chainlink payment abstraction is now live: svr fee conversion and user fee staking rewards

On a periodic basis, the pool of fee tokens consolidated on the payment chain are converted to LINK using Chainlink Automation and an onchain DEX. The initial DEX used by Payment Abstraction is Uniswap V3, given its liquidity profile for supported tokens and the fact that it can be permissionlessly integrated by other smart contracts while minimizing centralized points of control. In the future, additional DEX services could be integrated to enhance MEV protection and support features such as smart order routing.

In parallel to the launch of Payment Abstraction, existing node operator oracle rewards are planned to be consolidated within the Chainlink Network from 40+ chains to a single blockchain, starting with CCIP. This is an additional step to support the efficiency of the Chainlink Network by leveraging onchain infrastructure introduced by Payment Abstraction.

Payment Abstraction enables users to pay for Chainlink Services in alternative assets (e.g., gas tokens and stablecoins), which are then automatically converted into LINK using a combination of Chainlink Automation, Price Feeds, CCIP, and a decentralized exchange (DEX).

By using the Reserves contract on Ethereum mainnet introduced by Payment Abstraction, node operators can accrue oracle rewards on a single blockchain (Ethereum) for their participation in DONs across the multi-chain economy, starting with CCIP. This adjustment in the rewards accrual process for node operators is designed to create time and cost savings for service providers in the Chainlink Network.

For the current version of Chainlink Staking, Stakers will not need to take any further action, as fees will be made available in the same manner current staking rewards are today.

LINK rewards for Chainlink node operators typically accrue across multiple blockchains. This means if a node operator participates in decentralized oracle networks (DONs) across 40 blockchain networks, then the node operator may accrue oracle rewards on up to 40 distinct blockchain networks. This can result in up to 40 different onchain claim transactions for node operators.

On a periodic basis, the pool of fee tokens consolidated on the payment chain are converted to LINK using Chainlink Automation and an onchain DEX. The initial DEX used by Payment Abstraction is Uniswap V3, given its liquidity profile for supported tokens and the fact that it can be permissionlessly integrated by other smart contracts while minimizing centralized points of control. In the future, additional DEX services could be integrated to enhance MEV protection and support features such as smart order routing.

We plan for Chainlink Network fees generated by SVR services to transition to being sent to LINK Stakers—including both node operator and community stakers—once Chainlink Staking secures the node set powering an SVR service.

We plan for Chainlink Network fees generated by SVR services to transition to being sent to LINK Stakers—including both node operator and community stakers—once Chainlink Staking secures the node set powering an SVR service. We expect to launch additional SVR services and integrate Chainlink Staking into more SVR services in the near future. More information about the use of Chainlink SVR fees with Chainlink Staking is covered later in this blog.

After being converted to LINK, fees are automatically deposited into a Reserves contract, where allocations are earmarked to Chainlink Network service providers and become available for withdrawal. Payment Abstraction will initially be used for Chainlink SVR, but is planned to expand to additional Chainlink services in the future. More information about the use of SVR fees are described later in this blog.

Chainlink SVR recently launched with Aave as its first user, including an initial 6-month discounted fee split of 65% to the Aave community and 35% to the Chainlink ecosystem.

When fees are made available to stakers, we expect that 50% will go toward making the existing Staking Reward rate more sustainable, while the other 50% will serve as an additional fee reward for LINK Stakers that is split 50/50 between the node operator and community staking pools.

Payment Abstraction enables users to pay for Chainlink services with the assets they already have (e.g., gas tokens, stablecoins, etc) while maximizing the Chainlink Network’s cryptoeconomic security and sustainability by leveraging LINK as a singular Universal Gas Token for service payments and staking.

After being converted to LINK, fees are automatically deposited into a Reserves contract, where allocations are earmarked to Chainlink Network service providers and become available for withdrawal. Payment Abstraction will initially be used for Chainlink SVR, but is planned to expand to additional Chainlink services in the future. More information about the use of SVR fees are described later in this blog.

Chainlink SVR recently launched with Aave as its first user, including an initial 6-month discounted fee split of 65% to the Aave community and 35% to the Chainlink ecosystem.

Fee tokens from various service chains are automatically consolidated in regular intervals onto a single payment chain via CCIP. The Ethereum blockchain is used as the payment chain to minimize costs, providing an optimal balance between a multitude of factors such as gas fees and depth of onchain liquidity. Consolidating fees to a single chain streamlines the final payment of converted LINK. For example, core infrastructure such as Chainlink Staking currently operates on Ethereum mainnet.

When fees are made available to stakers, we expect that 50% will go toward making the existing Staking Reward rate more sustainable, while the other 50% will serve as an additional fee reward for LINK Stakers that is split 50/50 between the node operator and community staking pools.

Payment Abstraction has been deployed into production with an initial focus on converting network fees generated by Chainlink Smart Value Recapture (SVR)—an oracle solution that enables DeFi applications to recapture the non-toxic Maximal Extractable Value (MEV) generated from their use of Chainlink Data Feeds.

Chainlink Payment Abstraction is designed to reduce payment friction and simplify the payment experience for users interacting with Chainlink services. Through a combination of onchain smart contracts, Chainlink services, and a decentralized exchange, the process of paying Chainlink Network service providers (e.g., nodes and stakers) in LINK is frictionless and automated.

LINK rewards for Chainlink node operators typically accrue across multiple blockchains. This means if a node operator participates in decentralized oracle networks (DONs) across 40 blockchain networks, then the node operator may accrue oracle rewards on up to 40 distinct blockchain networks. This can result in up to 40 different onchain claim transactions for node operators.

Chainlink Payment Abstraction is designed to reduce payment friction and simplify the payment experience for users interacting with Chainlink services. Through a combination of onchain smart contracts, Chainlink services, and a decentralized exchange, the process of paying Chainlink Network service providers (e.g., nodes and stakers) in LINK is frictionless and automated.

Chainlink Payment Abstraction was inspired by direct feedback from protocol users and various abstraction-related technologies in the blockchain ecosystem such as Account Abstraction and Paymasters. We expect to continue taking learnings from ecosystem-wide developments to further enhance the payment experience of Chainlink services in the future.

Fee tokens from various service chains are automatically consolidated in regular intervals onto a single payment chain via CCIP. The Ethereum blockchain is used as the payment chain to minimize costs, providing an optimal balance between a multitude of factors such as gas fees and depth of onchain liquidity. Consolidating fees to a single chain streamlines the final payment of converted LINK. For example, core infrastructure such as Chainlink Staking currently operates on Ethereum mainnet.

Tokens supported by Payment Abstraction are allowlisted for both security purposes (e.g., to block malicious tokens) and to ensure there is sufficient onchain liquidity for conversion into LINK. The first alternative asset supported is ETH (and its ERC20 wrapped version WETH), which has predictable onchain liquidity against LINK. Support for additional tokens is planned to be incorporated over time, such as additional blockchain-native gas tokens and stablecoins.

The first use of Payment Abstraction is the conversion of the Chainlink Network portion of fees generated by Chainlink SVR. Aave recently integrated SVR into its Aave V3 deployment on Ethereum Mainnet, starting with the tBTC, LBTC, AAVE, and LINK markets through the SVR services for the AAVE/USD, BTC/USD, and LINK/USD.

The Payment Abstraction codebase underwent multiple private independent security audits from Sigma Prime and Trail of Bits, as well as a public competitive audit on the Code4Rena platform that featured a $100K prize pool where no critical or high severity issues were found. The source code for Payment Abstraction is available on GitHub and additional documentation used in the Code4Rena contest can be found here.

Payment Abstraction accomplishes the four-step conversion process through the introduction of multiple smart contracts, including: FeeAggregator.sol: A smart contract on the service chains where fee payments are collected and on the payment chain (Ethereum) where fees are accumulated after bridging. This contract is capable of both bridging and receiving fee tokens on a configuration basis. SwapAutomater.sol: A smart contract on the payment chain (Ethereum) in the form of a Chainlink Automation Upkeep that triggers conversion through a decentralized exchange (Uniswap), with protections in place for slippage tolerable on the Uniswap V3 routes. Reserves.sol: A smart contract on the payment chain (Ethereum) that receives LINK that was converted from fee tokens. Earmarks are set to specify how much LINK Chainlink Network service providers can withdraw.

