LayerZero is an interoperability protocol that uses new technology to instantly verify cross-chain transactions, connecting different blockchains and overcoming the challenges of liquidity fragmentation. Its goal is to create pathways and platforms for communication between independent blockchain networks, enabling them to share assets, state, liquidity, and more.

Founded in 2021, LayerZero was established by a team of engineers led by Bryan Pellegrino (co-founder and CEO), along with Caleb Banister (co-founder), and Ryan Zarick (co-founder and CTO). At the time, the isolation of numerous blockchains forced users to divide their resources and liquidity, limiting their options to transfer liquidity and state between closed ecosystems.

LayerZero Labs’ mission is to solve the interoperability problem between blockchains, providing decentralized application (dApp) developers the ability to communicate across multiple blockchains without intermediaries. LayerZero employs an innovative architecture that includes ultra-light nodes, independent oracles, and relayers to securely and efficiently transmit messages between chains.

How it works

LayerZero uses a set of smart contracts known as LayerZero endpoints on each supported chain. These endpoints not only connect all LayerZero-supported chains but can also be deployed on new chains to integrate them into the network. An example of this is cross-chain lending, where transaction details are sent from one blockchain (like Ethereum) to a LayerZero endpoint on another chain (like Avalanche), facilitated by independent off-chain entities, Oracle, and Relayer.

Specifically, the main components that operate within the LayerZero protocol include:

• Relayer: Responsible for sending transaction proofs and transaction data from Chain A to Chain B while matching the block header hashes of Chain A and Chain B.
• Oracle: Collaborates with decentralized oracles such as Chainlink to provide reliable data transmission for the LayerZero network.
• Endpoints: A set of smart contracts divided into communicator, validator, network, and library modules. The library module contains the code for each blockchain network, which needs to be updated only when adding a new network. These endpoints interact directly with users or applications and handle logic through a series of smart contracts. They are responsible for processing message transmission, validation, and reception, ensuring the effective delivery of messages when users send them through the protocol.

LayerZero’s messaging process relies on two main entities: oracles and relays. When a user agent (UA) sends a message from chain A to chain B, the message is first delivered through the endpoint on chain A. The endpoint then notifies the designated oracles and relayers about the details of the message and its target chain. The oracle delivers the block header to the endpoint on chain B, while the relayer submits the transaction proof. After the proof is verified on the receiving chain, the message is forwarded to the final destination address.

LayerZero’s security is based on the idea that if two independent entities can confirm a transaction on one chain, then the other chain can be trusted to execute that transaction. After receiving the transaction details, the Oracle creates a block header and the Relayer independently generates a proof. If both parties agree, the transaction is considered valid and completed on the second chain.

Functions and ecological use cases

1.bridging

Bridging is currently the most popular interoperability solution. Cross-chain bridging allows asset holders to transfer assets between different Layer 1 and Layer 2 platforms. There are many reasons for investors to bridge assets to another network, such as taking advantage of the fee structure on the target chain, or benefiting from applications on the target chain. Thanks to cheaper proof-of-stake (PoS) chains like Polygon, Fantom, and BNB Smart Chain (BSC), bridging is more important than ever. But in addition to the poor security already discussed, current bridging platforms leave something to be desired.

The capital intensity of operating a bridge lies in the need to develop new infrastructure for each direction of the bridge. For example, a bridging platform that supports 5 networks requires writing 5 different pieces of code and running 5 intermediate chains or light nodes.

LayerZero claims to solve this problem; first, the requirements for ultra-light nodes are lower, and universal data exchange means that the same infrastructure and code can be used to create bridges for multiple networks. Such bridges are more efficient and cost-effective, eliminating the need to use different code sets to bridge different chains.

1. Aptos Bridge

Aptos launches in October 2022 with the Aptos Token (APT) as the network’s native currency. Aptos’s claim to fame is primarily due to the unique technology it uses and its connection to Facebook’s failed Diem project, as Aptos’ modified Move language was originally developed for the Diem blockchain.

As of now, Aptos has a market capitalization of over $3 billion, and DefiLlama reports a TVL of $330 million in assets on the network, making its ecosystem an important one. However, Aptos is not EVM compatible, which is where LayerZero comes in. Launched shortly after the main network mined its genesis block, the LayerZero Aptos bridge connects Aptos to other EVM-compatible networks and even the Ethereum network.

Aptos Bridge allows users to bridge Aptos-backed assets with other networks such as BNB Smart Chain (BSC), Avalanche, Polygon, Ethereum, and Ethereum layer 2 networks such as Optimism and Arbitrum. The bridging process is expected to take 2-5 days, according to platform information.

