New Path for Cross-Chain Interaction: LayerZero and EigenLayer Introduce CryptoEconomic DVN Framework

Author: YBB Capital Researcher Ac-Core

TL;DR

• The CryptoEconomic DVN Framework is a combination of LayerZero's Cross-Chain Interaction messaging and EigenLayer's economic security and incentives; it is a framework for Decentralization verification networks (DVN).
• The DVN framework operates through structured processes, with the main process divided into three stages: validation, veto, and penalty;
• LayerZero chooses to cooperate with EigenLayer to further deepen its DVN's Decentralization, while accepting ETH, ZRO, and EIGEN as collateral assets, also bringing new rise flywheels to both tokens;
• The CryptoEconomic DVN Framework may help enhance the security of the entire chain in the future.

一、Understanding the Narrative Background: Iterative Upgrades of EigenLayer and LayerZero

Image source: LayerZero Official

On October 2, 2024, LayerZero Labs and Eigen Labs collaborated to launch the Decentralization Verification Network (DVN) framework for encryption economics, aiming to provide encryption economic security for full-chain message transmission. Under this framework, developers can not only deploy their own DVN on EigenLayer, but also enhance the security and reliability of Cross-Chain Interaction message transmission by introducing incentive mechanisms.

In a nutshell, the CoyptoEconomicDVN framework combines the security mechanisms of LayerZero's Cross-Chain Interaction and EigenLayer's dual security of stake and encryption. Its core purpose is to use EigenLayer's encryption economic model to provide higher security and incentives for the Decentralization Verification Network (DVN).

1.1 Link One: CryptoEconomic DVN's Cross-Chain Interaction Mechanism Layout LayerZero V2

LayerZero is not only an asset Cross-Chain Interaction, but also a trustless Cross-Chain Interaction communication protocol, which separates the ultimate trust link through relayers and Oracle Machine, that is, to achieve message Cross-Chain Interaction through a super light node mechanism.

The core design of the LayerZero V2 architecture can be divided into three categories: protocol, standards, and infrastructure.

1. protocol（Protocol）

The protocol part of LayerZero remains consistent on all supported Blockon-chain and features immutability and permissionless, ensuring censorship resistance and long-term stability. This part consists of two main components:

• Endpoints: These are immutable and unupgradable Smart Contracts on each blockchain, which are the core of the LayerZero protocol. Endpoints provide standardized interfaces for application management, secure configuration, and Cross-Chain Interaction message sending/receiving. Due to the immutability of endpoints, once they are deployed, no entity can modify them;
• MessageLibs: MessageLibs are connected to endpoints and are responsible for verifying and communicating Cross-Chain Interaction messages. Each update of the MessageLibs is append-only and does not replace old versions. This means that even if the protocol needs to be upgraded, developers can still choose to use old versions of the MessageLibs to ensure backward compatibility. This is similar to different versions of Smart Contracts on-chain in Block, where users can choose different versions to use as needed.

Image source: LayerZero endpoint description

2. Standards

The standards provided by LayerZero enable developers to build applications and tokens that run consistently on multiple blocks on-chain, achieving the "unified semantics" of Cross-Chain Interaction, where applications or tokens exhibit the same behavior across different blocks on-chain. These standards help simplify the development process and ensure the consistency and scalability of Cross-Chain Interaction applications.

• Contract Standards: LayerZero provides standards such as OApp (Omnichain Application) and OFT (Omnichain Token), which extend existing Smart Contract standards (e.g., OFT is an extension of the ERC-20 standard), enabling developers to quickly create applications and tokens that can run on-chain on all LayerZero supported Blocks.
• Message Packets: Used to transmit data and commands between blockchains. Message packets contain elements to prevent Replay Attack and incorrect routing (such as Nonce, source/destination chain ID, unique identifier), and include the payload of the actual command or data to be executed on-chain at the destination. This message format is able to adapt to various blockchain environments (including EVM and non-EVM chains, public chains and private chains), ensuring the accuracy and security of Cross-Chain Interaction information transmission;
• Design Patterns: LayerZero provides a series of design patterns (such as AB, ABA, combination AB), which provide developers with the basic building blocks for Cross-Chain Interoperativity applications, simplifying the process of developing complex Cross-Chain Interoperativity interactions. These patterns can help developers create a more concise and efficient user experience, such as completing the cross-chain bridging and exchange of Tokens in a transaction.

