From cross-chain to full-chain, LayerZero is becoming the foundational network structure for the future full-chain ecosystem

Author: Daniel Li, CoinVoice

The coordinated development of multiple chains has become an inevitable trend for the future of blockchain. It brings greater freedom to the development of blockchain, but it also poses serious problems: public chains established based on their respective characteristics are becoming increasingly isolated from each other, and user liquidity is confined within walls. Although some leading applications attract a large user flow and seem to occupy a significant market, the market trapped within walls, no matter how large, is merely a puddle compared to the vastness outside.

To truly realize Web 3.0 in the future, a foundational network that enables full-chain interoperability is necessary, and LayerZero is such a foundational protocol. Recently, LayerZero completed a Series B financing round of $120 million at a valuation of $3 billion, with participation from well-known blockchain investment institutions such as a16z Crypto and Sequoia Capital. The favor of capital also indicates that the era of full-chain is about to arrive.

From Cross-Chain to Full-Chain: LayerZero Represents a New Trend in Cross-Chain

With the continuous development of the blockchain industry, an increasing number of Layer 1 and Layer 2 blockchain networks have emerged, playing an important role in driving the rapid expansion of the blockchain ecosystem. However, due to the differentiation between different public chains and the continuous expansion of ecosystems, user liquidity has been restricted, and information cannot flow freely. This issue of liquidity fragmentation is becoming increasingly severe, posing significant challenges to blockchain applications and development. Therefore, in the era of multi-chain coexistence, addressing the interoperability and communication issues between public chains has become extremely important.

Currently, cross-chain information communication methods mainly include two types: the first is a middle chain that forms a consensus to verify and forward messages between different chains, known as the Middle Chain; the second is to run a node on-chain to achieve message transmission, known as the On-Chain Light Node.

In the first model, the middle chain has complete signing authority over all information, and this design is highly susceptible to consensus corruption at a single point, leading to the theft of liquidity across all chains. Currently, the middle chain is bound to hundreds of millions of dollars while protecting hundreds of billions of dollars in security. Moreover, the middle chain is becoming increasingly decentralized, making it more likely to be exploited by malicious actors. The second model, the On-Chain Light Node, can receive and verify the block headers of each group of blocks on opposing chains. Using light nodes to transmit information is the safest but also the most expensive. Currently, running an on-chain light node on Ethereum costs thousands of dollars daily for each opposing chain. Both models have their own advantages and disadvantages: the middle chain is cheaper but less secure, while the on-chain light node is secure but expensive.

Whether it is the middle chain or the on-chain light node, they are essentially cross-chain applications created to meet the information exchange needs between specific public chains. They can be seen as attempts or explorations of cross-chain technology in a multi-chain ecosystem. However, if we want to achieve seamless interaction with all public chains through a single application in a multi-chain ecosystem without frequently switching wallets, then merely establishing more middle chains or on-chain light nodes between public chains will never suffice. Therefore, cross-chain needs to enter a new stage: building a universal cross-chain protocol using the lowest-level protocol to achieve full-chain interaction. LayerZero is such a full-chain protocol.

From the very beginning, LayerZero did not simply position itself as an ordinary asset cross-chain bridge but hoped to become a foundational infrastructure-level protocol that is more fundamental than Layer 1 public chains, thereby fundamentally solving the deep-seated issues of liquidity fragmentation between numerous public chains and the need for frequent wallet switching when using applications. What we see in LayerZero is not just simple cross-chain functionality, but a rich cross-chain ecosystem built on the LayerZero protocol. Currently, representative full-chain products based on LayerZero include Stargate and Radiant, and as the LayerZero ecosystem continues to develop, it is expected that more native cross-chain products based on the LayerZero protocol will emerge.

LayerZero is Paving the Way for a New Era of Interoperability

Interoperability remains one of the biggest challenges facing blockchain technology. Currently, most blockchains operate in isolation, making it difficult to transfer data, assets, and information between them. As more blockchains emerge, communication and transactions between them become increasingly important. This is where LayerZero comes into play. The underlying technological advantages and rich application scenarios of LayerZero are paving the way for achieving secure, trustless, and efficient interoperability.

LayerZero Operating Mechanism

LayerZero achieves decentralized information cross-chain services by deploying a series of smart contracts (Endpoints) on-chain. The Endpoint runs ultra-light nodes, which only provide the Block header of specified blocks.

Additionally, during the information transmission process, LayerZero also utilizes two external services: Oracles and Relayers.

An Oracle is a third-party service that provides a mechanism for reading block headers from one chain and sending them to another chain. The LayerZero team has chosen Chainlink and Band Protocol as their official Oracles. However, theoretically, any Oracle service provider can become part of this mechanism. A Relayer is an off-chain service that works similarly to an Oracle, but its job is to obtain proof of specified transactions. Relayers and Oracles must remain independent of each other to ensure the effectiveness of message transmission.

