Cross-Chain Interaction New Path: CryptoEconomic DVN Framework Interpretation

Original Title: Cross-Chain Interaction New Communication Path: LayerZero and EigenLayer Launch CryptoEconomic DVN Framework

Author: YBB Capital researcher Ac-Core

TLDR

• The CryptoEconomic DVN framework combines LayerZero's Cross-Chain Interaction message delivery with EigenLayer's economic security and incentives.
• The DVN framework operates through a structured process divided into three stages: verification, rejection, and punishment.
• The collaboration between LayerZero and EigenLayer deepens the Decentralization of DVN by accepting ETH, ZRO, and EIGEN as Collateral, creating new rise opportunities for both tokens.
• The CryptoEconomic DVN framework is expected to enhance the security of the entire blockchain ecosystem.

1. Understanding the Narrative: Iterative Upgrades of EigenLayer and LayerZero

Image source: LayerZero official

According to the announcement on October 2, 2024, LayerZero Labs has partnered with Eigen Labs to launch the CryptoEconomic DVN Framework, aiming to provide encryption economic security for Cross-Chain Interaction message transmission. Under this framework, developers can deploy their own DVN on EigenLayer, while introducing incentive mechanisms to enhance the security and reliability of Cross-Chain Interaction message transmission.

In short, the CryptoEconomic DVN Framework combines the LayerZero's Cross-Chain Interaction security mechanism with the EigenLayer's stake encryption economic model. Its core goal is to use EigenLayer's encryption economic framework to provide higher security and incentives for Decentralization Validation Networks (DVN).

1.1 Phase 1: laying the foundation for CryptoEconomic DVN and LayerZero V2

LayerZero is not just a Cross-Chain Interaction asset bridge, but also a trustless Cross-Chain Interaction communication protocol, which separates the trust layer through relayers and Oracle Machine. It uses ultra-light Nodes to achieve Cross-Chain Interaction message transmission.

The LayerZero V2 architecture consists of three core components: protocol, standard, and infrastructure.

1. protocol

The protocol part of LayerZero remains consistent across all supported Blockchains, ensuring immutability and permissionless features to guarantee resistance to censorship and long-term stability. It consists of two main components:

• Endpoints: Immutable and non-upgradable smart contracts deployed on each blockchain, serving as the core of the LayerZero protocol. These endpoints provide standardized interfaces for applications to manage secure configurations and send/receive Cross-Chain Interaction messages.
• MessageLibs: These libraries connect to endpoints and handle verification and communication of Cross-Chain Interaction messages. When updated, MessageLibs will be appended rather than replaced, ensuring backward compatibility and allowing developers to use old versions when necessary.

Image source: LayerZero Endpoint Description

2. Standard

LayerZero's standard enables developers to build unified applications and Tokens across multiple Blockchains, ensuring Cross-Chain Interaction consistency and scalability.

• Contract Standards: LayerZero provides standards such as OApp (On-chain Application) and OFT (On-chain Token), which extend the existing Smart Contract standards, enabling developers to quickly create applications and tokens that run on-chain on all LayerZero-supported Blocks.
• Message Package: These packets transmit data and commands between blockchains, including random numbers, source/target chain IDs, and payloads. This structure ensures the accuracy and security of Cross-Chain Interaction message delivery, even across EVM and non-EVM chains.
• Design Patterns: A collection of design patterns such as AB, ABA, Composite AB, etc. to help developers build efficient Cross-Chain Interaction and user experience.

Image Source: ABA Design Pattern Combination

3. Infrastructure

LayerZero's infrastructure is open and modular, allowing any entity to join the network to validate and execute transactions.

• Decentralization Verification Network (DVN): These networks verify Cross-Chain Interaction messages. Applications can choose the appropriate verification network to meet their security needs and avoid being locked into a single validators network.
• Executor: Responsible for ensuring that Cross-Chain Interaction messages are executed on the target on-chain entity. The executor simplifies the user experience by allowing users to only pay gas fees on the source on-chain.
• Security Stack: Each application can configure a unique security stack, including DVN, executors, and security preferences, to provide highly customizable security solutions.

To understand the CryptoEconomic DVN framework, it is necessary to understand the role of DVN in LayerZero V2:

• DVN is responsible for verifying Cross-Chain Interaction messages.
• Openness: Anyone can create or develop DVNs, providing various validation methods.
• Customizable Security: Applications can choose DVN based on their security needs.
• DVN Combination: The application can configure multiple DVNs to verify messages, such as a configuration of "1 out of 3 out of 5".

