Welcome back to Chain Reaction, a podcast that interviews newsmakers in crypto to better understand the tech behind the hype and the people working to build a decentralized future.

For this week’s episode, Jacquelyn interviewed Sergey Nazarov, co-founder of Chainlink, a protocol that provides an oracle network to power smart contracts.

“Oracle networks are really the thing that puts the word ‘smart’ in smart contracts,” Nazarov said. “Smart contracts in and of themselves don’t know what time it is; they don’t have the ability to access any external system […] other than what’s in a blockchain.”

Before starting Chainlink, Nazarov co-founded four other businesses, the most recent of which was SmartContract, which also focuses on smart contracts.

Chainlink is also known as a web3 services platform that connects people, businesses and data with the world of web3. And for good reason: The platform has enabled over $7 trillion in transaction volume across DeFi, gaming, NFTs and other major industries.

When it was launched in 2017, the total value locked (TVL) in the entirety of DeFi was “well below $100 million,” Nazarov said. By late 2021, that number had grown to almost $200 billion, though it has since fallen to $47 billion today, according to DeFiLlama data.

“When an oracle network goes live on a certain chain and provides data to it, that chain’s total value locked within advanced applications, like advanced gaming applications or DeFi applications, skyrockets,” Nazarov said. “And ‘skyrockets’ doesn’t mean that it doubles; it means that it [grows] more than 100 times.”

In order for blockchains to create advanced applications, they need advanced inputs and outputs, Nazarov said, pointing as an example to how Uber couldn’t exist without other systems that handle a big portion of the workloads and problems it encounters. “Without those APIs, you can’t build an advanced application,” he added.

Web 2.0 vs. web3

For Nazarov, the Web 2.0 world that most people use is “not guaranteed in any meaningful way.”

What does that mean? Well, at any point, an entity like Silicon Valley Bank can “change the rules and then you have a difficult situation,” he explained.

Up until SVB’s collapse, many people thought banks were predetermined, Nazarov said. “They felt that banks would always behave in a predictable, repeating way they understood. But now, I think people realize banks are probabilistic and there’s a chance they might not behave in a way people expect because [of] a large amount of human-based decisions and legal promises that are not really guaranteed.”

So how can the world become more reliable and secure?

Through technological, or cryptographic, guarantees in web3, Nazarov feels. “It’s a parallel system of contracts. The Web 2 world defines events in a digital form […] but at the end of the day, those promises are only backed by the legal system and people’s choice to fulfill those promises.”

In the web3 world that uses smart contracts, there’s no capacity for human choice or the legal system, Nazarov noted. “There is just a technically enforced system of contracts.”

In addition to a number of topics surrounding smart contracts, technological guarantees, cross-chain interoperability and Nazarov’s long-term vision for Chainlink, we disccused:

• Unexpected smart contract use cases
• How traditional companies can tokenize assets
• AI and blockchain technology
• CCIP updates

Chain Reaction comes out every other Thursday, so be sure to subscribe to us on Apple Podcasts, Spotify or your favorite pod platform to keep up with the latest in web3 and crypto.