LayerZero is an interoperability protocol that uses new technology to immediately verify cross-chain transactions connecting different blockchains, overcoming the challenges of fragmented liquidity. It aims to create pathways and platforms for communication between independent blockchain networks, enabling them to share assets, states, liquidity, etc.
LayerZero was founded in 2021 by an engineering team led by Bryan Pellegrino (Co-founder and CEO), Caleb Banister (Co-founder), and Ryan Zarick (Co-founder and CTO).
At that time, due to the isolation of many blockchains, users were forced to partition their resources and liquidity, limiting their choices for transferring liquidity and states between closed ecosystems.
Therefore, LayerZero Labs’ mission is to solve the interoperability problem between blockchains and provide decentralized application (dApp) developers with the ability to message across multiple blockchains without intermediaries. LayerZero adopts an innovative architecture, including super light nodes, independent oracles, and relayers, to securely and efficiently transmit messages between chains.
1. Operation Principle
LayerZero uses a set of smart contracts called LayerZero endpoints on each supported chain. In addition to connecting all chains supported by LayerZero, they can also be deployed on new chains to include them in the network. Cross-chain lending is an example where transaction details are sent from one blockchain (e.g., Ethereum) to a LayerZero endpoint on another chain (e.g., Avalanche), facilitated by independent off-chain entities, oracles, and relayers.
Specifically, the main components of the LayerZero protocol include:
– Relayers: 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.
– Oracles: Collaborate with decentralized oracles like 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, and when a new network needs to be added, only the library module needs to be updated. These endpoints are facilities for interacting directly with users or applications, or can be seen as a series of smart contracts that handle the logic. They are responsible for message transmission, validation, and reception. Their purpose is to ensure effective delivery when users use the protocol to send messages.
The message transmission process of LayerZero relies on two main entities: oracles and relayers. 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. Then, the endpoint notifies the designated oracles and relayers about the details of the message and its target chain. The oracle transmits the block header to the endpoint on Chain B, while the relayer submits the transaction proof. After verifying this proof on the receiving chain, the message is forwarded to the final destination address.
The security of LayerZero is based on the idea that if two independent entities can confirm a transaction on one chain, then the other chain can trust and 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.
2. Features and Ecosystem 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 why investors 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. Bridging has become more important than ever, thanks to cheaper proof-of-stake (PoS) chains like Polygon, Fantom, and BNB Smart Chain (BSC). However, current bridging platforms have limitations, apart from the discussed security issues.
The capital intensity of running bridges lies in the need to develop new infrastructure for each bridging direction. For example, a bridging platform supporting five networks would require writing five different codes and running five intermediary chains or light nodes.
LayerZero claims to solve this problem; firstly, the requirements for super light nodes are low, and the 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 economical, without the need for different code sets to bridge different chains.
2) Aptos Bridge
Aptos was launched in October 2022, with the Aptos token (APT) as the native currency of the network. Aptos gained prominence primarily due to its use of unique technology and its connection to Facebook’s failed Diem project, as the modified Move language used in Aptos was originally developed for the Diem blockchain.
As of now, Aptos has a market capitalization of over $3 billion, and according to DefiLlama, the Total Value Locked (TVL) on the network is $330 million, making its ecosystem significant. However, Aptos is not compatible with EVM, which is where LayerZero comes in. The LayerZero Aptos bridge was launched shortly after the mainnet mining of the Aptos network, connecting Aptos with other EVM-compatible networks and even the Ethereum network.
Through the Aptos bridge, users can bridge Aptos-supported assets with other networks such as Binance Smart Chain (BSC), Avalanche, Polygon, Ethereum, and Ethereum Layer 2 networks like Optimism and Arbitrum. The bridge process is expected to take 2-5 days according to the platform’s information.
3) Stargate Finance (STG)
Stargate is a bridging platform developed using LayerZero interoperability technology. Stargate enables blockchain enthusiasts to transfer assets across supported chains in their native form and ensures finality.
This is achieved through Stargate using a Unified Pool System to handle transfer requests across supported chains. Liquidity providers pledge their assets in a single asset pool on Stargate and receive staking rewards in the form of stablecoins, which come from the fees paid by users bridging assets on the platform.