Image source: Composite ABA design pattern

3. Infrastructure

LayerZero's infrastructure layer is completely permissionless and modular, allowing any entity to join the LayerZero network to validate and execute transactions. This design enables applications to choose different validation and execution methods based on their needs, achieving optimal balance in terms of security, cost, speed, and more.

• Decentralized Validator Networks (DVNs): These networks verify Cross-Chain Interaction messages, and any entity that can verify Cross-Chain Interaction packets can join LayerZero as a DVN. This Decentralization design allows applications to choose the appropriate combination of validators and avoid being locked into a single validators network. Currently, there are 15+ DVNs participating in LayerZero, including the zkLight client provided by Google Cloud and Polyhedra;
• Executor (utors): Any entity can run the executor, which is responsible for ensuring the smooth execution of Cross-Chain Interaction messages on the target on-chain. The executor simplifies the user experience, allowing users to only pay gas fees on the source on-chain without additional operations on the target on-chain. Applications can choose one or more executors according to their needs, and even build their own executors or choose to manually execute Cross-Chain Interaction messages;
• Security Stack: Each application can configure a unique security stack according to its needs, including selecting DVNs, executors, and other security preferences. The security stack allows applications to choose how to validate Cross-Chain Interaction messages and adjust as necessary, providing highly customized security solutions and avoiding being locked into a single security model.

To better understand the CryptoEconomic DVN Framework, here is additional information on LayerZero V2 DVN:

Decentralization Verification Networks (DVNs), which are used to authenticate messages transmitted between different blockchain networks. Every application built on LayerZero can customize its security stack by choosing DVNs. The key points are:1. DVNs: These entities are responsible for verifying Cross-Chain Interaction messages, ensuring their security and integrity. Developers can configure which DVNs to use as needed and set optional authentication thresholds. 2. Openness: Anyone can create or develop a DVN, which provides a variety of options for verification. DVNs can contain validators, signers, or use advanced technologies such as Zero-Knowledge Proof (ZKP) and intermediate chains. 3. Customizable security: Applications can choose different DVNs based on their security needs, unlike the one-size-fits-all model of other protocols, and this flexibility enables applications to adjust security settings, drop costs, and risks as needed. 4. DVN Combination: With the "X of Y of N" configuration, the app can select multiple DVNs to validate the message. For example, a "1 of 3 of 5" configuration means that a specific DVN and two other validators are required from the five DVNs.

Image source: DVN's position in V2 architecture

Section 1.2: Link Two: CryptoEconomic DVN's encryption economic security EigenLayer

EigenLayer consists of a series of Smart Contracts, allowing users to 're-stake' their ETH or stake liquidity stake tokens (LST) to bootstrap a new Proof of Stake (PoS) network and service in the ETH ecosystem, earning additional stake rewards/returns, and providing security and decentralization properties for other modular components and Blockchain networks. In essence, it is the sale of security for the ETH ecosystem. EigenLayer in essence creates five categories: native re-stake, LRT, AVS, massive scale rollups, and composable applications.

1. Native Re-stake

It is possible to simultaneously input multiple commitments for verification, measure the encryption economic bandwidth consumed by each commitment, and ensure that all commitments have the ability to pay. The essence is Ethereum's "elastic scalability of security" (ES2). If the conditions of each AVS are met, they can all be secure;

2. Liquidity再stake

LRT is a mechanism, Liquidity stake Token (LRTs) similar to Liquidity stake Token (LSD) on the Ethereum platform, is a tokenized representation of assets deposited on EigenLayer, thereby unlocking the originally locked Liquidity;

3. AVS Economy

The core of EienLayer, a collection of Decentralization systems that can be built, pairs the ability to integrate technology with a certain degree of Decentralization trust architecture. The AVS-centric roadmap ensures the integration of permissionless Decentralization services to build arbitrary applications and create different categories and customized AVS on Eigenlayer.

4. Large-scale Rollups

Most encryption application development is still limited by Block space. There is no corresponding cloud space concept, it will be expanded according to demand.

For example, EigenDA is a mechanism with infinitely scalable bandwidth, and proposes new use cases that were previously impossible to achieve: transforming the cloud into encryption;

5. Reliable Applications

The establishment of Eigenlayer is to increase the maximum number of commitments and provide ETH-level diversity and verifiability commitments through EigenLayer + Ethereum. For example: 1. Maximize the effect through EigenDA; 2. Achieve diversity through open innovation in Eigenlayer AVS; 3. Introduce off-chain verifiability into the mechanism of on-chain to achieve verifiable calculation.