We plan for Chainlink Network fees generated by SVR services to transition to being sent to LINK Stakers—including both node operator and community stakers—once Chainlink Staking secures the node set powering an SVR service.

The first use of Payment Abstraction is the conversion of the Chainlink Network portion of fees generated by Chainlink SVR. Aave recently integrated SVR into its Aave V3 deployment on Ethereum Mainnet, starting with the tBTC, LBTC, AAVE, and LINK markets through the SVR services for the AAVE/USD, BTC/USD, and LINK/USD.

By using the Reserves contract on Ethereum mainnet introduced by Payment Abstraction, node operators can accrue oracle rewards on a single blockchain (Ethereum) for their participation in DONs across the multi-chain economy, starting with CCIP. This adjustment in the rewards accrual process for node operators is designed to create time and cost savings for service providers in the Chainlink Network.

Chainlink Payment Abstraction was inspired by direct feedback from protocol users and various abstraction-related technologies in the blockchain ecosystem such as Account Abstraction and Paymasters. We expect to continue taking learnings from ecosystem-wide developments to further enhance the payment experience of Chainlink services in the future.

For the current version of Chainlink Staking, Stakers will not need to take any further action, as fees will be made available in the same manner current staking rewards are today.

Payment Abstraction enables users to pay for Chainlink services with the assets they already have (e.g., gas tokens, stablecoins, etc) while maximizing the Chainlink Network’s cryptoeconomic security and sustainability by leveraging LINK as a singular Universal Gas Token for service payments and staking.

In parallel to the launch of Payment Abstraction, existing node operator oracle rewards are planned to be consolidated within the Chainlink Network from 40+ chains to a single blockchain, starting with CCIP. This is an additional step to support the efficiency of the Chainlink Network by leveraging onchain infrastructure introduced by Payment Abstraction.

Tokens supported by Payment Abstraction are allowlisted for both security purposes (e.g., to block malicious tokens) and to ensure there is sufficient onchain liquidity for conversion into LINK. The first alternative asset supported is ETH (and its ERC20 wrapped version WETH), which has predictable onchain liquidity against LINK. Support for additional tokens is planned to be incorporated over time, such as additional blockchain-native gas tokens and stablecoins.

We plan for Chainlink Network fees generated by SVR services to transition to being sent to LINK Stakers—including both node operator and community stakers—once Chainlink Staking secures the node set powering an SVR service. We expect to launch additional SVR services and integrate Chainlink Staking into more SVR services in the near future. More information about the use of Chainlink SVR fees with Chainlink Staking is covered later in this blog.

Payment Abstraction has been deployed into production with an initial focus on converting network fees generated by Chainlink Smart Value Recapture (SVR)—an oracle solution that enables DeFi applications to recapture the non-toxic Maximal Extractable Value (MEV) generated from their use of Chainlink Data Feeds.

Payment Abstraction accomplishes the four-step conversion process through the introduction of multiple smart contracts, including: FeeAggregator.sol: A smart contract on the service chains where fee payments are collected and on the payment chain (Ethereum) where fees are accumulated after bridging. This contract is capable of both bridging and receiving fee tokens on a configuration basis. SwapAutomater.sol: A smart contract on the payment chain (Ethereum) in the form of a Chainlink Automation Upkeep that triggers conversion through a decentralized exchange (Uniswap), with protections in place for slippage tolerable on the Uniswap V3 routes. Reserves.sol: A smart contract on the payment chain (Ethereum) that receives LINK that was converted from fee tokens. Earmarks are set to specify how much LINK Chainlink Network service providers can withdraw.

The Payment Abstraction codebase underwent multiple private independent security audits from Sigma Prime and Trail of Bits, as well as a public competitive audit on the Code4Rena platform that featured a $100K prize pool where no critical or high severity issues were found. The source code for Payment Abstraction is available on GitHub and additional documentation used in the Code4Rena contest can be found here.