Centralized exchanges are often seen as competitors to the decentralized finance (DeFi) ecosystem, however Gemini and Chainlink are collaborating to bring the two worlds together.
One of the problems that the user can find in the crypto market, especially the DeFi sector, is the huge number of blockchain platforms, which many times are not compatible with each other. Thus, there is a demand for having a single interface that brings together various projects for greater ease of interaction.
Gemini uses Chainlink oracles for her Proof-of-Reserve (PoR)
One of the first Gemini implementations to meet this growing demand for multistrings comes in the form of EFIL, a new Wrapped feature.
EFIL is an ERC-20 token implemented on the Ethereum blockchain that is backed by a 1 to 1 ratio of Filecoin (FIL) on Gemini Custody. FIL is the native token of the Filecoin network, one of the leading decentralized blockchain data exchange platforms. Essentially, EFIL is a representation of FIL on the Ethereum blockchain, with a full guarantee managed by Gemini Custody.
As such, FIL is no longer confined to its own blockchain, but can now be integrated into the Ethereum DeFi ecosystem. It could be traded on a DEX, leveraged as collateral for a loan, or used to pay for Filecoin services directly from the Ethereum blockchain.
Additionally, now Gemini sponsors the data source for Proof of Reserve (PoR) powered by Chainlink. Chainlink PoR maintains a data feed on-chain Regarding the current collateralization of EFIL, for this they use the Chainlink oracles to monitor the amount of FIL stored in the Gemini EFIL smart contract and thus compare it with the circulating supply of EFIL in Ethereum.
The Chainlink oracles would verify that the EFIL is fully collateralized at any time before executing key functions on the blockchain, it would be de facto an automated audit of the Gemini Custody blockchain.
For example, if EFIL is found to be undercollateralized, the DeFi protocol can implement custom logic to protect its users from bad debt risk, such as temporarily pausing new loans that provide EFIL as collateral. DeFi protocols do not need to trust that Gemini is not engaging in fractional booking practices, the protocols can verify collateralization themselves directly on the chain using the Chainlink decentralized PoR oracle network.
Transparency in DeFi is the entry point for institutions
In order for traditional financial institutions to be used as gateways for the custody of DeFi assets, they will be forced to comply with the transparency and reliability standards of the underlying DeFi protocols.. There is a great demand from institutional investors to get into these new assets, however, until clear compliance with the anti-money laundering regulations can be demonstrated, little progress will be made.
The ideal is to be able to combine the escrow infrastructure with various decentralized technologies such as smart contracts and Chainlink oracles to potentially create more transparent, fair and user-friendly financial products.
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Chainlink and Gemini collaborate to unite centralized exchanges with DeFi – BeInCrypto