Chainlink, a decentralized oracle network, has announced the launch of a payment abstraction system designed to improve user experience when paying for its services.
What is Payment Abstraction?
Chainlink Payment Abstraction allows users to pay for services using various digital assets, including gas tokens and stablecoins. This system aims to simplify the payment process by automatically converting tokens into LINK, the native token of the Chainlink network.
How Does Chainlink Payment Abstraction Work?
Payment Abstraction operates through a multi-step process that efficiently converts user payments into LINK tokens. 1. **Users Pay with Different Tokens** - initially, users can pay for Chainlink services using a variety of assets, including Ethereum (ETH) and its wrapped version (WETH). 2. **Consolidating Tokens on a Single Blockchain** - once the payment is made, tokens are consolidated onto a single blockchain, typically Ethereum, using CCIP. 3. **Converting to LINK Using Automation and DEXs** - tokens are automatically converted into LINK using Chainlink Automation and a decentralized exchange (DEX), such as Uniswap V3. 4. **Distributing LINK Tokens to Providers** - after conversion, LINK tokens are sent to a dedicated smart contract for allocation to Chainlink Network service providers.
The First Use Case: Chainlink Smart Value Recapture
The first practical application of Payment Abstraction occurs within Chainlink Smart Value Recapture (SVR), allowing decentralized finance (DeFi) applications to recapture non-toxic Maximal Extractable Value (MEV). Aave, a leading DeFi protocol, is the first to integrate the Chainlink SVR solution, benefiting from a share of liquidation MEV generated on the platform.
The goal of Chainlink Payment Abstraction is to enhance the economic sustainability of the network. By simplifying the payment system and allowing for multiple asset forms, it aims to drive up demand for Chainlink services, potentially increasing the long-term value of LINK.
