From Omnichain "Creator" to "Witch Slayer": LayerZero's Three-Year Thorny Entrepreneurial Journey

Author: Babywhale, Techub News

When it comes to the most anticipated airdrop in the first half of this year, LayerZero undoubtedly has a place. As a "hotshot" that has promoted the concept of "Omnichain" and achieved a valuation of several billion dollars even during its private funding stage, the news of LayerZero's token issuance has added fuel to the fire as we approach June.

Despite receiving immense capital optimism, LayerZero has faced numerous challenges along the way. From being initially regarded as overvalued, to questions about its mechanism's security, to losing the official cross-chain protocol battle on BNB Chain against Wormhole when launching on Uniswap, and the wetETH OFT (Omnichain Token) that did not receive support from Lido, the entrepreneurial journey of LayerZero over the past three years has been fraught with controversy.

Genius Poker Player and AI Master Enters Web3

LayerZero announced the completion of a $2 million seed round in April 2021 during the last bull market, but did not disclose its investors. In the market environment at that time, $2 million in funding was "not enough," which may explain why many people did not pay attention to it initially.

From left to right: LayerZero co-founder Caleb Banister, co-founder and CTO Ryan Zarick, co-founder and CEO Bryan Pellegrino

The core team of LayerZero consists of three outstanding graduates from the University of New Hampshire's computer science program, Bryan Pellegrino, Ryan Zarick, and Caleb Banister, who were also colleagues in the university's computer networking research lab. Notably, Sequoia Capital invited veteran journalist and producer Sam Eifling to write about the legendary story of CEO Bryan Pellegrino:

Bryan Pellegrino is a genius poker player who started playing Texas Hold'em at the age of 15 and is also a math prodigy, having won over $500,000 in total prize money in the World Series of Poker. In his youth, Bryan Pellegrino was obsessed with playing poker online, which inadvertently sparked his interest in computer science.

In 2013, Bryan Pellegrino overheard a discussion between his brother and brother-in-law about Bitcoin. Interestingly, the mining method of Bitcoin shares similarities with the "probability" in poker, and it was this connection that led Bryan Pellegrino and his brother and brother-in-law to buy a computer for mining.

Later, due to the Bitcoin crash, the collapse of Bitcoin exchanges, and the arrest of Bitcoin Foundation board members for money laundering, Bryan Pellegrino temporarily parted ways with cryptocurrency. Without a motivational story of enduring until the bull market, Bryan Pellegrino adhered to the principle of "a gentleman does not stand under a dangerous wall" and returned to his beloved poker game, but gradually began to feel a sense of boredom…

Bryan Pellegrino at the poker table

Bryan Pellegrino believes that poker is an endless game, and "always winning" no longer brings him joy. Even in 2015, seven years after graduating from college, Bryan Pellegrino was already considering retirement. After a year of travel, he returned home to Vancouver and was unexpectedly drawn to the concept of "baseball AI," developing an AI that predicts how pitchers will pitch against different batters based on analyzing past data, which he sold to several baseball clubs. However, this still wasn't the joy Bryan Pellegrino was seeking; he wanted to do something more significant and hoped to excel in a new field.

If we talk about what a new field was at that time, Web3 was undoubtedly the best choice.

Perhaps due to his experience in Bitcoin mining a few years prior, Bryan Pellegrino refocused on Web3, regaining confidence in cryptocurrency at the end of 2016 and buying Bitcoin. In 2017, Bryan Pellegrino co-developed OpenToken with Daniel Chen from a16z, which launched in 2018 to help ordinary people issue tokens. The project later underwent transformation and acquisition, but Bryan Pellegrino still hadn't truly settled in this field and returned to AI.

In 2020, Bryan Pellegrino, along with Ryan Zarick, Caleb Banister, and Noam Brown from Facebook AI, published a paper introducing a poker AI product called "Supremus," which defeated the world's best poker AI and some top professional players. A key point in their paper was that players do not always make the optimal choice based on odds but may play in a way that minimizes regret. Their paper was later cited in game theory research published by Alphabet AI lab DeepMind.

That year, the launch of Binance Smart Chain (BSC) caught Bryan Pellegrino's attention, and he planned to develop a game on BSC, but the game's NFTs would be placed on Ethereum, where NFT popularity was higher. At that moment, Bryan Pellegrino suddenly realized that transferring NFTs between chains was a cumbersome and risky task given the existing infrastructure, and many "cross-chain bridges" at that time merely issued wrapped assets on the target chain. What blockchain needed was a foundational infrastructure that could connect various chains.

After observing the isolation of various chains in the Web3 space and the high risks associated with cross-chain bridges, Bryan Pellegrino decided to develop a protocol to achieve true interconnectivity between chains, which is what we now see as LayerZero.