2. Token Economy Empowerment, LayerZero x EigenLayer Dual Cooperation, can use ZRO and EIGEN as collateral assets

Image source: The process of explaining stake, validation, veto, and punishment

In short, the CryptoEconomic Distributed Verification Network (DVNs) improves the security of Cross-Chain Interaction in three key ways:

1. Economic Security of encryption: DVNs introduce a punishment mechanism (Slashing), where the assets of DVN's stake will be penalized when there are malicious behaviors or errors. This economic model ensures that DVN has sufficient economic incentives to maintain correct behavior, as inappropriate behavior will result in significant economic losses, thereby promoting its sense of responsibility and security;
2. Security Defined by AVS: Each Active Validation Service (AVS) defines the types of assets that can be staked and their penalty conditions. This flexibility allows different types of DVNs (such as ZKP-based, Middlechain-based, or proof of authority-based DVNs) to enhance their security through additional stake guarantees, further improving 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 participatory. DVNs can choose any assets (such as ZRO, ETH, EIGEN) to support their network, broadening security options and enhancing Decentralization.

The CryptoEconomic DVN framework is an Open Source system that works to enhance the security of the Decentralization Verification Network (DVN) through an economic incentive mechanism tied to Tokens. It relies on LayerZero's DVN verification messages and adds an additional security layer. Specifically, it protects the Cross-Chain Interaction message delivery of LayerZero through four key mechanisms: stake, verification, veto, and punishment.

1. stake: validators (stakers) lock tokens such as ZRO, EIGEN, or ETH as collateral in DVN's active validation set (AVS). Staked funds encourage validators to act honestly, as their collateral assets may be penalized (reduced) if they misbehave;
2. Verification: Users or applications can trigger a round-trip message of Cross-Chain Interaction (ETH → source chain → target chain → ETH) to verify whether the hash value recorded in DVN matches the hash value recorded on-chain. If they match, the process ends;
3. Veto: If a mismatch is found, the veto process is initiated, allowing Token holders to vote on whether to penalize (reduce) the stake of DVN. This step prevents erroneous reductions caused by non-malicious errors such as blockchain reorganization, as reorganization may result in data packets not matching, but DVN may actually be honest;
4. Penalty: If the veto fails to pass, confirming malicious behavior or verification errors of DVN, the assets of DVN stake will be reduced.

The framework is divided into three stages:

• Stage 1: Verification - Messages are verified on-chain in multiple places, using independent DVNs to ensure fairness;
• Phase 2: Rejection - If discrepancies are found, the rejection contract will be triggered, and token holders will vote on whether to reduce the stake of DVN.
• Stage 3: Punishment - If the veto fails, DVN's stake assets will be reduced due to malicious behavior or incorrect validation.

3. Opinion on the CryptoEconomic DVN Framework

Nowadays, the infrastructure of Ethereum (ETH) has been improving, and the multi-chain pattern has become established. However, the security issues in communication between different chains are still a significant challenge that cannot be ignored. The main innovation of the CryptoEconomic DVN Framework lies in providing core components for DVN through AVS and defining stake assets and punishment mechanisms. In the long run, this may help enhance the security of the entire chain, but it also brings uncertain impacts, which are commonly seen in the industry. Finding a balance between security and flexibility is a problem that needs to be addressed in the future.

Undoubtedly, the CryptoEconomic DVN Framework is a collaborative effort between LayerZero Labs and Eigen Labs. From a technical perspective, it provides security through stake, punishment mechanisms, verification, and veto mechanisms. However, from an economic analysis perspective, it is still a nested operation of PoS stake earnings.

LayerZero chooses to cooperate with EigenLayer to further deepen its DVN's Decentralization, while accepting ETH, ZRO, and EIGEN as collateral assets, bringing new rise flywheels to both tokens. LayerZero provides the technology, EigenLayer provides the funding, and the collaboration between the two parties rewards validators, encouraging honest behavior in this trap economic system.

Reference article:

(1) LayerZero V2 Deep Dive

(2) LayerZero x EigenLayer: The CryptoEconomic DVN Framework