Dialogue RootData List Listed Institutions | $3 Billion Unicorn LayerZero: We are often misunderstood due to governance issues and do not compete with peers

Interviewee: Irene Wu, Strategic Director of LayerZero

Interviewer: kit, flowie, ChainCatcher

Editor’s Note: The crypto asset data platform RootData, in collaboration with ChainCatcher, has released the “2023 Web3 Industry Development Research Report and Annual Rankings” (click the link to view the full report and rankings), which provides a detailed analysis and interpretation of the development status of the Web3 industry over the past year, covering overall trends and characteristics of the Web3 industry, characteristics of Web3 asset development and sector trend analysis, characteristics and trend analysis of Web3 capital flow, and the four major sectors of the 2023 RootData List.

In the fourth section, the report selects multiple rankings based on the annual performance of Web3 projects and investment institutions, including the Top 50 projects in the Web3 industry, Top 100 investment institutions, and Top 20 projects in sub-sectors such as infrastructure, DeFi, and gaming.

In the cryptocurrency space, the speed at which unicorns are emerging is faster than in any previous industry, with LayerZero being one of the representatives.

In 2020, when the BNB chain was just launched, three gaming enthusiasts wanted to create a multi-chain game that could operate on both Ethereum and BNB chain, but it was declared a failure. A year later, they pivoted to the cross-chain space, and a future unicorn project, LayerZero, was born.

By deploying "ultra-light nodes" across various chains and using an innovative model with oracles and relayers, LayerZero quickly became a rising star in the cross-chain field and attracted the attention of many top-tier investment institutions, including a16z Crypto, Sequoia Capital, and Binance Labs. Since its inception, LayerZero has raised nearly $300 million in three rounds of financing. After completing a $120 million financing round in April 2023, its valuation reached $3 billion.

However, almost simultaneously, LayerZero faced a tumultuous period. In March 2023, LayerZero was accused of being overly centralized after receiving strong support from a16z in a cross-chain bridge vote; the following month, LayerZero's official cross-chain bridge, Stargate, was criticized for its high and opaque fees, being labeled a "cross-chain assassin"; in October 2023, LayerZero's newly launched wstETH wrapping feature faced joint resistance from peers like Connext, Across, and others.

In November 2023, the "SSL certificate" mystery, which symbolizes signs of an airdrop, once again raised community dissatisfaction regarding management. Additionally, LayerZero has been facing multiple challenges in terms of decentralization and security.

After much skepticism, in January 2024, LayerZero announced the launch of version V2, intending to address the criticized issues of decentralization and security.

On February 1, ChainCatcher exclusively interviewed LayerZero Labs' Strategic Director Irene, attempting to answer the above questions.

After studying anti-surveillance and law enforcement technology in computer science, Irene joined a startup menswear company, where she was introduced to Bitcoin through two angel investors from Gemini. She later joined LayerZero Labs in 2021 as the Strategic Director, building the business development and integration team.

In addition to discussing LayerZero itself, Irene hopes to see more talented individuals from the Web2 industry join the Web3 space to collectively drive industry development.

What Key Issues Does LayerZero V2 Aim to Address?

1. ChainCatcher: Recently, LayerZero announced the technical white paper for version V2. What key issues does the new version aim to address? How will the issues of centralization and security, which have been criticized, be resolved in the latest V2 version? What is the current deployment progress of V2?

Irene: LayerZero V1 has transmitted over a hundred million messages and transferred more than $50 billion, integrating thousands of applications. Its design and architecture have always adhered to three principles: permissionless, censorship-resistant, and immutable.

Through running LayerZero V1, we indeed received some of the feedback you mentioned, and we are also thinking about how to continue to evolve and serve developers. In the past, we completed cross-chain verification and message execution through oracles and relayers. However, these off-chain entities do pose security risks, which is quite tricky for our team.

We hope that these oracles and relayers can ensure security through ZK-proof verification methods.

To lower the entry barrier, we need to build a new architecture in LayerZero V2 that allows developers to more easily run one of the components and achieve out-of-the-box verification methods.

In the LayerZero V2 white paper, you can see that we are trying to address various issues related to decentralization, security, and downtime.

LayerZero V2 is a message transmission protocol, not a blockchain. LayerZero utilizes smart contracts deployed on each chain, combined with a decentralized verification network (DVN) and executors, to enable interaction between different blockchains. It also introduces a very lightweight approach, allowing teams to run their own DVN or use native bridges. Third-party bridges like Arbirum Layer2, Wormhole, Axelar, and even MPC wallets can serve as DVN.

Additionally, we have made a series of optimizations for the developer experience.

2. ChainCatcher: You just mentioned many types of cross-chain interoperability protocols like Connext, Wormhole, and Axelar. In comparison, what are LayerZero's differentiated positioning, advantages, and disadvantages? What common challenges does the industry face in solving cross-chain interoperability?