1. Stargate Finance (STG)

Stargate is a build bridge platform developed using LayerZero interoperability technology. Stargate enables blockchain enthusiasts to transfer assets across chains in their original form with guaranteed finality.

This is achieved by Stargate using a unified pooling system to handle transfer requests across support chains. Liquidity providers stake their assets in Stargate’s single asset pool and receive staking rewards in the form of stablecoins derived from fees paid by users to bridge assets on the platform.

The bridge currently supports approximately eight networks, including Layer 2 vertical scaling solutions such as Arbitrum and Optimism. Full-chain technology provides a layer for supported tokens to function seamlessly and move across other chains. Stargate Finance also offers cross-chain swaps, where users can send an asset from the source network and receive and receive another asset on the target chain.

Data from the project page shows that more than $200 million worth of assets have been locked on the platform. This reflects the liquidity of the pool servicing bridge requests. Stargate Token (STG) is the native token of the Stargate ecosystem and is used for reward and governance purposes. Liquidity providers can stake their LP tokens and receive additional rewards in STG tokens.

In order to contribute to project governance, STG holders must stake their tokens on the governance portal to earn VeSTG. This is used to vote on improvement proposals. STG is actively traded on both centralized and decentralized exchanges. You can view active trading pairs for the STG token by clicking here.

Cross-chain exchange and unified liquidity

Investors looking to buy crypto assets on different networks first need to bridge the unified asset to the target chain and then use a decentralized exchange on the target chain to make the purchase. LayerZero’s test bridge can directly exchange Ethereum and Layer 2 solutions such as Arbitrum and Optimism on the main network for Goerli ETH. Similar systems could be developed on a larger scale to support cross-chain exchanges and eliminate the process of bridging and connecting to exchanges on the target platform.

Current bridging uses separate liquidity pools, for example, different liquidity pools serve bridge requests from Ethereum to the Polygon PoS chain and bridge requests from Fantom’s Opera chain to Polygon. This may result in efficiency differences. The liquidity on the Ethereum to Polygon bridge may be enough to handle all requests, while the assets on both chains on the Fantom to Polygon bridge are not enough to immediately fulfill bridge requests.

LayerZero co-founder Ryan Zarick mentioned that LayerZero can leverage a unified liquidity pool to satisfy bridging requests from multiple target chains.

“LayerZero achieves the ultimate goal of bridging: achieving unified liquidity on all chains and guaranteeing finality on the source chain. This means that when a user transfers assets from chain A to chain B, the user can guarantee that on chain B assets, and the LP provider can receive fees from all transactions incoming to chain B, regardless of the source chain.”

1.Base

Base is an Ethereum Layer 2 solution launched by Coinbase, using Optimism’s OP Stack software. Base provides a simple integration path for decentralized applications, ensuring the security, stability and scalability of decentralized applications, while providing access to users and assets from Ethereum L1, Coinbase and other interoperable chains. Convenient access.

The LayerZero protocol, launched on Coinbase’s Base mainnet, promotes cross-chain communication through full-chain interoperability solutions, including token exchange, transfer and other functions, improving the overall efficiency and accessibility of the decentralized ecosystem.

There are many practical applications released by the cooperation between LayerZero and Base. For example, the Parallel project has used the LayerZero protocol to smoothly move tokens between Base and Ethereum, demonstrating the practicality and efficiency of the protocol.

2.SushiSwap

SushiSwap is a multi-chain decentralized exchange powered by AMM. It claims to have over 400 crypto assets available for instant decentralized exchange. It has more than $200 million worth of crypto assets locked in its liquidity pool. These statistics come from the project’s official website and are valid at the time of writing. Its governance and reward system are provided by the SUSHI token.

In July 2022, SushiSwap announced the launch of SushiXSwap. The new platform is developed using LayerZero’s interoperability technology to solve the pain points of multi-chain DeFi application usage. In the announcement, SushiSwap reflects on the main issues affecting cross-chain interaction facilities and how LayerZero’s technology can be deployed to solve this problem. At launch, SushiXSwap supports asset bridging across Ethereum, Fantom, and approximately 5 other networks.

LayerZero’s technology enables SushiSwap to develop a unified liquidity system that pools resources across supported networks to cater for asset transfers and ensure these transactions are completed in the shortest possible time. As an already existing liquidity pool project, SushiSwap uses its liquidity pool to power the bridge between the chains where the project is located, solving the problem of liquidity dispersion.

