Chainlink Fulcrum Goes Live on Testnets

Chainlink Fulcrum becomes available on testnets for institutional funding using various blockchain platforms.
The solution allows the separation of funding agreements from payment and collateral transfer networks across blockchain networks.
Fulcrum makes use of CRE, CCIP, and data streams for cross-network funding and collateral processes.

Chainlink has launched Fulcrum on testnets as a platform for institutional financing and collateral management across public and private blockchains. The solution connects financing agreements with the networks where cash and collateral settle, while allowing counterparties to set assets, financing terms, and settlement arrangements.

The testnet release gives institutions an environment to evaluate Fulcrum’s financing and collateral workflows before production use. Chainlink said the platform is being integrated with leading traditional finance environments. However, testnet activity does not establish production deployment or institutional adoption.

How Chainlink Fulcrum handles financing

Chainlink Fulcrum differentiates between the governance of the financing agreement and the networks used to settle cash and collateral. As described by Chainlink, this architecture enables cross-chain repurchase agreements (repos) and other collateralized financing transactions.

https://twitter.com/chainlink/status/2105274672602361938

The counterparties can choose the acceptable assets, specify the financing terms, and facilitate settlement on the supported blockchain networks. The terms may be defined as the principal amount, financing rate, acceptable collateral, and haircut. It is also possible to specify the requirements like no collateral rehypothecation.

Chainlink stated that Fulcrum will enable bilateral lending and repos on both EVM-compatible and non-EVM chains through the use of its Chainlink Runtime Environment and Cross-Chain Interoperability Protocol.

The platform will not handle any asset custodies, nor will it be a counterparty or a trading venue. Any lending arrangements are left to the discretion of the parties involved.

Chainlink Fulcrum is made up of several Chainlink services.

The platform uses multiple parts of the Chainlink infrastructure. The Chainlink Runtime Environment manages all workflows during the transaction life cycle, which includes agreement setup, collateral verification, and payment release.

The Cross-Chain Interoperability Protocol, also known as CCIP, interlinks the private and public blockchains used for financing the transaction. Market data provided by Chainlink Data Streams is needed for collateral valuation and application of haircuts.

Furthermore, compliance, privacy, artificial intelligence, and other platform functionalities could potentially be integrated in the future depending on user demands. The listed functionalities are referred to in the context of the entire platform and not as part of the current offerings of each individual Fulcrum workflow.

What Chainlink Fulcrum is designed to address?

Chainlink said fragmented collateral systems can delay transfers, require reconciliation, and lead institutions to maintain liquidity buffers. Fulcrum is designed to separate an institution’s choice of financing venue from its choice of blockchain.

The firm recognized quicker collateral management as a possible result, including overnight repo transactions and other financing activities conducted on holidays and weekends.

Automatic valuation of collateral is expected to provide the ability to conduct monitoring for coverage and initiate margin calls or liquidation where collateral ratios fall below user-defined thresholds.

The platform is built in such a way that assets on one network are allowed to secure financing done on another network. According to Chainlink, this will increase the amount of collateral that can be used for funding and help organizations optimize their balance sheet.

A reusable integration platform was designed to link the legacy applications with workflow across public and private blockchains. According to Chainlink, this method can decrease the level of manual coordination and reconciliation compared to two separate customized integrations.

Fulcrum targets a broad institutional user base.

Chainlink said Fulcrum is designed for banks, dealers, prime brokers, agent lenders, custodians, hedge funds, pension funds, insurers, sovereign wealth funds, money market funds and asset managers. Tokenized fund and stablecoin issuers, as well as corporate treasuries, are also included.

The platform enables such parties to lend, borrow or collateralize based on their mandate and risk profile. Chainlink revealed that financial institutions will be able to assess financing conditions in integrated markets and channel transactions to the chosen venue.

Such an automated process would help track changing exposures and act in line with the agreed financing terms outside market hours. Chainlink noted that the solution offers 24/7 operations as part of its design.