Multicoin Capital: Why We Invested in LayerZero?
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Multicoin Capital: Why We Invested in LayerZero?
LayerZero: A universal interoperability protocol that aggregates dApps and liquidity across different blockchains.
Navigating Web3 tides with focused insightsAuthor: Kyle Samani, Multicoin Capital
Translation: 0x9F, BlockBeats
One and a half years ago, Ethereum was the only significant Layer 1. Today, Layer 1 includes Ethereum, Solana, Terra, Polygon, Celo, Flow, Avalanche, NEAR, Fantom, and BNB Chain, while Layer 2 includes Optimism, Arbitrum, StarkEx, and StarkNet.
We live in a multipolar world—and we will never return to a unipolar one. This means bridging will become critically important.
Today I’m excited to announce our investment in LayerZero, a universal interoperability protocol that aggregates dApps and liquidity across blockchains. We led their previous round in September 2021 and are reinvesting in this latest round announced by LayerZero on March 30. This is a $135 million Series A+ round including a broad set of strategic investors such as a16z crypto, Sequoia, FTX, PayPal Ventures, Animoca, Rene Marcelo Claure (CEO of SoftBank), Blizzard (Avalanche ecosystem fund), Polygon ecosystem fund, Fantom ecosystem fund, Dapper Labs, Kronos Research, Ethernity, ImToken Ventures, Matrixport, Coinbase, Gemini… Notable angel investors in this round also include Tom Brady, Justin Timberlake, and Maria Eitel.
Cross-chain bridges are among the most complex technical domains in crypto. Dmitriy Berenzon of 1kx wrote an excellent overview of the bridge design space here.
We believe cross-chain bridges will exhibit strong network effects for every pair of connected chains. For users, managing distinctions like renBTC, tBTC, or WBTC on Ethereum, or WormholeETH and SolletETH on Solana, is cumbersome. In the long run, a single dominant bridge is expected to capture the majority of liquidity for each chain pair.
Given that most teams are building their own bridges—Optimism Bridge, Arbitrum Bridge, Starknet Bridge, Avalanche Bridge, Polygon Bridge, Near’s Rainbow Bridge, etc.—we expect these native bridges to dominate within their respective ecosystems. LayerZero operates at a layer above all of them, rather than competing directly with them.
LayerZero is the simplest and lightest way to transmit messages across chains. LayerZero does not directly manage asset custody or minting/burning of pegged tokens. Instead, it enables specialized bridges to handle those tasks.
In addition to the LayerZero protocol, the LayerZero team has launched Stargate, a cross-chain bridge built on top of the LayerZero protocol. Stargate is designed as a cross-chain DEX for equivalent-value assets, similar to Curve or Saber. If a user wants to transfer USDC from Arbitrum to Optimism, or from Polygon to Aurora (Near), they can now use Stargate directly.
How Does Stargate Work?
When the Stargate contract on the source chain receives USDC, the LayerZero protocol forwards the state of the source chain to the destination chain, and the Stargate contract on the destination chain releases USDC to the user.
The advantage of this approach lies in its flexibility and simplicity. Liquidity naturally pools into pairs (avoiding fragmentation where multiple pools compete for the same traffic). Stargate provides instant guaranteed finality and minimizes trust assumptions.
While Stargate is the flagship application built on the LayerZero protocol, we envision the LayerZero protocol supporting a wide range of new workflows. Because LayerZero is a general-purpose message relay service, it can be used for almost anything. Examples include:
1. Voting on governance proposals on Chain A using assets held on Chain B, without needing to move assets back to Chain A
2. Using collateral on Chain A to borrow funds on Chain B
3. Securing derivative positions on Chain B using collateral on Chain A
4. Influencing NFTs on Chain A based on on-chain activity occurring on Chain B
LayerZero is already live on most major EVM-compatible chains: Ethereum mainnet, Optimism, Arbitrum, Polygon, Avalanche, Fantom, and BNB Chain. Additionally, support for Celo, Aurora (Near), Solana, Cosmos, and Terra will launch in the coming months.
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