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LayerZero (ZRO)

LayerZero is an advanced interoperability protocol designed to enable seamless communication between different blockchain networks. Transferring data and assets across various blockchains is essential in the rapidly growing blockchain ecosystem. LayerZero meets this need by offering a robust framework for lightweight, cross-chain message passing, ensuring secure and efficient interactions between blockchains.

Cross-chain interoperability is crucial as it eliminates the barriers that often restrict blockchain applications. By facilitating direct and trustless communication between blockchains, LayerZero enhances the utility and scalability of decentralized applications (dApps). This innovation promotes greater collaboration and integration across the blockchain space, moving the ecosystem towards a more interconnected and functional future.

What is LayerZero (ZRO)?

LayerZero is a cross-chain interoperability protocol designed for efficient and lightweight message and transaction exchanges between various blockchains. It provides a secure and effective alternative to the traditional blockchain bridges commonly used by crypto users, developers, and decentralized applications (DApps) for cross-chain activities.

Created by LayerZero Labs, a Vancouver, B.C.-based technology startup, the protocol was launched in September 2021. LayerZero Labs was founded earlier in the same year by three University of New Hampshire alumni: Bryan Pellegrino, Caleb Banister, and Ryan Zarick. Pellegrino serves as the CEO, Banister is the Principal Engineer, and Zarick is the CTO.

LayerZero is one of the most prominent startups in the blockchain industry. To date, it has raised over $260 million in funding, with notable investors such as Sequoia Capital, OpenSea, Uniswap (UNI), and PayPal, among over 40 other institutional investors. LayerZero is currently valued at $3 billion, making it one of the highest-valued blockchain protocols and DApps.

In December 2023, LayerZero announced the release of its V2 protocol, set to launch in January 2024. LayerZero V2 is a major upgrade that will significantly enhance security, programmability, and cross-chain message verification procedures. As of this writing, LayerZero is utilized by 48 blockchain platforms and Layer 2 solutions, including major industry players.

Working of LayerZero

On each blockchain platform within the LayerZero ecosystem, the protocol establishes a set of smart contracts called Endpoints, enabling different chains to exchange messages with each other. When two blockchains, referred to as Chain A and Chain B, initiate direct communication, two key off-chain entities, the Oracle and the Relayer, process the messages to ensure their validity.

The LayerZero Oracle reads a header block, which is essentially metadata of transactions, from Chain A and sends it to Chain B. Independently of the Oracle, the Relayer generates transaction proofs. If the metadata provided by the Oracle and the transaction proof supplied by the Relayer match, the Relayer proceeds to execute the transaction.

Since the launch of LayerZero, the protocol’s off-chain verification process involving the Oracle and the Relayer has faced criticism for being insufficiently decentralized. Some analysts have argued that relying on just two entities to process the protocol’s messages poses a risk of potential collusion between the Oracle and the Relayer.

In LayerZero V2, the Oracle is replaced by Decentralized Verification Networks (DVNs). DVNs handle transaction verification in LayerZero and are open to parties capable of verifying cross-chain data to join and help validate messages. The vision for DVNs includes having many verifiers and ensuring sufficient decentralization, trustlessness, and security for the protocol’s messaging service. Meanwhile, the Relayer is replaced with Executors, whose roles are limited to transaction execution only, without any responsibility for verification.

Use cases of LayerZero

Unlike most other cross-chain communication solutions, the LayerZero protocol provides a lightweight messaging system that enables a variety of new use cases and opportunities.

▪️ OFTs (Omnichain Fungible Tokens): LayerZero is a pivotal project advocating for an omnichain concept, which is a network of interconnected blockchain platforms with native-level interoperability. LayerZero Labs, the developer of this protocol, introduced the OFT (Omnichain Fungible Token) standard, allowing developers to create tokens that function natively across multiple chains.

The OFT standard works by burning the token on one chain and minting a copy on the destination chain. Initially, this standard was only compatible with EVM-compatible chains. However, LayerZero has expanded the standard in its latest version, OFTV2, to support non-EVM platforms as well.

▪️ ONFTs (Omnichain Non-Fungible Tokens): ONFTs are the non-fungible counterparts to OFTs. NFTs created using the ONFT standard can be transferred and stored natively across chains that support this standard.

▪️ Cross-Chain Governance: LayerZero enables DApps to implement cross-chain governance voting and enact changes approved by the vote. This functionality is crucial as many DApps now operate across multiple platforms. With LayerZero's extensive network of participating blockchains, cross-chain voting and proposal execution become much more manageable.

▪️ Cross-Chain Swaps: Token swaps on decentralized exchanges (DEXs) are some of the most common transactions in the crypto industry. LayerZero's technology facilitates flexible and low-cost swaps across different chains. Prominent DEX platforms such as Uniswap, SushiSwap (SUSHI), and Trader Joe (JOE) on Avalanche have already adopted this protocol.

▪️ Cross-Chain Borrowing: LayerZero's technology supports seamless cross-chain borrowing. Users can deposit collateral on one chain and receive funds on another platform. This functionality is vital for cross-chain applications that offer lending and borrowing services across multiple blockchain environments.

▪️ Cross-Chain Bridging: LayerZero also enhances cross-chain asset bridging by eliminating the need for token wrapping and unwrapping. This improvement streamlines the entire transfer process, making it smoother and more transparent for end users. Its bridging technology also supports the creation of OFTs and ONFTs as described above.

Latest & Future Developments

▪️ ZRO Token Airdrop: The LayerZero Foundation has officially announced the commencement of claims for its eagerly awaited native token, ZRO. In a blog post, the foundation disclosed that 38.3% of the total fixed supply of 1 billion tokens will be distributed to users, developers, and community members.

On the first day of distribution, 8.5% of the total supply—equivalent to 85 million ZRO tokens—will be available for eligible participants. The remaining tokens allocated to the community will be reserved for future distribution programs aimed at promoting ecosystem growth.

Furthermore, 15.3% of the overall supply is set aside for future distributions to users, protocols, infrastructure builders, and community members through future snapshots and other methods such as Requests for Proposals (RFPs).

▪️ LayerZero V2 integrates Flare: LayerZero, a cross-chain messaging platform, announced on June 3 that it has integrated with Flare, a blockchain focused on data. This integration links the Layer 1 network to 75 blockchains, including major ones like Solana and Ethereum.

Philion mentioned that this integration would expand Flare’s adoption, allowing developers to create a wide range of innovative products. In its announcement on X, Flare emphasized the benefits of this integration, noting that it will provide builders with access to new users and liquidity sources while maintaining decentralization and security.