SushiSwap also solves the problem of Asset Bridge’s fee structure by providing users with the cheapest cross-chain transfer route. This cost-effective solution leverages Stargate Finance’s bridging infrastructure to find the cheapest route to move assets from the source chain to the target chain. SushixSwap will also use Stargate’s facilities to expand its bridging and expand to other networks over time. Cross-chain exchanges are also possible on SushiXSwap.

Full-chain tokens and NFTs

By design, LayerZero’s technology creates a true layer zero: an ecosystem that is able to interact with any other network, share resources, and operate freely without platform limitations—the full chain. LayerZero could be the first to launch “non-native” crypto assets. Non-native means that they can be used on every chain without having to port them to the target chain and back via bridges that change their original form. Full-chain tokens and NFTs will be unique and enjoy faster adoption because investors can easily purchase and store them on their preferred blockchain.

1.TofuNFT

TofuNFT is a multi-chain NFT marketplace deployed on more than 20 blockchain networks. NFT enthusiasts can list their NFTs on supported networks and sell them on TofuNFT’s marketplace, as well as collect the creations of other NFT creators. TofuNFT was selected into the LayerZero ecosystem to develop the full-chain NFTS market

Full-chain NFTs, like full-chain fungible tokens (OFTs), are non-native NFTs that can be easily transferred across different networks in their original form. TofuNFT’s full-chain marketplace has received a handful of full-chain NFT listings, such as the LayerZero Punk with a base price of 0.015ETH at the time of writing.

2.Oasys

Oasys is a gaming-optimized blockchain that provides a highly scalable Layer 1 hub and dedicated Layer 2 using Ethereum’s Layer 2 scaling solution. The ecosystem provides game developers with secure and scalable blockchain infrastructure to create more efficient, secure, and interoperable games.

Oasys’ validators include leaders in gaming and Web3 such as SEGA, Ubisoft, and Yield Guild Games, who are the initial validators of our Proof-of-Stake (PoS)-based blockchain. Oasys’ expert blockchain team, combined with the biggest names in gaming, is revolutionizing the gaming industry.

Oasys is committed to creating an ecosystem for gamers and developers to distribute and develop games, solving the challenges game developers face when building blockchain-based games. The company’s trio approach includes a fast network powered by the gaming community, a scalable network powered by AAA game developers, and a blockchain that delivers the best user experience with fast transactions and zero gas fees. This approach prepares participants to get into Oasys and play the game.

After integrating with LayerZero, Oasys will leverage LayerZero’s interoperability technology to improve cross-chain operations of games and NFTs, providing a richer and more inclusive gaming experience. LayerZero also achieves homogeneity through the Omnichain Fungible Token (OFT) standard the flow of tokens. Bryan Pellegrino, co-founder and CEO of LayerZero Labs, added: “LayerZero’s addition of endpoints to Oasys is a major leap forward in the interoperability of in-game assets. LayerZero is committed to connecting communities and making the games that players love available across different networks Empowering players with greater accessibility and enjoyment.”

Overall, LayerZero is primarily used by decentralized application developers who need to communicate across multiple blockchain networks. The LayerZero ecosystem also includes a number of projects of different categories, covering NFT, payment, wallet, bridging, infrastructure, DeFi, DEX, GameFi and other aspects, and the ecosystem is relatively prosperous

ZRO token

The $ZRO token is the primary token in the LayerZero ecosystem and is used to facilitate various activities and incentives within the ecosystem.

The $ZRO token plays multiple roles in the LayerZero ecosystem, including:

• Incentives and rewards: Used to reward participants and contributors in the ecosystem.
• governance: Users holding $ZRO tokens can participate in the governance decisions of the protocol.
• payments and transactions: Used to pay for cross-chain operations and other transaction fees within the ecosystem.

The initial allocation of $ZRO tokens is as follows:

1. Ecosystem Fund：25%（2500）
2. airdrop: 19% (1900): 5% of which is for IDO
3. core contributor：19%（1900）
4. investor：17%（1700）
5. RPGF（Retroactive Public Goods Funding）：20%（2000）

The circulating supply of $ZRO tokens is 110,000,000 ZRO, the total supply is 1,000,000,000 ZRO, and the maximum supply is 1,000,000,000 ZRO.

The release cycle of $ZRO tokens is as shown below:

Team/Financing Status

Bryan Pellegrino, co-founder and CEO of LayerZero Labs, graduated from the University of New Hampshire with a degree in computer science. He has served as Entrepreneur in Residence, Lead Engineer on Machine Learning Architecture, and Co-Founder of OpenToken.

Co-founder Caleb Banister is good at writing and auditing smart contracts for blockchain-related projects. Caleb is a professional Solidity developer with a bachelor’s degree in computer science from the University of New Hampshire. He is a skilled Java and Linux programmer building the future and multi-chain metaverse.