Irene: I’ll answer the second question first. LayerZero was inspired by gaming; our three founders are gamers. When the BNB chain was just launched, they were thinking about how to create a game that could operate on both Ethereum and BNB chain, allowing the two chains to interoperate. At that time, the only cross-chain facility available was bridging assets through wrapping.

In 2023, many users may have developed PTSD (Post-Traumatic Stress Disorder) from MultiChain. Over the past few years, all hacking incidents have been due to this asset-wrapping bridging model, which was the hottest method three years ago and marked the first step for blockchains in interoperability.

Therefore, LayerZero does not just want to be a simple cross-chain bridge; it is the infrastructure for cross-chain communication. In fact, the layer beneath the cross-chain bridge can achieve more functionalities, with the cross-chain bridge being just one use case.

Furthermore, achieving cross-chain interoperability is akin to building the early internet; the upper-layer applications and security issues are constantly evolving, with an ever-growing codebase. Ensuring the stability of the "foundation" while allowing for open innovation at the upper layer is a challenging task.

The difference between us and protocols like Connext, Wormhole, and Axelar is that they are addressing the verification layer issues, while we are addressing the message transmission layer issues within an immutable framework.

We are not dogmatic about the verification layer; we do not impose how developers should verify their messages because blockchain technology has millions of different use cases, each requiring varying degrees of security. We want to maintain an open-source, open ecosystem.

"We Are Often Misunderstood Due to Governance Issues"

3. ChainCatcher: In October 2023, LayerZero launched the wrapping stETH (wstETH) feature for transferring Lido Finance on chains like Ethereum and Avalanche. What was the original intention behind launching this feature? How do you view the joint resistance from multiple peers regarding this move, as well as the community's doubts about governance? Does LayerZero have any reflections and improvement plans regarding this?

Irene: First of all, we at LayerZero believe in and wish to protect the spirit of permissionless deployment, which is one of the reasons we are building in the crypto space. Developers should be able to use technology to create what they like, edit existing protocols, and do so without the permission of "banks" or social oligarchs.

Lido, like LayerZero and Uniswap, has enabled permissionless deployment. I believe this should not be stopped. The misunderstanding arises from our governance issues; community users feel that we did not make any announcements before deployment, which appears malicious. However, it has always been permissionless, and we are very grateful for the positive collaboration with the Lido team for over a year.

We are also excited that many tokens on chains like Ethereum and Avalanche are using the LayerZero Omnichain Token (OFT) standard, which has been adopted by over a hundred top protocols. With the V2 upgrade, they can inherit the new security specifications.

Additionally, I need to emphasize that LayerZero does not compete with Connext, Across, and Celer Network. If teams want to use Connext, Across, and Celer Network as part of their verification layer, they can do so within LayerZero, and we welcome that.

4. ChainCatcher: LayerZero's official cross-chain bridge Stargate has previously been criticized for high and opaque fees. How does LayerZero view this, and are there any adjustment plans?

Irene: About six months ago, LayerZero founder Bryan Pellegrino announced the idea of launching Stargate V2, and a significant upgrade for Stargate is on the way.

Regarding the fee issue, Stargate handles many unique features on-chain and is one of the most commonly used native cross-chain bridges in the cryptocurrency space, serving as the primary way for crypto users to enter and exit Base, Optimism, and Arbitrum. These contracts have consistently been among the top ten contracts with the highest gas fees. Typically, crossing from Ethereum to other chains or back is more expensive.

Some cross-chain bridges may have lower gas fees, but they might compromise on security and only handle a limited number of on-chain quotes.

I can't reveal too much about the upgrade for now, but Stargate is working hard, and we look forward to seeing incredible optimizations based on all this feedback.

5. ChainCatcher: LayerZero announced in December that it would complete the token launch in the first half of 2024, but has not disclosed a more specific airdrop snapshot time and token distribution plan. Is there a clearer timeline now?

Irene: We have announced on the official X platform that a token will be launched this year, and it will be released no later than June 30 or July 1.

6. ChainCatcher: LayerZero has faced significant dissatisfaction from the community regarding the progress on tokens and airdrops. How do you view this dissatisfaction? What factors will you prioritize in deciding the timing of airdrops and token issuance?

Irene: We have always shared information about the token as soon as possible. Frankly, we are a team primarily composed of engineers who have focused on building over the past two years. While trying to construct complex infrastructure, we also want to design an excellent token launch, but this often encounters some obstacles. We focus on developing products to meet the needs of developers and ensure their exceptional quality, so that when the token is launched, it does not pose any challenges. Instead, it becomes a source of pride for us.

I want to clarify that the way the token is issued is crucial for any crypto project, and we want to do it to perfection, which is why we take the time to do this.

