
<iframe loading="lazy" title="Sergey Nazarov reveals why $2 trillion will flow into DeFi | Chainlink" width="1024" height="576" src="https://www.youtube.com/embed/k3cq7f43E74?feature=oembed" frameborder="0" allow="accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture" allowfullscreen></iframe>
</div></figure>



On &#8220;Empire,&#8221; once a week, Jason interviews individuals that have built the crypto industry to talk about their struggles, bold moves and tough decisions. For any NPR or Guy Raz fans out there, you can think of &#8220;Empire&#8221; like a “How I Built This” for the bitcoin and crypto industry.



Episodes are released every Thursday morning.&nbsp;



Subscribe to Empire today on&nbsp;<a href="https://apple.co/389JSpL" target="_blank" rel="noreferrer noopener">Apple</a>&nbsp;or&nbsp;<a href="https://spoti.fi/3uVnxpC" target="_blank" rel="noreferrer noopener">Spotify</a>. Watch episodes on&nbsp;<a href="https://www.youtube.com/playlist?list=PLvER9nHSRN3wPkrDGTT5_8VC4Hjcq0f9U" target="_blank" rel="noreferrer noopener">YouTube</a>.

Sergey Nazarov

Newsletter

Blockworks Research