Five Things Niklas Kunkel and Kevin Chan Want You to Know About Oracles and Tokenized Assets

Chronicle founder Niklas Kunkel and Grove Protocol co-founder Kevin Chan recently sat down to discuss the state of tokenized assets, oracle infrastructure, and what it's actually going to take to bring capital markets onchain.

The conversation covered a lot of ground. Watch the full video for Unwrapped with Grove Finance or keep reading to find out what were the five arguments that cut deepest.

An oracle that just gives you a price isn't enough anymore

"Oracle has been mapped as this word that’s just a smart contract that gives you a price. That is, one, an oversimplification, but two, it’s not gonna be good enough for tokenized assets." — Niklas Kunkel, founder of Chronicle.

Ask anyone in DeFi what an oracle does and you'll get roughly the same answer: it's the smart contract that gives you a price. That definition worked fine when the assets being priced were crypto-native but it isn't going to work for what's coming next.

Trillions of dollars in traditional assets are moving on-chain and the oracle infrastructure meant to underpin that transition is, by and large, still thinking in terms of price feeds. That gap, between what oracles currently do and what tokenized assets actually require, is where things will start to get interesting.

Tokenized assets are wrappers and DeFi needs to open them up

"There is really no point in tokenizing something unless you can integrate it into DeFi, and that integration is what gives tokenized assets superior utility compared to their traditional counterparts." — Niklas Kunkel, founder of Chronicle.

A tokenized asset looks like a token, behaves like a token, but it is not a token. At least not at its core.

If we unwrap each one of them we’ll see there is a traditional instrument, with a custodian, a fund administrator, a capital structure, a set of legal obligations, and a redemption schedule that has nothing to do with how DeFi liquidity works. DeFi protocols were designed to handle crypto-native assets and have no native visibility into any of that.

Integrating tokenized assets into DeFi protocols safely requires a real-time picture of what's actually inside the wrapper. They need more granular onchain data on things like the NAV, the full composition of the asset, who holds custody, how redemptions work, and where the risk actually lives.

The opportunity right now is to bring out all of this rich metadata that a DeFi protocol needs to contextualize a tokenized asset and risk manage it in the appropriate manner.

Now is not a time to cut corners

“Trust is what this infrastructure has to earn. The work is doing the homework, identifying edge cases, and packaging that diligence into systems that improve on the more patchwork infrastructure that we’re aiming to upgrade.” — Kevin Chan, co-founder of Grove.

There’s a real incentive to move fast because first movers grab market share and that market share compounds. But the history of DeFi has a clear record of what happens when protocols optimize for growth over fundamentals. Each boom cycle produces hundreds of new protocols and the long-term winners are usually the ones that took things seriously at a foundational level, even when that meant growing more slowly.

Tokenized assets are arriving at a similar inflection point. There are new edge cases that need to be handled carefully at the infrastructure level. For example, existing infrastructure doesn’t make underappreciated risks like liquidity mismatch legible onchain. DeFi users are conditioned to expect that they can exit a position whenever they want, but that's not how real-world assets work.

That gap between what a DeFi user assumes about liquidity and what a tokenized asset actually provides is exactly the kind of edge case that a context-aware oracle needs to surface. A price feed won't catch it but a system that understands the full composition of the underlying asset will.

Cryptography enables trust without counterparty risk

"We don't want protocols and people and users and institutions to trust Chronicle. We want to reintroduce trust with cryptography, where every element of data origination and every element of data integrity in terms of calculations can be proven." — Niklas Kunkel, founder of Chronicle.

Traditional finance handles trust through intermediaries. When two parties on opposite sides of a deal don't trust each other, they bring in a neutral third party to act as an arbiter. The way onchain finance improves on this model is by doing away with intermediaries as much as possible and pushing trust down to the cryptographic layer.

Chronicle’s Proof of Asset framework, for example, starts at the source. It connects directly to custodians as the base layer of a tokenized asset's information chain rather than consuming post-processed values from intermediaries. That information is then cryptographically verifiable onchain so that trust doesn't flow through Chronicle itself but flows through math instead.

A data integrity layer is critical for scaling tokenized assets

“If the oracle layer breaks down, the redemption facility breaks down with it. Every user interaction with Basin depends on Chronicle's NAV-based pricing being accurate and trustworthy at the moment of execution.” — Kevin Chan, co-founder of Grove.

Grove's recently announced Grove Basin product offers a concrete demonstration of what the right infrastructure for onchain data actually enables. Basin is an instant redemption facility for tokenized assets that compresses the typical T+1 or longer redemption window down to atomic settlement, allowing users to convert tokenized asset positions into stablecoins in a single transaction.

This product is a proof of concept for a broader thesis. One of the persistent barriers to tokenized asset adoption has been the inability to exit positions with the same fluidity DeFi users expect from native assets. Grove’s instant redemption capabilities can change that calculus because it counts with more than a traditional price feed. Chronicle’s Proof of Asset gives Grove the kind of onchain data that allows them to handle these redemptions confidently.

The next phase is systems that actually understand the asset

Getting assets onchain was the first stage in safely integrating them into DeFi. The next phase is to use them as integral parts of the onchain finance ecosystem. That can only happen through systems that understand the composition of what they're managing.

Chronicle is focused on creating this technology and the changes it enables downstream such as more efficient capital allocation, better risk management, and more scalable end-user applications. The oracle category has to grow up alongside the assets it serves.

Watch the full conversation between Niklas and Kevin, visit the Proof of Asset dashboard, and learn more in the Grove docs and Chronicle docs.