Almost every industry has a pick-and-shovel play, including cryptocurrency. The idea is to look for tools or infrastructure that will be required to produce goods or carry out a service -- the equivalent of selling picks and shovels to gold miners. Back in the 19th century, striking gold was a game of chance, but the demand for mining tools was pretty certain.
You may not have heard of Chainlink (LINK 7.20%), but it underpins a huge proportion of both traditional blockchain usage and decentralized finance, making it a true pick-and-shovel play. It collates, checks, and disseminates information across many different blockchains and real-world financial institutions.
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In this article, I'll take a closer look at how Chainlink already plays an essential role in both decentralized and traditional financial services, and how that role might grow in the coming years.
Chainlink is central to tokenization
The services, particularly data, that Chainlink provides are crucial for many automated blockchain activities. One area that is already growing rapidly and looks set to soar is tokenization. At heart, it is a way to represent ownership on the blockchain, making trading faster, cheaper, and more accessible. Stablecoins are essentially tokenized versions of the U.S. dollar, but you can tokenize almost any asset, including equities, bonds, real estate, and art.
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Key Data Points
It is not an understatement to say that tokenization could reshape financial systems. Some predict that all banking and investment products could move onto the blockchain, although that seems overly optimistic to me. However, forecasts that the tokenized asset market could grow from around $35 billion today to trillions of dollars in the coming decade are much more credible. There are already concrete examples of big banks and payment providers piloting and using tokenized products.
Major U.S. exchanges such as Nasdaq and the New York Stock Exchange are taking steps toward tokenized stocks, where on-chain tokens would represent real-world equities. These tokenized stocks would be backed by real-life shares and carry the same voting and dividend rights as normal ones, though some tokenized stocks are not collateralized.
For it to work, there need to be trusted sources of information to verify prices, ensure tokenized stocks are fully backed, and carry out compliance checks. That's where Chainlink shines. It recently announced a partnership with the Depository Trust & Clearing Corporation (DTCC), putting Chainlink at the heart of this new on-chain world.
The DTCC is the clearinghouse for many exchanges, settling trades and ensuring that buyer get their securities and sellers get their money. As tokenized stocks evolve, the DTCC will use Chainlink's data and technology to ensure consistent asset pricing on- and off-chain, and allow for 24/7 trading around the world.
Rather than replacing traditional finance, Chainlink elevates it
The DTCC deal itself is exciting, but I think it demonstrates something even more important. This isn't just about Chainlink playing a key role in stock tokenization; it's about Chainlink's ability to partner with all the major players in traditional finance as they integrate blockchain technology. Some cryptocurrencies boast of their ability to replace existing financial services, and for the most part, that just isn't realistic.
If blockchain is to go mainstream, cryptocurrencies will need to work alongside existing organizations to enhance what's already available. Chainlink, which also partners with Swift, the international payment banking network, and major institutions, is doing exactly that.