From poker to cryptocurrency to AI, from a brief return to Web3 and back to AI, and finally founding LayerZero, there is no myth of hitting the jackpot, nor is there a decade-long unwavering faith in Crypto. Bryan Pellegrino, who graduated from college in 2008, only found a lifelong goal worth striving for around 2021, when he was about 35 years old. He may be a genius, but geniuses can also be confused, just like you reading this text now.

$3 Billion Valuation, Over $250 Million in Total Funding

In late May 2021, the LayerZero team released the first version of its white paper titled "LayerZero: Trustless inter-chain transactions," which did not mention "omnichain." Upon verification, although the term "omnichain" is not original to LayerZero, it is highly likely that LayerZero was the first project to give "omnichain" a "new interpretation in Web3." Its blog post titled "LayerZero - An Omnichain Interoperability Protocol," published on Medium on September 16, 2021, officially set a precedent for omnichain in the Web3 space.

On the same day, LayerZero announced the completion of a $6 million Series A funding round led by Multicoin Capital and Binance Labs, with a valuation of $50 million. From being inspired to establish LayerZero due to developing a game on BSC to receiving investment from Binance Labs, LayerZero has indeed had a "deep connection" with Binance.

By the way, another omnichain concept project, ZetaChain, announced the completion of a $27 million funding round last August and also published its first Medium blog in December 2021, mentioning the omnichain concept. Perhaps at that time, the cheers for Bitcoin reaching a new high of $69,000 had not yet subsided, and discussions about NFTs and the metaverse were still fervent, just as the market had not discovered the later "DeFi boom" during 2018 and 2019.

Don Valentine, who founded Sequoia Capital in 1972, once stated that it is important for founders to tell stories. As Web3 entered a cooling period in 2022, when there was no phenomenal concept to take over the baton from NFTs and the metaverse, omnichain was pushed to the forefront.

Sequoia Capital founder Don Valentine

On March 30, 2022, LayerZero announced the completion of a $135 million Series A+ funding round, co-led by FTX Ventures, Sequoia Capital, and a16z, with participants including Coinbase Ventures, PayPal Ventures, Tiger Global, and Uniswap Labs, making for a very impressive lineup.

Before the official announcement of this funding round on March 18, LayerZero launched its flagship cross-chain product Stargate and initiated the sale of the STG token. At that time, some investors in the market believed that LayerZero's token was likely to be STG, leading to two whale users directly buying out the tokens available for public sale. Subsequently, LayerZero provided new investment opportunities for investors who authorized contracts but did not secure a share. Within a week of Stargate's launch, its TVL surpassed $2 billion, and two days later, it broke through $3 billion. A week after the announcement of the Series A+ funding round, the TVL exceeded $4 billion.

How terrifying are these numbers? Star DeFi projects from the last bull market, including Uniswap, Curve, Aave, Compound, and MakerDAO, took at least a month to grow their TVL from $2 billion to $4 billion, while Lido also took nearly a month. Stargate, however, achieved this in just 12 days. Although Eigenlayer's time of 9 days was faster than Stargate, its TVL growth was not without the appreciation of Ethereum itself, while the vast majority of liquidity for Stargate came from stablecoins like USDT and USDC.

It is evident that although the market had been declining for some time, it was still hot. If we compare the speed of TVL growth from $0 to $2 billion, Stargate might want to say:

On May 25, less than two months after the announcement of the Series A+ funding round, The Block reported, citing sources, that LayerZero Labs had recently held discussions with various investors about financing at a $3 billion valuation. A knowledgeable source indicated that LayerZero's latest financing would be in the form of equity, LayerZero token warrants, and Stargate's native tokens. This confirmed that LayerZero would issue tokens other than STG.

In addition to the financing, in April, the first omnichain NFT series "Gh0stly Gh0sts" based on LayerZero was launched. This NFT could be minted on the seven chains supported by LayerZero at that time, and within 24 hours of its launch, the floor price skyrocketed to 1 ETH. Although this NFT was merely a flash in the pan, it allowed Bryan Pellegrino to achieve his goal of seamless cross-chain NFTs.

In April last year, the long-awaited Series B funding round, which had been hinted at by "insiders" a year earlier, was finalized, raising $120 million and achieving an astonishing valuation of $3 billion. The investors included not only regulars like a16z and Sequoia, but also Christie's auction house and Franklin Templeton, which had rarely appeared in the Web3 space.

It can be said that as a non-public chain Web3 native infrastructure project, very few have reached a $3 billion valuation during the private funding stage, let alone having investors from various fields, almost encompassing all the familiar faces I have seen in Web3 project or institutional financing news. Here’s a fun fact: a friend in the industry shared that LayerZero's last funding round was extremely popular, and financial advisors were desperately trying to connect with some domestic investors. As a result, some investors were misled into investing, and after calming down, they complained to friends, "How did I invest in such a high valuation?"