7. ChainCatcher: The expectation of airdrops has incentivized users to engage with LayerZero. After the airdrop, how does LayerZero plan to retain and incentivize users?

Irene: LayerZero is a protocol aimed at developers, not just a bridge for users, so it will specifically cater to the needs of developers. There are many talented individuals in the ecosystem, and we are honored to observe the projects they are building on LayerZero and brainstorm with them.

We focus on how much developers love the protocol and the importance of the end-user experience with the product, whether through games integrating blockchain assets via LayerZero or seamless transfers of stablecoins, as well as cross-chain lending.

Moreover, contributors to decentralized protocols are also very important. With the V2 testnet launch, we announced that there will be 14 initial validators, including the DVN (Decentralized Verification Network). The teams running these networks include one of Ethereum's most renowned execution clients, Getcoin, which has been a thought leader in Ethereum grants and public goods building for many years. These teams are also very valuable for a healthy ecosystem.

Data Growth Exceeds Expectations

8. ChainCatcher: What is LayerZero's roadmap for 2024? What are the most important work objectives? What plans are there for ecosystem incentives?

Irene: Currently, we are actively developing some important new products. It is crucial to successfully launch these products and receive feedback from the right audience. The V2 version has been in development for a year, and I eagerly anticipate valuable feedback from developers, users, and non-technical individuals.

I also hope to convey through ChainCatcher that I am always open to private messages and happy to answer questions and listen to everyone's thoughts.

Now, the first integrated LayerZero product has gone live; it is called Cluster Canister, developed by a non-developer team from Twitter, led by Fu Bar. Essentially, it is a universal domain that integrates LayerZero and layer two, unifying multiple wallet addresses across chains under one identity.

9. ChainCatcher: What do you think is the biggest achievement of the team in the past year? What did you do right?

Irene: The only achievement that comes to mind is that we far exceeded all our expectations for data volume. We never anticipated that over a hundred million messages would be generated in just over a year since the protocol went live in May 2022; we initially thought it would not exceed 15 million. This data comes from real projects, with real users and very useful cases. They include stablecoins, games, protocols, and enterprise projects. JP Morgan even integrated LayerZero and used it for their project custody, which is another thing we are genuinely excited about.

Additionally, we launched the B2 test set last December, and we have 52 chains in a world with hundreds of APP chain players. LayerZero is ready to connect them all into a mesh network.

We have expanded the team and hired many outstanding individuals, including some great researchers.

10. ChainCatcher: What has enabled the LayerZero team to grow rapidly and continue to thrive in the industry?

Irene: Both product users and the team building the infrastructure are important. When building critical infrastructure, there is no room for error, especially when deploying immutable contracts; once thoroughly tested and deployed, there is no turning back to fix issues. Therefore, it is essential to have a hardcore team that loves solving difficult challenges to ensure continuous improvement.

I will always remember a new colleague I met when I first joined LayerZero; he was our off-chain engineer. When others left for a team dinner, he stayed alone in the office for an extra hour and a half, deciding to conduct more than two tests on what we planned to deploy the following week. He looked at me and said, "This is the right thing to do, so we need to do two more tests."

For something like cross-chain interoperability, your team needs to be prepared and willing to wake up at 2 AM, ready to tackle any challenges.

11. ChainCatcher: What industry issues is the team currently most focused on? What is your assessment of the crypto market in 2024?

Irene: Personally, and not representing LayerZero, I believe we still need additional outstanding engineering talent, product design talent, and storytelling talent from Web 2. Even my smartest engineering friends have never written a line of Solidity code.

Imagine what would happen if some top product design experts joined us; it could completely change how we approach on-chain transactions and create something fresh and innovative, rather than simply replicating traditional stock trading. That’s why I think this is the most pressing issue.

12. ChainCatcher: Where do you see the breakthrough for large-scale applications in Web3? Which sectors currently have this potential?

Irene: Recently, I have been primarily involved in teams that are building and challenging traditional norms, and I am passionate about the potential of gaming and its ability to introduce digital assets to others. The gaming experience should not be limited to on-chain; blockchain technology has the potential to unlock a plethora of novel gaming behaviors.

Moreover, some of the teams behind the games we loved when we were young, mainly from Korea and Japan, have heavily invested in executing operations on-chain and using LayerZero to initiate operations across different chains. This progress excites me greatly because it transcends the basic concept of NFTs.

Additionally, there are some exciting new applications emerging beyond gaming that prioritize providing a pleasant user experience. Interacting with these applications should not induce stress but should be a delightful process. Recently, I encountered an issue where I tried to transfer USDC from Ethereum to Solana, and it took several hours. This happened late at night, around 2 AM, and while I have a strong interest in exploring bridging opportunities, this experience left me quite anxious.