Another co-founder, Ryan Zarick, is the Chief Technology Officer of LayerZero Labs. He is an experienced software developer and entrepreneur with more than 10 years of experience in the technology industry. He co-founded Minimal AI, Coder Den, and 80Trill, and served as CTO at Buzzdraft. He holds a master’s degree in computer science from the University of New Hampshire.

Since its establishment, LayerZero has successfully completed multiple rounds of financing, with a total financing amount of US$263 million, and its market valuation has reached US$3 billion.

In the most recent round of Series B financing, LayerZero successfully raised US$120 million on April 4, 2023. This round of financing brought its valuation to US$3 billion. The financing attracted participation from a number of well-known investors, including Andreessen Horowitz (a16z), Sequoia Capital and Circle.

Previously, LayerZero also completed a round of A1 financing on March 30, 2022, with a financing amount of US$135 million and a valuation of US$1 billion. Major investors in this round of financing include Andreessen Horowitz (a16z) and Sequoia Capital, demonstrating the market’s confidence in LayerZero’s technology and development.

Earlier on September 16, 2021, LayerZero conducted a Series A financing and successfully raised US$6 million with a valuation of US$50 million. Through these early financial supports, LayerZero laid its foundation in the field of blockchain interoperability and promoted the initial development of the project.

Project Evaluation

LayerZero belongs to the cross-chain interoperability track in blockchain technology. The goal of this field is to solve the communication and asset transfer problems between different blockchain networks and enhance the interconnectivity of the blockchain ecosystem.

A cross-chain interoperability project similar to LayerZero is Wormhole.

Created by Jump Crypto, Wormhole serves as a decentralized cross-chain protocol designed to enable the transfer of data and tokens between different blockchains through a universal messaging protocol. Supported blockchains include Ethereum, Solana, Sui, Injective, etc.

Wormhole consists of 17 highly verified Guardian nodes that must confirm every transaction to ensure the security of the system. It also supports cross-chain token and NFT transfers, has processed more than 1 billion cross-chain messages, and interoperates with the messaging systems of Cosmos and Polkadot. In addition, wormhole also supports the transfer of NFT assets between multiple blockchain networks.

Wormhole is arguably the most mature protocol on the circuit and the only one unconditionally approved for use by Uniswap. It also claims to be able to handle over 1 billion cross-chain messages and is interoperable with the Cosmos and Polkadot messaging systems. While Wormhole may not be as valued as LayerZero, it has the most adopted protocol, and the momentum doesn’t appear to be changing anytime soon.

However, there are differences between LayerZero and Wormhole. Wormhole mainly relies on a fixed Guardian node network and has less flexibility. LayerZero can freely choose oracles and repeaters, which improves the flexibility and modularity of the system; Wormhole adopts Technical solutions that rely on trust (packaging assets are stored on the bridge chain and controlled by multi-signature accounts), while LayerZero uses light nodes to run on the target chain. These nodes can package and send all transactions at once, directly transferring native assets between chains. , avoiding the complexity and risks when assets are transferred between different chains.

Therefore, Wormhole was exploited by hackers in 2022, resulting in a loss of 120,000 ETH (approximately US$325 million), but its security has been significantly enhanced since then, and LayerZero’s cross-chain system has not yet been successfully attacked by hackers.

In addition to security, LayerZero also has the following advantages:

• Scalability: LayerZero is designed with scalability in mind, capable of handling high transaction volumes without affecting performance, and is suitable for large-scale applications and enterprise integration.
• Developer friendly: Provides a powerful set of tools and APIs to facilitate developers to build and deploy cross-chain applications.
• Cost-effectiveness: Through LayerZero’s architecture, users can achieve cross-chain functionality without incurring high costs.
• Ecosystem support: LayerZero has received widespread support from the blockchain community and industry stakeholders, forming a vibrant ecosystem of developers, users and partners.

While LayerZero is designed to be scalable, performance may be sacrificed when handling extremely high transaction volumes or complex cross-chain operations. Ensuring optimal performance under all conditions remains a challenge that the protocol must continually address. Additionally, LayerZero’s security model relies on external validators such as oracles and relayers. While this increases decentralization and security, it also introduces potential points of failure if these validators are compromised. Ensuring the reliability and trustworthiness of these external entities is critical to the long-term viability of the protocol.

However, since LayerZero is still in the early stages of the project and has only recently issued coins, there is still potential for future development. As long as its solutions continue to work the way they claim, the LayerZero ecosystem is bound to get bigger as more and more projects adopt well-established interoperability solutions.

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