In practice, if you want to send a message from Chain A to Chain B using LayerZero, you first need to notify the Oracle and Relayer on Chain A that you want to send a message. Then, the Oracle sends the relevant block header (a summary of the latest transaction on Chain A) to the ultra-light node on Chain B. The Relayer on Chain A will then submit proof of this transaction to Chain B. Once this proof is verified on Chain B, the message can be sent to the intended recipient on Chain B. One of the benefits of this method is that it is both secure and cost-effective, as it combines the advantages of both middle chains and on-chain light nodes while eliminating their weaknesses.

Advantages of LayerZero

Universality

Traditional IBC cross-chain protocols require deploying light nodes of other public chains on public chains to achieve interaction, but high gas fees limit the application of IBC protocols on EVM-compatible chains like Ethereum. This greatly reduces the universality of the IBC protocol, which can currently only be used in the relatively niche Cosmos ecosystem. In contrast, LayerZero's ultra-light node technology architecture significantly reduces the integration costs of public chains. Mainstream public chains, especially Ethereum and other EVM-compatible chains, can almost all afford the cost of deploying LayerZero nodes. Therefore, LayerZero has strong universality and may become the foundational protocol for integrating cross-chain functions of various EVM public chains in the future.

Scalability

Scalability has always been a tricky obstacle for blockchain-based solutions, but LayerZero has overcome this issue. Moreover, it brings broader application scenarios to the blockchain ecosystem, such as data verification, personal reward structure settings, and digital currency wrapping. As a foundational layer, LayerZero can achieve cross-chain interoperability with Layer 1 protocols (such as BTC, ADA, and ETH). Operators can use LayerZero to deploy relay networks across multiple nodes (like Bitcoin and Ethereum). Compared to patching existing blockchain networks' underlying protocols, LayerZero is modular and scalable, allowing for the addition of new chains and features without modifying the core protocol. This makes it a more flexible and scalable solution.

High Efficiency

Compared to other cross-chain projects, LayerZero can achieve higher transmission efficiency, mainly due to its unique design. The "ultra-light nodes" of LayerZero adopt a verification model similar to IBC light nodes, significantly reducing verification costs while ensuring security. Unlike traditional light nodes that require cumbersome solutions to store each other's block headers, LayerZero's "ultra-light nodes" obtain the necessary block headers on demand through Oracles and verify transactions. This approach minimizes the costs and processing time associated with cross-chain transactions, improving transmission efficiency.

Security

As a foundational protocol, LayerZero's security is independent of external protocols. Even if external protocols encounter security issues or are attacked, it will not affect LayerZero's security, thus ensuring the stability of the entire protocol consensus. Additionally, LayerZero's unique design of Oracles and Relayers maximizes the security of information transmission. The independence between Oracles and Relayers ensures that even in the worst-case scenario, where both are operated by the same entity and collude, it remains an isolated risk with a very low probability of success, and malicious actors would incur very high costs to execute an attack. Furthermore, to further reduce risks, LayerZero allows user applications to choose different combinations of Oracles/Relayers, and users can even run Relayers themselves. These measures provide the safest guarantees for information transmission.

LayerZero Application Scenarios

Cross-Chain Decentralized Exchange: LayerZero supports cross-chain DEXs specifically designed to handle native assets. Compared to existing DEXs that issue wrapped tokens or use intermediate side chains, LayerZero's design allows for liquidity pool exchanges across different chains using inter-chain messaging. Users only need to deposit their native assets into one pool and withdraw local assets on another chain. LayerZero's messaging capabilities are very powerful, enabling direct bridging (1:1 pricing), automated market-making (ab = k pricing), and any other derivatives (e.g., pricing similar to Curve DAO). Moreover, the effective delivery guarantees provided by LayerZero make a wide range of decentralized exchange applications possible.

Multi-Chain Yield Aggregator: Current yield aggregators typically operate only within single-chain ecosystems, such as Yearn Finance, which uses single-chain strategies to achieve corresponding yield aggregation. However, these single-chain yield aggregation systems have a major weakness: they cannot take advantage of any yield opportunities outside the current ecosystem, potentially missing many beneficial investment opportunities. By using LayerZero for cross-chain trading, yield aggregators can formulate more strategic investment plans, allowing them to capitalize on the best opportunities across all ecosystems and increasing the likelihood of obtaining high-yield opportunities. Compared to single-chain yield aggregators, multi-chain yield aggregators are superior because, in the worst-case scenario, the strategy only utilizes opportunities on one chain, while in the best-case scenario, there will be more options available.

Multi-Chain Lending: Users previously had no simple way to leverage blockchain opportunities outside their asset holdings. For example, a user holding all assets on Ethereum who wants to earn on Polygon can only transfer all assets to Polygon and convert them into the desired currency, or lend assets on Ethereum and then borrow the desired assets to bridge them to Polygon. However, with LayerZero's multi-chain lending protocol, users can directly lend MATIC on Polygon using assets held on Ethereum, eliminating intermediary costs such as bridging and exchange fees. This allows users to more conveniently utilize assets across different chains to maximize their returns.

