Diving deeper into the realm of the more than 5,000 cryptocurrencies in existence, things get even more speculative – with traders often jumping on fast-moving and thinly traded tokens for a quick profit and then quickly moving on to the next hot trade.
That’s why it’s so notable that holders of one token, Chainlink (LINK), appear to be in it for the long term.
Data extracted from the underlying blockchain and cryptocurrency markets reveal declining balances of the token held at exchanges. In the logic of digital-asset traders, that’s seen as a sign that holders of the token have no near-term intention of selling their LINK tokens: After withdrawing the tokens from exchanges, holders are likely either to hoard them or send them to be used in Chainlink smart contracts for off-chain data.
High market capitalization and real users is a rare combination for cryptocurrency protocols. But with Chainlink, backers of the project are so devoted they refer to themselves on social media as “LINK Marines” – a sly reference to the community known as the “XRP Army” that supports the eponymously named token from Ripple. The idea is that LINK investors are “HODLing,” an expression that dates back to early cryptocurrency chat forums and refers to long-term, often ideologically motivated investors.
“Chainlink is the most successful blockchain network over the last two years and we still feel like the underdog,” said Michael Anderson, co-founder of Framework Ventures, which published a Chainlink investment thesis in late 2017.
During a year when traditional assets like U.S. stocks are floundering and bitcoin is up 27%, Chainlink more than doubled, making it the top-performing digital asset among the top 10 ranked by market capitalization, according to OnChainFX. The coin’s market value is now almost $3.8 billion.
Chainlink is a tokenized decentralized network that provides blockchain networks with price feed data collected from sources both on and off blockchains. The protocol offers a potential solution to what is known as the “oracle problem,” or the ability to get the off-chain data needed in many smart contracts. Given that blockchains are intended to operate as “trustless” networks, using outside data requires integrating with a trusted source – an “oracle.”
“As time goes by, there are definitely some questionable projects that break the top-10 market capitalization ranking for crypto,” said Anil Lulla, analyst at cryptocurrency research firm Delphi Digital, who recently authored a report on blockchain-based oracles. “It’s very easy to point to a lot of names on that list and see very little to no usage.”
However, the Delphi Digital team was “impressed at some of the early trends we’ve been seeing in usage for Chainlink,” Lulla said.
So is it bullish that LINK Marines are HODLing? It’s tough to say, according to Lulla.
“I just don’t see the connection with the token economics,” Lulla wrote in a Telegram message. “But they’re dominating the oracles space so I think the LINK memers can keep this narrative going for a while.”
A Chainlink spokesperson declined to comment on the data.
In May 2019, the total amount of LINK held on exchanges began to steadily decrease, a trend that would continue for the next 12 consecutive months, according to Glassnode.
Exchange withdrawals coincided with the first significant LINK price inflation, when the token traded above $1.00 for the first time. And as more tokens left cryptocurrency exchanges, trading volume steadily grew, according to Nomics.
So where where did the LINK tokens taken off exchanges go?
The data suggests the Marines are sending their tokens to either their own wallets or Chainlink smart contracts. The percentage of LINK supply held by the top 1% of addresses has grown by almost 25% in the past year, according to Glassnode.
Median transfer value fell by 77% over the same period, suggesting that when LINK Marines decide to actually transfer tokens, their transactions are increasingly small.
LINK is also being sent to smart contracts designed to utilize the protocol’s oracle services. According to Glassnode, the year-to-date supply of LINK in smart contracts grew by 1.3% percent.
The strong price performance has foiled traders who have taken short positions on LINK, betting on a decline in the token’s price.
Such challengers have been “getting their faces ripped off” in markets for over a year, Rob Paone, a popular YouTube crypto personality and startup founder, noted in a March 18 tweet.
At the time of Framework’s investment, according to Anderson, “many of the ‘industry experts’ either said Chainlink was over-engineered,” or that two rival oracle projects, Augur or Uniswap, would ultimately win out.
And the LINK Marines are staying faithful.
UPDATE (May 28, 2020 15:00 UTC): This piece has been updated to reflect that Chainlink does not operate its own blockchain but functions as a blockchain-agnostic network.