LayerZero: The Future Path of Cross-Chain Innovation and Star Projects
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LayerZero: The Future Path of Cross-Chain Innovation and Star Projects
Multi-chain is a development trend in blockchain, and cross-chain interoperability protocols are key components for communication between blockchains, with broad prospects for development.
Navigating Web3 tides with focused insightsAuthor: Jill, LD Capital
1. What is Cross-Chain Interoperability?
The current trend in blockchain development is multi-chain coexistence. However, blockchains inherently lack the ability to communicate with external systems or APIs, making it impossible for data and value to be transferred seamlessly across networks. This results in isolated ecosystems that cannot exchange information with one another.
From a developer’s perspective, each deployment constitutes an isolated independent entity, causing backend contracts to operate independently without awareness of each other. For example, a decentralized exchange (DEX) DApp may need to be deployed separately on Ethereum, BNB Chain, and Polygon, meaning each version of the DApp operates independently.
Source:Chainlink
For users, this multi-deployment model increases adoption difficulty:
1) Users cannot seamlessly transfer tokens from one blockchain to another.
2) The transfer process is time-consuming and provides a poor user experience, as assets are typically burned on the source chain and then re-minted on the target chain via third-party bridges.
3) Holding assets across multiple blockchains poses significant security risks, making them vulnerable to hacker attacks and potential fund loss.
Given the proliferation of blockchain ecosystems, interoperability and communication between different chains are crucial. The key infrastructure enabling data and asset exchange across different blockchains is the cross-chain interoperability protocol. Cross-chain interoperability allows developers to build unified cross-chain applications—where a single dApp can be deployed across multiple blockchains—without needing separate versions per chain, thereby unlocking higher capital efficiency and improved liquidity conditions.
2. Cross-Chain Solutions
Cross-chain solutions typically involve verifying the state of the source blockchain and relaying subsequent transactions to the target blockchain. A key component of this infrastructure is the cross-chain bridge, which enables assets to be transferred from the source blockchain to the target blockchain. Cross-chain bridges usually lock or burn assets on the source chain via smart contracts and unlock or mint them on the target chain through another smart contract. In practice, the use cases for cross-chain bridges are quite narrow—they primarily serve to transfer assets between different blockchains. Thus, cross-chain bridges are often application-specific services connecting two blockchains.
Currently, developers have built various cross-chain solutions, such as:
l Chainlink is developing the Cross-Chain Interoperability Protocol (CCIP), an open-source standard supporting cross-chain communication including message and token transfers. CCIP aims to achieve universal connectivity across hundreds of blockchain networks using standardized interfaces, potentially reducing the complexity of building cross-chain applications and services.
Wormhole is a general-purpose interoperability protocol capable of transferring tokens and messages across different blockchain networks. Network guardians monitor information on the source chain, validate it, and facilitate its transmission to the target chain. Developers using Wormhole can build cross-chain decentralized applications known as XDApps.
The Inter-Blockchain Communication (IBC) protocol is the standard for blockchain interaction within the Cosmos network, designed to enable interoperability between different blockchains. IBC defines a minimal set of functions specified in the Interchain Standards (ICS), outlining how blockchains communicate and exchange data.
LayerZero is an omnichain interoperability protocol for lightweight messaging between blockchains, providing secure, reliable, and trustless message delivery.
This article focuses on the omnichain interoperability protocol LayerZero, which specializes solely in message passing between chains. It enables sending messages to any smart contract on any supported chain, handling inter-smart-contract communication across blockchains. It does not handle asset bridging—the asset bridging function is fulfilled by Stargate, developed by LayerZero Labs.
3. LayerZero Technical Features and Advantages
1. Technical Features
LayerZero's most prominent feature is its ultra-lightweight node architecture. By leveraging ultra-light node technology and utilizing relayers and oracles to transmit messages between endpoints on different chains, LayerZero reduces costs while maintaining security.
1) Ultra-Light Nodes
In a blockchain network, each node refers to individual computers or server terminals storing data. Light nodes represent a particular operational mode—unlike full nodes, light nodes store only a small portion of blockchain data, such as block headers and some metadata, but not detailed transaction records within blocks. Ultra-light nodes share the same verification method as light nodes; however, due to high blockchain write costs, continuously transmitting all block headers is expensive. Therefore, ultra-light nodes do not retain all block headers. Instead, they stream these headers on-demand via oracles, enabling more efficient synchronization of off-chain entities to required states, replacing the traditional continuous streaming approach.
The benefit is eliminating reliance on a complete historical stream of block header data from light nodes. However, the drawback is the absence of sequential historical data streams—should both the oracle and relayer collude maliciously, fraudulent information could pass validation and execute malicious actions. LayerZero thus makes a trade-off between significantly reduced verification costs and a certain degree of security compromise. Whether this trade-off is worthwhile depends on how well it aligns with specific application scenarios.
2) Core Components
According to LayerZero's official whitepaper, the core components responsible for message transmission between two chains are Endpoints, Oracles, and Relayers.