Unified Liquidity Bridge: Currently, to attract competition among liquidity providers (LPs), liquidity bridges split liquidity between bridges and between paired pools. This forces LPs to choose a single liquidity pool connected to one chain to provide liquidity for their assets. However, with LayerZero's unified liquidity bridge, unified liquidity can be provided across all chains while protecting the finality of the source chain. This means that when users transfer assets from Chain A to Chain B, their assets on Chain B are guaranteed. Additionally, LPs can collect fees from all transactions entering Chain B, unrestricted by the source chain, thus facilitating more convenient and efficient cross-chain asset flows.

Swaps: Using LayerZero, developers can build complex cross-chain applications without sacrificing trustlessness or introducing complex intermediary chains or smart contracts. Automated market makers can be easily packaged, and executing cross-chain asset exchanges becomes simpler—no code modifications are necessary. For example, users can directly swap ETH for SOL in a single Ethereum transaction without needing intermediary tokens or secondary transactions. The actual swap protocol is handled by the smart contract on any chain involved in the cross-chain transaction, while LayerZero is responsible for transmitting information between the two chains. This method provides flexibility and adheres to the end-to-end principle.

The above application scenarios are just a small part of the many possibilities that LayerZero can achieve. As LayerZero's technology continues to develop and its ecosystem matures, it will bring us more surprises while paving the way for the upcoming full-chain era.

Notable Ecosystem Projects of LayerZero

As a trustless protocol, LayerZero enables seamless communication between blockchains without compromising security and decentralization. Through the LayerZero protocol, inter-chain communication becomes easier, and future projects built on this foundation can achieve full-chain cross-chain lending, cross-chain staking, and other functions. Currently, several noteworthy full-chain projects based on LayerZero include:

Full-Chain DEX - StargateFinance

Stargate is the first fully composable native asset bridge built by the community and the first DApp based on LayerZero. The vision of Stargate is to make cross-chain liquidity transfer a simple and unique trading process, successfully solving the Bridging Trilemma. With LayerZero's Series B financing, Stargate's daily interaction numbers have surged. Users can now perform cross-chain transactions of various assets such as USDC, USDT, DAI, STG, RDNT, and FRAX across 8 public chains including Ethereum, BNB Chain, Polygon, Arbitrum, Optimism, Fantom, Metis, and Avalanche.

As a direct descendant of LayerZero, Stargate's role goes far beyond that of a cross-chain bridge. From Stargate's documentation, it is evident that Stargate aims to serve as a technical provider for asset cross-chain solutions, enabling more projects to easily utilize Stargate for cross-chain functionality. Therefore, Stargate's business needs to be divided into two parts: 2B and 2C. The 2B business model has far more imaginative space than the 2C model, allowing for the construction of more complex DApps on top of Stargate. Currently, Stargate has issued the STG Token, and holders who stake STG can not only receive revenue dividends from the protocol but also exchange their staked duration for corresponding shares of veSTG to participate in proposals, voting, and other community governance.

Full-Chain NFT - GhostlyGhosts

Gh0stly Gh0sts is the first full-chain NFT series launched by LayerZero, consisting of 7,710 NFTs that can be minted for free on 8 supported blockchains. The design of this series is very clever, with each NFT's background color representing its birthplace, such as gray for Ethereum, yellow for BNB, purple for Polygon, and red for Avalanche. In the past, when popular NFTs were minted, Ethereum often experienced gas spikes, leading to high gas fees. This is because NFT minting consumes a large amount of blockchain resources, but Gh0stly Gh0sts, based on the LayerZero underlying protocol, can easily achieve multi-chain simultaneous issuance, thus avoiding gas wars.

Full-Chain Lending Market - Radiant

Radiant is a project dedicated to becoming a full-chain lending market, aiming to unify decentralized cross-chain liquidity in the Web 3.0 currency market and share protocol fees with community users. Compared to traditional centralized exchanges, Radiant emphasizes seamless connectivity of cross-chain liquidity, allowing users to deposit any mainstream asset on any chain and borrow various supported assets on multiple other chains, giving it a higher competitive edge in the full-chain currency market.

Radiant's underlying technology is based on LayerZero's OmniChain technology, and it has already launched its V1 version, which currently supports cross-chain lending of ETH assets only on Arbitrum. However, the V2 version is about to go live, supporting more assets and public chains, which will further strengthen Radiant's position in the full-chain lending industry. Additionally, backed by a powerful technical team like LayerZero, it has gained a first-mover advantage in the full-chain space. Currently, Radiant ranks third in TVL on the Arbitrum chain, and its future development potential is immeasurable.

Conclusion

As blockchain technology continues to evolve, users and developers are increasingly recognizing the importance of achieving interoperability between different blockchains. To fully leverage the potential of blockchain technology, different blockchains must be able to achieve secure, efficient, and trustless interactions. LayerZero, as an innovation in foundational technology, is significantly advancing the realization of this goal. Currently, LayerZero has connected over 30 mainnet blockchains and is widely used in decentralized exchanges such as PancakeSwap, SushiSwap, Trader Joe, and Uniswap. The transaction volume processed by LayerZero has exceeded $6 billion, and it has locked total assets worth over $7 billion. It is foreseeable that in the future multi-chain coexistence era, LayerZero will become the foundational network structure of the full-chain ecosystem, continuously contributing to the progress and development of the blockchain industry.