The bridge currently supports around 8 networks, including layer 2 scaling solutions like Arbitrum and Optimism. The full-chain technology provides a layer for supported tokens, allowing them to run seamlessly and move across other chains. Stargate Finance also offers cross-chain swaps, where users can send and receive assets from the source network to the target chain and vice versa.
The data on the project’s page shows that over $200 million worth of assets are locked on the platform, reflecting the liquidity of the pools serving bridge requests. The Stargate token (STG) is the native token of the Stargate ecosystem, used for rewards and governance purposes. Liquidity providers can stake their LP tokens and earn additional rewards in STG tokens.
To contribute to project governance, STG holders must stake their tokens on the governance portal to receive VeSTG, which is used for voting on improvement proposals. STG is actively traded on centralized and decentralized exchanges. You can click here to see the active trading pairs for the STG token.
3. Cross-Chain Swaps and Unified Liquidity
Investors looking to purchase crypto assets on different networks first need to bridge their unified assets to the target chain and then use decentralized exchanges on the target chain for purchases. LayerZero’s testnet bridge can directly convert Ethereum and Layer 2 solutions like Arbitrum and Optimism into Goerli ETH on the mainnet. Similar systems can be developed on a larger scale to support cross-chain swaps, eliminating the need for bridging and connecting to exchanges on the target platform.
Current bridges use separate liquidity pools, for example, different liquidity pools serve bridge requests from Ethereum to Polygon PoS chain and from Fantom’s Opera chain to Polygon. This can lead to efficiency differences, where the liquidity on the Ethereum to Polygon bridge may be sufficient to handle all requests, while the assets from both chains on the Fantom to Polygon bridge may not be enough to immediately complete bridge requests.
LayerZero’s Co-founder Ryan Zarick mentioned that LayerZero can leverage a unified liquidity pool to serve bridge requests from multiple target chains.
“LayerZero achieves the ultimate goal of bridging: achieving unified liquidity across all chains and ensuring finality on the source chain. This means that when a user transfers assets from Chain A to Chain B, the user can be assured of the assets on Chain B, and LP providers can earn fees from all incoming transactions 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 straightforward integration path for decentralized applications, ensuring the security, stability, and scalability of dApps, while providing a convenient channel for users and assets from Ethereum L1, Coinbase, and other interoperable chains.
The LayerZero protocol launches on Coinbase’s Base mainnet, facilitating cross-chain communication through its full-chain interoperability solution, including token swaps, transfers, and other functionalities, improving the overall efficiency and accessibility of the decentralized ecosystem.
There are many practical applications released through the collaboration between LayerZero and Base, such as the Parallel project successfully moving tokens between Base and Ethereum using the LayerZero protocol, demonstrating the practicality and efficiency of the protocol.
2) SushiSwap
SushiSwap is a multi-chain decentralized exchange supported by an Automated Market Maker (AMM). It claims to have over 400 cryptocurrencies available for instant decentralized exchanges. The liquidity pools on SushiSwap lock over $200 million worth of crypto assets. These statistics are from the project’s official website and are valid at the time of writing. Its governance and reward system are powered by the SUSHI token.
In July 2022, SushiSwap announced the launch of SushiXSwap. The new platform is developed using LayerZero’s interoperability technology to address pain points faced by multi-chain DeFi applications. In the announcement, SushiSwap reflected on the main issues affecting cross-chain interaction infrastructure and how to deploy LayerZero’s technology to solve them. At launch, SushiXSwap supports bridging assets across Ethereum, Fantom, and approximately five other networks.
LayerZero’s technology enables SushiSwap to develop a unified liquidity system that aggregates resources from supported networks to facilitate asset transfers and ensure these transactions are completed in the shortest possible time. As an existing liquidity pool project, SushiSwap leverages its liquidity pools to power bridges between the chains it operates on, solving the problem of liquidity fragmentation.
SushiSwap also addresses the fee structure issue of asset bridges by providing users with the cheapest route for cross-chain transfers. This cost-effective solution utilizes Stargate Finance’s bridging infrastructure to find the cheapest route for assets to be transferred from the source chain to the target chain.xSwap will also use Stargate’s facilities to expand its bridging and extend to other networks over time. Cross-chain swaps can also be conducted on SushiXSwap.
4. Whole Chain Tokens and NFTs
From a design perspective, LayerZero’s technology has created a true layer zero: an ecosystem that can interact with any other network, share resources, and operate freely without being limited by platforms – the whole chain. LayerZero can be the first to introduce “non-native” crypto assets. Non-native means that they can be used on each chain without the need to be ported to the target chain and returned by changing their original form. Whole chain tokens and NFTs will be unique and can enjoy faster adoption rates because investors can easily buy 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 the TofuNFT marketplace. They can also collect works from other NFT creators. TofuNFT has been selected for the LayerZero ecosystem to develop a whole chain NFT marketplace.
Whole chain NFTs, like whole chain fungible tokens (OFTs), are non-native NFTs that can be easily transferred across different networks in their original form. TofuNFT’s whole chain marketplace has already received a small number of whole chain NFT listings, such as LayerZero punks with a starting price of 0.015ETH at the time of writing.
2) Oasys
Oasys is a blockchain optimized for gaming that uses Ethereum’s layer 2 scaling solution to provide highly scalable layer 1 hub and dedicated layer 2. The ecosystem provides game developers with a secure and scalable blockchain infrastructure to create more efficient, secure, and interoperable games.
Oasys validators include leaders in the gaming and Web3 space, such as SEGA, Ubisoft, and Yield Guild Games, who are the initial validators of our proof-of-stake (PoS) blockchain. Oasys’ professional blockchain team, combined with well-known figures in the gaming industry, is fundamentally changing the gaming industry.
Oasys is committed to creating an ecosystem for game players 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 supported by the gaming community, a scalable network supported by AAA game developers, and a blockchain that provides the best user experience through fast transactions and zero gas fees. This approach prepares participants to enter Oasys and play games.
After integrating with LayerZero, Oasys will utilize LayerZero’s interoperability technology to enhance cross-chain operations for games and NFTs, providing a richer and more inclusive gaming experience. LayerZero also achieves the liquidity of fungible tokens through the Omnichain OFT standard. Bryan Pellegrino, Co-founder and CEO of LayerZero Labs, added, “LayerZero’s addition of endpoints to Oasys is a significant leap in terms of in-game asset interoperability. LayerZero is dedicated to connecting communities and enhancing players’ ability to access and enjoy games they love on different networks.”
Overall, LayerZero is primarily used by decentralized application developers who need to communicate across multiple blockchain networks. The LayerZero ecosystem also includes projects in various categories, covering NFTs, payments, wallets, bridging, infrastructure, DeFi, DEX, GameFi, and more, making the ecosystem prosperous.
5. ZRO Token
The $ZRO token is the primary token in the LayerZero ecosystem, used to facilitate various activities and incentive mechanisms 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 protocol governance decisions.
– Payments and transactions: Used for cross-chain operations and transaction fees within the ecosystem.
The initial allocation of $ZRO tokens is as follows:
– Ecosystem Fund: 25% (2500 tokens)
– Airdrop: 19% (1900 tokens), with 5% allocated for IDO
– Core Contributors: 19% (1900 tokens)
– Investors: 17% (1700 tokens)
– RPGF (Retroactive Public Goods Funding): 20% (2000 tokens)
The circulating supply of $ZRO tokens is 110,000,000 ZRO, with a total supply of 1,000,000,000 ZRO and a maximum supply of 1,000,000,000 ZRO.
The release schedule for $ZRO tokens is shown in the accompanying image.
6. Team/Funding
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 a resident entrepreneur, Chief Engineer of Machine Learning Architecture, and Co-founder of OpenToken.
Caleb Banister, another co-founder, specializes in 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 and is building the future of the multi-chain metaverse.
Ryan Zarick, another co-founder, is the Chief Technology Officer of LayerZero Labs. He is an experienced software developer and entrepreneur with over 10 years of experience in the technology industry. He co-founded Minimal AI, Coder Den, and 80Trill, and served as the Chief Technology Officer of Buzzdraft. He holds a Master’s degree in Computer Science from the University of New Hampshire.
Since its inception, LayerZero has successfully completed multiple funding rounds, raising a total of $263 million and reaching a market valuation of $3 billion.
In the recent Series B funding round, LayerZero raised $120 million on April 4, 2023, bringing its valuation to $3 billion. This funding round attracted participation from well-known investors, including Andreessen Horowitz (a16z), Sequoia Capital, and Circle.
Prior to that, LayerZero completed a Series A1 funding round on March 30, 2022, raising $135 million at a valuation of $1 billion. The main investors in this round included Andreessen Horowitz (a16z) and Sequoia Capital, demonstrating confidence in LayerZero’s technology and development.
On September 16, 2021, LayerZero conducted a Series A funding round, successfully raising $6 million at a valuation of $50 million. With this early funding support, LayerZero laid the foundation for its development in the field of blockchain interoperability.
7. 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 issues between different blockchain networks, enhancing the interconnectivity of the blockchain ecosystem.
A similar cross-chain interoperability project to LayerZero is Wormhole.
Created by Jump Crypto, Wormhole is a decentralized cross-chain protocol designed to enable data and token transfers between different blockchains through a universal messaging protocol. Supported blockchains include Ethereum, Solana, Sui, Injective, and more.
Wormhole consists of 17 highly validated Guardian nodes that must confirm each transaction to ensure the security of the system. It also supports cross-chain token and NFT transfers, has processed over 1 billion cross-chain messages, and interoperates with the messaging systems of Cosmos and Polkadot. Additionally, Wormhole supports the transfer of NFT assets between multiple blockchain networks.
Wormhole can be considered the most mature protocol in the track and is the only protocol unconditionally approved for use by Uniswap. It also claims to have processed over 1 billion cross-chain messages and interoperates with the messaging systems of Cosmos and Polkadot. Although Wormhole’s valuation may be lower than LayerZero’s, it has adopted the most protocols and its momentum seems unlikely to change soon.
However, LayerZero and Wormhole still have their differences. Wormhole relies mainly on a fixed network of Guardian nodes, which limits flexibility, while LayerZero can freely choose oracles and relays, enhancing system flexibility and modularity. Wormhole adopts a trust-dependent technical solution (wrapped assets stored on the bridge chain controlled by a multi-signature account), while LayerZero uses light nodes running on the target chain, which can package and send all transactions at once, directly transferring native assets between chains, avoiding the complexity and risks of asset transfers between different chains.
Therefore, Wormhole was exploited by hackers in 2022, resulting in a loss of 120,000 ETH (approximately $325 million), but its security has significantly improved since then, while LayerZero’s cross-chain system has not been successfully attacked by hackers.
In addition to security, LayerZero has several advantages:
– Scalability: LayerZero is designed with scalability in mind and can handle high transaction volumes without sacrificing performance, making it suitable for large-scale applications and enterprise integration.
– Developer-friendly: It provides a powerful set of tools and APIs for 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 extensive support from the blockchain community and industry stakeholders, forming a vibrant ecosystem of developers, users, and partners.
Although LayerZero’s design offers scalability, it may sacrifice performance when dealing with extremely high transaction volumes or complex cross-chain operations. Ensuring optimal performance under all conditions remains a challenge that the protocol must continuously address. Additionally, LayerZero’s security model relies on external validators, such as oracles and relays. While this enhances decentralization and security, compromising these validators also introduces potential points of failure. Ensuring the reliability and trustworthiness of these external entities is crucial for the long-term viability of the protocol.
However, since LayerZero is still in the early stages of the project and has recently launched its token, it still has potential for future development. As long as its solution continues to work as claimed and more projects adopt robust interoperability solutions, the LayerZero ecosystem is bound to grow larger.
Tags:
Injective
LayerZero
Solana
Sui
Interoperability
Ethereum
Chain Tea House
Source link:
https://mp.weixin.qq.com/s/1lyc9m0joiGQUfrM0qkgQg
Note: The opinions expressed in this article represent the views of the author and do not constitute investment advice.
Original article link: https://www.bitpush.news/articles/6919230
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