Endpoints are interfaces directly interacting with users or applications, responsible for message transmission, verification, and receipt. Their purpose is to ensure valid message delivery when users send messages via the protocol. Each chain must deploy an endpoint under the LayerZero protocol, and these endpoints can also be invoked by other apps on the same chain to send messages externally.
Oracles are third-party services providing a mechanism independent of other LayerZero components. They read block headers from one chain and send them to another, allowing validation of transaction authenticity on the source chain at the destination chain. Currently, LayerZero uses Chainlink as its oracle.
Relayers are off-chain services functioning similarly to oracles, except they retrieve proofs of specific transactions rather than block headers. To ensure effective delivery, the only requirement is that the oracle and relayer must operate independently for any given message sent via the LayerZero protocol. Any party can assume the role of oracle or relayer, and LayerZero itself can even run its own relayer service.
A critical trust assumption in LayerZero is that the oracle and relayer operate independently. The block header submitted by the oracle will be cross-verified against the transaction proof provided by the relayer. Neither forms consensus; they simply transmit messages. Simply put, the oracle acts as a notary in LayerZero's cross-chain process, informing the target chain about the validation result, while the relayer provides the proof required for validation and the actual content of the cross-chain message. To ensure effective message delivery, if any dispute arises between the oracle and relayer during message transmission, the smart contract will pause and refrain from submitting the message to the target chain.
Reference: "Understanding the Technology and Characteristics of Interoperability Protocol LayerZero"
If a transaction moves from Chain A to Chain B, the overall process works roughly as follows:
The transaction begins when a user initiates an application, which then, assisted by LayerZero endpoints along with the oracle and relayer, breaks down the transaction into parts (proofs and block headers). Once the oracle and relayer send their respective information (signing the transaction onto the chain) and the LayerZero Endpoint (contract) verifies the correctness of the information, the message is transformed and executed on the target chain.
2. Advantages
1) Security
As a base-layer protocol, LayerZero's security is independent of external protocols, ensuring stability of the entire protocol consensus. Additionally, thanks to its unique design of independent oracles and relayers, transactions are only completed when both parties confirm legitimacy, safeguarding the security of message transmission.
2) Scalability
As a universal message-passing layer, LayerZero enables any contract to be transferred from Chain A to Chain B, achieving cross-layer interoperability. Through innovative endpoint design, LayerZero can easily scale to support any chain, bringing broader application scenarios to the blockchain ecosystem.
3) High Efficiency
First, LayerZero’s ultra-light node technology achieves higher transmission efficiency and reduces verification costs while maintaining security. Second, neither the relayer nor the oracle forms consensus—they merely transmit messages, with all validation performed on the respective target chains. Therefore, speed and throughput limits depend entirely on the attributes of the two transacting chains.
4. Funding
LayerZero has conducted three funding rounds, raising a total disclosed amount of $293 million. Investors include renowned crypto investment firms such as Multicoin, Binance Labs, a16z, and Sequoia Capital. The latest round occurred on April 4, 2023, raising $120 million at a $3 billion valuation.
FTX was a lead investor in the Series A round on March 30, 2022. Following FTX’s collapse, on November 11, 2022, LayerZero announced it had repurchased 100% of its equity, token rights, and other protocols from FTX.
Source: Crunchbase
5. Ecosystem
To date, LayerZero supports over 20 blockchains, including Ethereum, BNB Chain, Avalanche, Polygon, and Base. It has reached 3 million unique users, with cumulative transactions totaling 56 million. However, 35% of users have only one interaction record, and only around 730,000 users have more than two interactions.
Source: Dune Analytics
User activity is primarily concentrated on BNB Chain, Arbitrum, and Polygon. Especially after Arbitrum launched its token, community enthusiasm for farming airdrops surged, significantly boosting user activity on LayerZero.
Source:Dune Analytics
Taking Arbitrum interaction data as an example, transaction volume reached approximately 12 million, peaking in April 2023. As overall market sentiment cooled, user activity slightly declined.
Source: Dune Analytics
LayerZero’s minimalist architecture grants the protocol infinite possibilities. Its low developer integration complexity has enabled over 50 dApps to integrate or actively use its technology.
Source:Twitter
Notable Projects
1. Stargate Finance
Developed by LayerZero Labs, Stargate is the first dApp built on the LayerZero protocol. It created the first fully composable native asset bridge, aiming to make cross-chain liquidity transfer a seamless, single-step process. Its standout feature is the unique “Delta algorithm” that addresses the “impossible trinity” problem in cross-chain bridges without requiring trade-offs.
Stargate’s team identifies an “impossible trinity” in cross-chain asset bridges:
1) Instant Finality: Assets successfully transfer to the target chain upon transaction confirmation, ensuring timeliness;
2) Unified Liquidity: A single liquidity pool shared across multiple chains;
3) Native Asset: Users receive native assets directly via the bridge, not synthetic or wrapped assets.
