Layerzero: A protocol layer product often mistaken for a cross-chain bridge

Source: Rhythm BlockBeats

In the recently concluded two-year bull market, the market not only witnessed the rapid rise of multi-chain ecosystems but also directly observed the explosive growth of numerous cross-chain bridge products.

However, repeated hacking incidents and various flaws in the user experience of cross-chain bridges have begun to raise doubts about whether cross-chain bridge products that merely solve asset cross-chain issues might be a misguided direction. What should the underlying protocols capable of supporting native cross-chain applications look like in the future?

This article will reintroduce a protocol-level cross-chain project that readers may have heard of but still do not fully understand its potential: Layerzero.

Why shouldn't Layerzero be simply understood as a cross-chain bridge?

When reading introductory articles about Layerzero, many readers' first reaction might be: "Isn't this just another cross-chain bridge product?"

Indeed, the current application of cross-chain technology in the market is still primarily focused on asset cross-chain. However, asset cross-chain is merely a small subset of the entire cross-chain technology; it can even be said that many of the cross-chain bridge products we previously used were hastily developed by project teams to meet the most basic needs of users in response to the sudden emergence of multi-chain ecosystems.

If we want to enter a truly mature multi-chain ecosystem where users can seamlessly interact with all mainstream public chains through a single application without frequently switching wallets, then we must have a more foundational protocol-level cross-chain product that can achieve information cross-chain rather than just simple asset cross-chain.

As implied by the name Layerzero, it has never simply positioned itself as an ordinary asset cross-chain bridge; instead, it aims to become a more foundational infrastructure-level protocol than Layer1 public chains, thereby fundamentally addressing deep-rooted issues such as liquidity fragmentation between numerous public chains and the need to frequently switch wallets when using applications.

So, what are the essential differences between Layerzero as a protocol layer and cross-chain bridges as products?

What are the key differences between product layer and protocol layer projects?

1. Value capture logic

Yes, in the Web3 industry, the most important distinction between protocol layer and product layer projects may lie in their fundamentally different value capture logic.

According to the well-known "fat protocol" theory, protocol-level projects as underlying layers in the Web3 ecosystem can often capture the most value in the industry by providing security guarantees for upper-layer applications. In contrast, application layer projects built on top of the protocol layer often rely on traditional methods of generating revenue through transaction fees or service fees, which are then converted into profits.

Therefore, before deciding to deeply engage with a Web3 project, distinguishing whether it is an application layer product or a foundational Web3 protocol capable of supporting upper-layer applications is a crucial question.

Early industry participants, whether miners or developers, earned excess returns by participating in promising public chains, which is the best proof of the effectiveness of the "fat protocol" theory.

2. The importance of ecology, not just product functionality

The way to evaluate a protocol layer project is also fundamentally different from that of application layer projects.

Among various smart contract public chains, Ethereum's ability to maintain the highest market value over the long term is not due to its faster transaction speeds, but rather because Ethereum has the most prosperous on-chain ecosystem and developer community.

Therefore, when examining protocol layer projects like Layerzero, the focus should not be on simply evaluating how many public chains it supports or how many cross-chain tokens it is compatible with, as one would with other cross-chain bridge products. Instead, it should focus on what innovations the various ecological projects built on it have brought.

Currently, representative products built on Layerzero include Stargate and Sushiswap, among others. As the ecosystem continues to develop, it is expected that more native cross-chain products based on Layerzero will emerge.

However, due to space limitations, this article will not elaborate further; more detailed reports on Layerzero's ecological projects will be released in the future.

What advantages does Layerzero have compared to other cross-chain protocols?

Although Layerzero has a significantly different positioning from ordinary cross-chain bridge products, there are still some projects in the market with similar positioning. So, what unique advantages does Layerzero have compared to these other protocol layer cross-chain projects?

1. Stronger universality

The IBC protocol, born in the Cosmos ecosystem, also aims to achieve protocol-level cross-chain functionality. However, to be compatible with IBC, it is necessary to deploy light nodes of other public chains on the public chain. The high gas costs make it difficult for many EVM-compatible chains, especially Ethereum, to support the IBC protocol, greatly limiting its universality. As a result, it can currently only operate between relatively niche Cosmos ecosystem chains.

Similarly, the Polkadot ecosystem, which once focused on the cross-chain concept, developed the XCMP cross-chain protocol. However, since it can only meet cross-chain interaction needs between Polkadot's parachains, it remains a relatively closed cross-chain protocol within a small circle.

In contrast, Layerzero employs a "super light node" technical architecture, significantly reducing the cost for public chains to integrate Layerzero. Almost all mainstream public chains, especially Ethereum and various EVM-compatible chains, can afford to deploy Layerzero nodes. Therefore, Layerzero has strong universality and the potential to become the foundational protocol for integrating cross-chain functionalities across various EVM public chains in the future.

2. Balance of security and efficiency

Of course, in the race to integrate all mainstream EVM public chains and become their foundational cross-chain protocol, Layerzero is not the only player. One of its more influential competitors is Wormhole. However, if we mention Wormhole today, many readers' first reaction might be the hacking incident that resulted in over a hundred million dollars in losses.

This raises a more important question: how does Layerzero achieve a better balance between efficiency and security? This brings us to the "super light node" technical architecture that facilitates cross-chain communication for Layerzero.

Layerzero's "super light nodes" still adopt a verification model similar to IBC light nodes, but unlike the somewhat cumbersome solution of having light nodes store all counterpart block headers, Layerzero's "super light node" model chooses to obtain the required block headers on demand through oracles and verify transactions, thereby significantly reducing verification costs while ensuring security.

As a result, Layerzero currently has advantages over Wormhole, which also aspires to become the foundational cross-chain protocol for EVM chains, in both security records and efficiency.

After all, if developers choose an insufficiently secure foundational protocol to build applications, once its security assumptions are violated, it could lead to the complete failure of the application and result in losses for users' assets. Therefore, in the future, Wormhole may continue to exist as a cross-chain bridge product, but it will likely find it very difficult to develop a prosperous protocol ecosystem and compete with Layerzero.

Thus, at this stage, Layerzero can be said to have found a relatively suitable blue ocean market for itself. As long as the project team can quietly cultivate and strive to build its protocol ecosystem during the bear market, Layerzero is expected to become a seed player in the next cycle when the next bull market arrives. (Remember Chainlink, the protocol layer project that, despite being hard to understand at the beginning of DeFi Summer, was the first to explode?)

Bear markets are often a key stage for nurturing protocol layer innovations. This article briefly outlines the essential differences between Layerzero and many cross-chain bridge projects from the previous bull market, as well as the underlying logic that can nurture the next wave of native cross-chain applications. I hope readers will continue to pay attention to protocol layer products during this somewhat dull bear market cycle.

After all, progress at the protocol layer is the strongest driving force propelling the industry forward.