Of course, I have not verified this matter, so consider it a story. However, the circulation of such stories, combined with various circumstances, can only suggest that LayerZero has been in an environment of being surrounded by stars for quite a long time, and unless something unexpected happens, an unexpected event quietly approached…

The Debate on LayerZero's Security and the "Highest" Bug Bounty in History

LayerZero's first public relations crisis stemmed from a report by L2BEAT, which pointed out not code-level vulnerabilities but rather unreasonable aspects of LayerZero's mechanism design. However, as a protocol that had already locked a large amount of funds, the risks mentioned by L2BEAT indeed made many people sweat.

In a report released by L2BEAT at the beginning of 2023, it pointed out that there are two security models in the Web3 space: one is shared security, like Rollup, where all Rollups use the same security mechanism; the other is the independent security model commonly used by omnichains, represented by LayerZero.

L2BEAT highlighted that the biggest problem with using LayerZero's cross-chain communication mechanism is that LayerZero cannot restrict users from modifying contracts themselves, meaning users need to assess the security of each protocol.

How to understand this issue?

Suppose I deploy a token A and use LayerZero's omnichain token model, which means I need to deploy oracles and relayers myself (friends unfamiliar with LayerZero V1 mechanism can refer to "SushiSwap founder 0xMaki endorses, what geometric imagination do LayerZero and Stargate have?"). If the oracle and relayer are controlled by an attacker, the attacker can steal the tokens locked on the original chain without the token holders noticing. L2BEAT stated that the only way to prevent this situation is to set the oracle and relayer as immutable, but no project had done so at that time. This is the problem with independent security: you may need to investigate whether each project using this mechanism has similar security settings to prevent attacks.

As the content of L2BEAT's article continued to ferment, LayerZero also responded to its views.

According to The Defiant, LayerZero Labs co-founder and CTO Ryan Zarick responded that LayerZero is merely a protocol, and how it is used is the user's own issue. Additionally, Ryan Zarick believed that the author had ulterior motives, as he did not check the security of each project using LayerZero's protocol but generalized that all projects have risks.

Although this discussion ultimately did not lead to substantial progress, it may have made the LayerZero team realize the importance of security. Four months after the report was released, LayerZero launched a bug bounty program on Immunefi with a maximum reward of $15 million. This bounty surpassed MakerDAO's $10 million, becoming the highest bug bounty program in the Web3 space. At the same time, LayerZero co-founder and CEO Bryan Pellegrino publicly stated that LayerZero spent approximately $5 million on audits in 2022 alone.

Moreover, the release of LayerZero V2 at the end of last year fundamentally modified this vulnerability, with its messaging mechanism evolving from "oracle + relayer" to "decentralized messaging + executor." In the V2 version, LayerZero introduced multiple trusted "DVNs" responsible for message delivery.

Projects can choose multiple DVNs based on their needs to ensure support for message delivery loads and set executors to execute cross-chain messages. Essentially, as I mentioned, the process of message delivery is completed through multiple trusted "intermediaries," ensuring that the messages transmitted cannot be tampered with.

The Dispute Over Uniswap's "Designated Cross-Chain Protocol" and the "Unofficial" wetETH

This incident can be seen as a small episode in LayerZero's development process. Although it is not directly related to LayerZero itself, it is still worth briefly discussing.

A month after L2BEAT's article "complaining" about LayerZero, Uniswap's decision on which cross-chain protocol to choose for cross-chain governance and messaging when launching on BNB Chain once again brought LayerZero to the center of the storm.

The cause of this matter was that the commercial source code license Uniswap applied for in 2021 would expire in April 2023, meaning anyone could directly copy Uniswap v3's code and launch a DEX. To secure a place on BNB Chain before the expiration, Uniswap began to accelerate the deployment of Uniswap v3 across multiple chains. The founder of 0xPlasma Labs released a draft proposal for deploying Uniswap v3 on BNB Chain in December 2022, and LayerZero and Wormhole, both supported by numerous institutions, became the two most likely competitors.

To garner votes for themselves, both sides tirelessly promoted their advantages and "attacked" each other's shortcomings in forums. The details of this process need not be elaborated. After a period of battling, the proposal on which cross-chain protocol to choose reached an off-chain vote on Snapshot, resulting in Wormhole winning with over 60% support.

However, many questioned why a16z, which held 15 million UNI, did not vote. a16z stated that they wanted to vote, but their tokens were held in Fireblocks, making it impossible to vote on the proposal off-chain, but they would oppose the proposal in the final on-chain vote.

On February 5, the final on-chain vote arrived, and a16z cast a vote against it as they had indicated. However, this action sparked dissatisfaction within the community, as if the proposal were ultimately rejected, going through the process again might cause them to miss the expiration date of the commercial source code license.