Of course, guaranteeing instant finality and native assets without complex dynamic liquidity allocation algorithms would require a dedicated liquidity pool between every two chains, lowering capital efficiency.
According to Defillama data, in terms of trading volume over the past month, Stargate leads among cross-chain bridge protocols, achieving up to 96,000 transactions per day.
Source: Defillama
Protocol Revenue
As the first dApp launched on LayerZero, Stargate's protocol fees and revenue have grown steadily since March 2023, coinciding with increased on-chain transaction activity driven by airdrop expectations. The protocol currently generates over $1 million in monthly revenue.
Source: Token Terminal
Economic Model
STG has a total supply of 1 billion tokens, with 200 million in circulation. Token utilities include:
1) Cross-chain transfer fees: Non-STG token transfers incur a 0.06% fee, with 0.045% distributed to liquidity providers and 0.015% allocated to the protocol treasury;
2) Governance: STG holders can stake and lock tokens for 3–156 weeks to receive veSTG governance tokens, with longer lock durations granting greater voting power;
3) Protocol rewards: Distributed to stablecoin liquidity pools and liquidity mining programs.
The token launched on March 17, 2022. Initial distribution details are as follows:
Source:tokenunlocks
Allocations to early DEX liquidity, Bonding Curve, initial release plans, and the community were fully unlocked at launch, totaling 478 million tokens.
The portion allocated for protocol launch included 5% (50 million) released immediately, with the remaining 10% locked for one year and linearly released over six months afterward. So far, 145 million have been released.
Allocations to investors and the team are subject to a one-year lock-up followed by a two-year linear release.
Based on the above token distribution, nominal STG emissions have reached 729 million. From STG holder distribution data, it is clear that 304 million allocated to the community still has 297 million yet to circulate, and 320 million allocated to investors and the team remains unissued. Together, these portions account for approximately 67 million circulating tokens, or about 6.7%.
Looking at address holdings, the top 20 addresses hold 94%, with the top two being official addresses holding 62% that have not yet circulated. Excluding these two, the remaining addresses hold 32%, with Alameda holding 9.42% and large individual holders collectively holding only 0.6%, indicating limited accumulation by major players.
Sam Trabucco, Co-CEO of Alameda, stated on social media that Alameda Research participated in Stargate’s public sale on March 18 and purchased all available STG shares (100 million tokens, i.e., the 10% mentioned above for protocol launch). However, Sam emphasized that Alameda will not sell STG within three years, intends to make a long-term investment in the project and team, will not interfere in governance, and will relinquish voting rights associated with its aSTG tokens to promote fairer distribution among early community members. So far, 9.42% has been released.
2. Radiant Capital
Radiant is a cross-chain DeFi lending protocol that leverages LayerZero as its cross-chain infrastructure to implement omnichain leveraged lending and composability, enabling users to gain leverage across supported DeFi protocols and simplifying cross-chain borrowing operations.
Radiant operates similarly to existing lending protocols like Aave and Compound, with the key difference being its aim to become an omnichain lending protocol—users can deposit collateral on Chain A and borrow on Chain B. However, to access cross-chain lending services, users must first deposit assets on a supported chain to become dynamic liquidity providers (dLPs) before borrowing desired assets on the target chain.
Radiant is currently deployed on Arbitrum and BSC, with a TVL of $220 million, ranking highly among lending protocols and capturing significant market share, becoming the leading lending platform on Arbitrum.
Protocol Revenue
For Radiant, protocol revenue = borrowing fees – deposit interest (supply-side fees). Since February this year, earned fees have stabilized around $2 million, with monthly protocol revenue reaching approximately $1 million.
Source: Token Terminal
Economic Model
RDNT has a total supply of 1 billion tokens, with 300 million in circulation. Its primary token utilities are governance and liquidity incentives.
According to Token Unlock data, allocations to dual-pool liquidity providers, Treasury, and Radiant DAO reserves have been fully unlocked. Ongoing unlocks apply to team, core contributors, and depositor/borrower incentives, with depositor/borrower allocations releasing 4.85 RDNT per second. At this rate, nearly 210,000 tokens are released monthly.
From token distribution data, the top 20 addresses hold 92.3%, with the first being the official contract address still holding 23.4% undistributed. Tokens distributed across DEXs account for 27.6%, and large private addresses among the top 20 hold only 3.8%.
Roadmap
Radiant’s official team has disclosed a simplified roadmap. The protocol is currently in version 2.0, with the primary focus on deploying Radiant cross-chain functionality and increasing in-app collateral size. Version 3 plans to eliminate dependency on the third-party bridge Stargate by fully integrating LayerZero. Version 4 aims to fully realize omnichain liquidity lending.
Conclusion
Multi-chain is the future of blockchain development, and cross-chain interoperability protocols are key components enabling communication between blockchains, offering vast growth potential. LayerZero is still in its early stages, with relatively few native projects available for participation. Backed by numerous prominent investors and rich industry resources, its anticipated token launch continues to draw attention from across the crypto market.
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