Prerequisite knowledge:

ERC-667:

Allow tokens to be transferred to contracts and have the contract trigger logic for how to respond to receiving the tokens within a single transaction.

This adds a new function to ERC20 token contracts, transferAndCall which can be called to transfer tokens to a contract and then call the contract with the additional data provided. Once the token is transferred, the token contract calls the receiving contract's function onTokenTransfer(address,uint256,bytes) and triggers an event Transfer(address,address,uint,bytes), following the convention set in ERC223.

How Chainlink works:

Code Flow: