What Is LayerZero?

By Gaurav Roy

As the decentralized world continues to grow and inspire innovation, new blockchains with varied focuses, visions, and use cases continue to emerge. 

However, the development of these countless new blockchains leads to siloed ecosystems, each with its own decentralized applications (dApps) and tokens. The lack of interoperability between these blockchains leads to a blockchain industry that is fragmented, breeding mass inefficiencies and decreased liquidity across the board. 

Although many protocols have attempted to tackle this challenge, they often have major compromises. This could be in terms of scalability or security (or both). Not to mention that current solutions are far from delivering the seamless experience that users have long enjoyed in web2.

Enter the groundbreaking interoperability protocol, LayerZero. This protocol aims to finally solve the blockchain interoperability problem with its novel approach to inter-blockchain communication. This is an effort to build the omnichain future that is necessary for blockchain to reach mass adoption.

So, what exactly is LayerZero, and how exactly does it solve this issue? Let’s take a deep dive!

What Is Layerzero?

LayerZero is built on the concept of unified cross-chain development, otherwise expressed through the term “omnichain”. In essence, LayerZero wants to be the base layer for a large mesh network where any blockchain can reliably communicate and exchange data with any other chain in the ecosystem. This vision is expressed through the name “LayerZero”, which nods to it being a foundational layer for communication between blockchains, be they Layer 1 or Layer 2.

LayerZero hopes to standardize application development across all chains, much like TCP/IP standardized internet development.

Who Created Layerzero?

LayerZero is the brainchild of CEO and co-founder Bryan Pellegrino, along with CTO and co-founder Ryan Zarick, and co-founder Caleb Banister. The trio first began working on LayerZero in 2021, on a mission to solve the fundamental challenge of interoperability amid the rapidly growing number of blockchains. 

The spark for LayerZero came when the three founders were working on an NFT game around the fall of 2020. While the NFTs themselves were based on Ethereum, the trio had wanted to leverage the speed and affordability of the then-new Binance Smart Chain (BSC) to aid their product’s gameplay. This created a need for them to build a blockchain bridge to move the NFTs from Ethereum to BSC. During this experience, they realized the risks of bridging assets between blockchains and decided to build something more efficient and secure.

How does LayerZero work?

The key to LayerZero is that it allows blockchains to communicate without the use of expensive on-chain light nodes, or non-secure middle chains. It does this with Ultra-Light Nodes, blockchain endpoints, decentralized third-party oracles, and relayers. Let’s see how each of these features helps layer zero operate.

LayerZero Endpoint

Endpoints are how blockchains send, verify, and receive messages in LayerZero. Thus, each chain supported by the LayerZero protocol must deploy its own endpoint. 

LayerZero’s endpoints enable each supported blockchain to become part of a fully connected network. These endpoints act as nodes in this network, with each one having a direct connection to every other node, enabling cross-chain transactions directly with any other chain on the network.

Ultra-Light Nodes

Ultra-Light Nodes (ULNs) are the function at the heart of LayerZero, as they carry out a key role in validating transactions through LayerZero. As a result, all LayerZero endpoints run ULNs, which are generally executed via smart contracts. Essentially, ULNs make it possible to verify the transactions between blockchains on LayerZero, without having to store all of the relevant transaction data on-chain.

Oracle

A blockchain oracle is responsible for reading the block header from one chain (using the ULN) and sending it to another chain so that the receiving chain can verify the transaction. Oracles play a crucial role as they contribute half of the required information to help validate transactions. 

The LayerZero team uses Chainlink and Band Protocol as their official oracles. The way it works is that when the endpoint on chain A gets a message, the oracle collects the block header data and sends the information to the endpoint on chain B. If the data and its proof from the oracle and the relayer are deemed correct, the transaction is posted. 

Chainlink and Band protocols are decentralized and thus have robust security measures to keep would-be attackers at bay. 

Relayer

A relayer reads the proof for a given transaction. This verification is performed on-chain, followed by the delivery and execution of the message.

To sum up, when a message is sent between the endpoints on two chains, the oracle fetches the transaction data available in the block header. At the same time, an independent relayer also fetches the transaction proof on Chain A and sends it to Chain B. 

It is important to note that the oracle and relayer must be independent of each other to ensure the validity of the message. The transaction is only considered valid when both of these entities agree, otherwise, the endpoint disregards the message as invalid and reverts.

User applications (contracts using the protocol for sending and receiving messages) use LayerZero’s default relayer and third-party oracles automatically. However, users can configure their oracles and relayers if they want.

The LayerZero Crypto Ecosystem

Since its launch in the 2021 bull market, LayerZero has reached significant milestones, sending over 80 million messages through its protocol, transferring more than $50 billion in value, and integrating with over 50 networks. Its ecosystem has also grown to cover more than 80 dApps across different sectors, including DeFi, gaming, enterprise, and NFTs. 

Is There a Layerzero Coin?

As of now, there is no LayerZero coin, but LayerZero Labs has stated its intention to launch one in 2024. The team confirmed this via a post on X in December 2023, after months of speculation. What’s more, the language in the announcement post has led to a belief that the token will launch through an airdrop, as many tokens regularly do.

Stargate

Stargate, the first dApp built on LayerZero, is a composable asset bridge that makes use of LayerZero’s generic messaging to enable cross-chain liquidity transfers within a single transaction. 

Notably, Stargate allows users to make cross-chain swaps of native tokens without a need for intermediary tokens. As an example, you could use Stargate to directly swap USDC on Ethereum for USDT on BNB Chain. What’s more, there is one pool of liquidity shared between all available chains at the same time and an instant guarantee of finality.

Holders of the native governance token STG stake it to receive VeSTG, which they use for voting on improvement proposals. Meanwhile, liquidity providers (LP) can farm their LP tokens to earn STG token rewards.

The community-driven DeFi project supports many prominent blockchains, including Ethereum, Arbitrum, Optimism, Polygon, Avalanche, Fantom, and BNB Chain.

Blockchain Bridges

LayerZero is already being used to bridge different blockchain networks with projects like Aptos Bridge, BTC.B, and Testnet. As such, it has a number of blockchain bridges already in use.

Launched in late 2022, Aptos Bridge enables users to bridge assets between the Aptos network and others like Ethereum, Optimism, Arbitrum, Avalanche, Polygon, and BSC. For this, users must possess both an Aptos-compatible and a non-Aptos wallet to successfully transfer assets like USDC, USDT, and WETH using the bridge.

Created by Avalanche, BTC.B connects the network to the core Bitcoin blockchain. It is a wrapped version of Bitcoin on the Avalanche Network and allows Bitcoin to be seamlessly integrated across all LayerZero-supported networks. 

Then there is the LayerZero Testnet bridge, which gives a glimpse into what LayerZero aims to achieve. This bridge is capable of moving assets to and from any network and executing direct cross-chain swaps. For instance, the ETH to Goerli testnet bridge allows the transfer of assets between the Goerli testnet (a testing network for Ethereum) and the Ethereum mainnet. By providing direct communication and not requiring the creation of new chains, LayerZero offers a flexible and secure option.

Advantages of LayerZero

After looking into the LayerZero blockchain and how it works, it’s time to delve into its advantages over traditional blockchain architectures. 

Building Cross-Chain Apps and Services

LayerZero makes it easier for developers to build cross-chain applications, as all chains that LayerZero supports have an endpoint for communicating with other chains. This allows developers to choose the benefits of particular chains when building dApps.

Trustlessness

Instead of relying on centralized intermediaries like other interoperability solutions, LayerZero utilizes decentralized oracles and decentralized networks, eliminating any middlemen. This way, the protocol preserves the core ethos of blockchain. 

Scalability

As a connection point for different blockchains, LayerZero makes interoperability easier, faster, and cheaper than some other methods of creating cross-chain transactions. The network of LayerZero endpoints also opens up the opportunity for large-scale applications. 

Moreover, its flexible architecture doesn’t require additional infrastructure to support cross-chain transactions. It easily adapts to the needs of different blockchain networks, making it highly scalable. 

Disadvantages of LayerZero

While LayerZero has several advantages over other interoperability solutions in terms of flexibility and efficiency, it isn’t without issues. Here are some challenges that LayerZero is facing:

LayerZero Is New and Not Battle-Tested

While crypto is a nascent technology, it’s been about fifteen years since Bitcoin has been in existence and close to a decade since Ethereum pioneered smart contracts. In contrast, LayerZero is just over two years old and is still a work in progress. As such, the interoperability solution is still relatively new and has not yet achieved widespread adoption. Its community support has a way to go in comparison to some of its older competitors.

Apart from needing to overcome the obstacle of broader acceptance, untested networks have a higher risk of bugs and vulnerabilities. That said, LayerZero’s infrastructural design and use of trusted third-party services like Chainlink provides the protocol’s critical components with some battle-tested reliability.

Competition

LayerZero is not first in the interoperability scene, as many solutions have already been working in this space for years before it.

 One of the most prominent names among these is Polkadot, an established player that empowers networks to work together under the protection of shared security.

Then there’s Cosmos which utilizes Tendermint and the Inter-Blockchain Communication (IBC) protocol. The IBC blockchains aim to support developers in building custom, secure, scalable, and interoperable blockchain applications quickly. A great example of a chain using the Cosmos SDK to be part of the IBC ecosystem is THORChain. This layer 1 blockchain functions as a decentralized exchange (DEX), allowing users to swap native tokens like ETH and BTC across multiple blockchains.

As these projects hit the market much earlier, it could be difficult for LayerZero to gain traction. 

The Future of LayerZero Crypto Network

As the crypto market matures, unified cross-chain development is necessary for blockchain technology to reach its potential. Thus interoperability is a key focus; it enhances efficiency, reduces friction for the user, and enables the creation of powerful applications. Who wouldn’t want to leverage the benefits of multiple blockchain networks simultaneously? 

It is hard to say who will win the interoperability race at this early stage. LayerZero, however, continues to advance its tech with constant development and community expansion.

Regardless of which protocol is the first to crack blockchain interoperability, you need not wait to explore web3. Ledger hardware wallet devices support over 1,800 tokens, all of which are easy to view and interact with on Ledger Live.

So what are you waiting for? Take the power into your own hands. Enter the Ledger Live ecosystem so that you can explore the ever-expanding blockchain ecosystem with ease and peace of mind.