Image source: The location of DVN in V2 architecture

1.2 Phase 2: CryptoEconomic DVN protected by EigenLayer

EigenLayer consists of Smart Contracts, allowing users to 're-stake' their ETH or liquidate stakeToken (LST) to enhance the security and Decentralization of the modular blockchain network. Essentially, EigenLayer sells the security of Ethereum for broader ecosystem use. Key aspects include:

1. Native re-stake: Allows validation of multiple commitments to ensure all commitments are financially sound.

2. Liquidity re-stake: Tokenization of stake assets represents the release of liquidity.

3、AVS Economy: A Decentralization system that combines technology with a trust structure.

**4、Massive Rollups：**Through mechanisms such as EigenDA, infinite scalability is achieved.

5. Trusted Applications: Fulfilling promises to provide Decentralization services with Ethereum-level security for ETH.

Therefore, EigenLayer enhances the Decentralization network by providing a modular, scalable solution to extend the security model of Ethereum.

2. Token Economy Empowerment: LayerZero x EigenLayer Collaboration, Empowering ZRO and EIGEN as Collateral Assets

Image: stake, validation, rejection, and punishment process diagram

In short, the encryption Distributed Verification Network (DVN) enhances the security of Cross-Chain Interaction in three key ways:

1. encryption and economic security: DVN has introduced a slashing mechanism. If DVN acts maliciously or makes mistakes, its stake assets may be slashed. This economic model incentivizes DVN to take responsible actions, as improper behavior can lead to significant financial losses, thereby promoting responsibility and security.

2. Security defined by AVS: Each Active Verification Service (AVS) defines the types of assets that can be staked and the penalty conditions. This flexibility allows different types of DVNs (such as based on ZKP, sidechains, or proof of authority) to enhance security with additional Collateral, thus increasing the economic deterrence against malicious behavior.

**3. Unlicensed security: **Anyone can contribute to the security of DVN by staking assets, making the system more open and inclusive. DVN can choose to accept any asset (such as ZRO, ETH, or EIGEN) as Collateral to expand security options and promote Decentralization.

The CryptoEconomic DVN framework is an Open Source system designed to enhance the security of the Decentralization Verification Network (DVN) through Token-based economic incentives. It leverages LayerZero's DVN for message validation and adds an additional layer of security. The framework operates through four key mechanisms: stake, validation, rejection, and slashing.

• **stake：**validators (stakers) lock ZRO, EIGEN or ETH and other Tokens as Collateral in the Decentralized Validators Network (DVN) Active Validators Set (AVS). These staked funds can incentivize validators to act honestly, as misconduct may result in penalties.
• Verification: Users or applications can trigger Cross-Chain Interaction round-trip messages (e.g., ETH chain → source chain → target chain → ETH chain) to verify whether the hash recorded in DVN matches the on-chain hash. If they match, the process ends.
• Refusal: If there are any mismatches, the refusal process is initiated, allowing Tokenholders to vote on whether to penalize DVN's stake assets. This step prevents erroneous penalties caused by non-malicious issues such as blockchain reorganization.
• Punishment: If refusal fails, confirms malicious behavior or verification error, DVN's stake assets will be reduced as punishment.

The framework operates in three stages:

1. Verification - Use independent DVN to verify multiple on-chain verification messages to ensure fairness.

2. Rejection - If discrepancies are found, it will trigger the rejection contract, allowing Token holders to vote on the punishment of DVN.

3. Punishment - If the refusal process fails, the stake assets of DVN will be punished for malicious behavior or verification errors.

3、CryptoEconomic DVN Framework Outlook

With the increasingly mature infrastructure of Ethereum and the establishment of a multi-chain landscape, Cross-Chain Interaction communication security remains a major challenge. The key innovation of the CryptoEconomic DVN framework is to use AVS to provide core components for DVN, defining stake assets and penalty conditions. In the long run, it can help improve the security of cross-blockchain. However, balancing security and flexibility remains a challenge that the entire industry must address.

Undoubtedly, the CryptoEconomic DVN framework represents a mutually empowering collaboration between LayerZero Labs and Eigen Labs. From a technical perspective, it introduces security measures through stake, punishment, validation, and rejection mechanisms. But from an economic perspective, this collaboration is still an extension of the PoS stake reward's expansion of "stacking" operations.

Through cooperation with EigenLayer, LayerZero has deepened its DVN's Decentralization, accepting ETH, ZRO, and EIGEN as Collateral, while creating new rise cycles for these two Tokens. LayerZero provides the technical foundation, while EigenLayer provides funding, rewards validators, and encourages honest behavior within the economic system.