The fear of the deadline, combined with dissatisfaction towards a16z's "abuse of power," led many community members to overwhelmingly support the proposal's passage. Ultimately, although a16z's prominent red ball stood at the center, supporters including Consensys and GFX Labs still managed to pass the proposal with over 65% support.

While many viewed the passage of this proposal as a successful battle of the community against VCs, I believe it reflects the schism between investment institutions and the community or stakeholders. From a16z's perspective, they invested in both Uniswap and LayerZero, so in the absence of a clear distinction between LayerZero and Wormhole, it is understandable for a16z to support LayerZero. The community viewed a16z as an imaginary enemy, believing that its large UNI holdings undermined fairness with its voting power, but is it also a form of unfairness to forcibly support Wormhole just to thwart a16z? a16z recognized Uniswap's potential early on and has held UNI long-term without selling; is it really manipulation to support their invested project with their holdings? Readers are left to ponder.

If this incident can be seen as a struggle between VCs and the community or stakeholders, then the unilateral launch of the wstETH OFT without Lido community consent is entirely LayerZero's "self-inflicted wound."

On October 26 last year, LayerZero tweeted that it had launched the wstETH OFT and supported BNB Chain, Avalanche, and Scroll. This should have been good news for Lido, but it faced a joint boycott from nine cross-chain projects, including Connext, Across, Celer Network, ChainSafe, Sygma, LI.FI, Socket, Router Protocol, and the Cross-chain Interoperability Alliance.

The focus of the boycott was that LayerZero's actions had not received Lido community consent, and if every project could unilaterally launch cross-chain versions of their tokens, the market would become very fragmented. Therefore, these projects called for the projects to decide their own cross-chain standards for issuing tokens, providing a healthy competitive environment in the market.

Subsequently, Lido also tweeted that LayerZero's actions had not been approved by Lido DAO, reminding participants to be aware of the risks. Ultimately, LayerZero expressed its willingness to transfer the ownership of the wstETH contracts on chains outside of Ethereum to Lido for management, stating that its decision was to support the development of LSD projects and was not malicious. However, it must be acknowledged that LayerZero's actions were indeed biased, and without clearly stating that this was a token standard launched by LayerZero without Lido DAO's permission, combined with the previous events related to Uniswap, the market indeed had some criticisms of LayerZero for a period.

After this incident, LayerZero's announcements regarding new supported chains and tokens were made in collaboration with the respective projects, and they became much more low-key until news of the airdrop emerged.

The Birth of the Most Comprehensive Witch Database: The Founder's Ideals and Persistence

LayerZero's airdrop has opened for inquiry as of yesterday, and discussions about its airdrop began a month ago.

In early May this year, LayerZero officially launched the "Witch Hunt," allowing players who specifically "farm airdrops" to submit addresses that were solely used for contract interactions to obtain airdrops during the first half of the month. If an address qualified for the airdrop, they could claim 15% of the original airdrop; the latter half of the month was even more exciting, directly offering "reward reporting" to everyone, where successful reports of witch addresses could earn 10% of the airdrop that address could receive.

Of course, LayerZero would conduct reviews and provide opportunities for appeals in case of possible false reports.

In no time, professional "airdrop farmers" and studios were on edge, torn between voluntarily reporting witch addresses to ensure at least a 10% reward or gambling on the hope that the project team wouldn't discover their addresses specifically used for farming airdrops. Meanwhile, some "temporary workers" in studios were also considering whether to report to gamble for a return far exceeding their hard-earned fees. Throughout May, reports targeting studios, large holders, and airdrop KOLs emerged endlessly, demonstrating that human nature indeed cannot withstand the test.

Yesterday, LayerZero Labs CEO Bryan Pellegrino stated that approximately 1.28 million addresses qualified for the airdrop, compared to the initial estimate of 6 million addresses that could qualify, suggesting that over 4.7 million addresses were ultimately confirmed as witch addresses.

I don't know when it started, but airdrops have transformed from a choice for project teams to reward participants into a necessary program. We seem to have forgotten that we hope to see more innovative projects with ideas, rather than constantly revolving around who will distribute more money. When project teams take this user-attracting method to the extreme, a highly distorted atmosphere forms in the market:

If you don't give me money, or if the amount you give is unsatisfactory, you're garbage.

Whether to airdrop or how much to airdrop is the project team's right. A team on the other side of the world, with the ultimate goal of establishing a project, finding investors, writing code, and managing the company, is not to make you money. Even previously, ZKsync merely stated that all rights related to airdrops belong to the project, similar to a statement, and many so-called KOLs regarded it as arrogance, which is truly astonishing.

"Airdrop farming" has its value in specific historical periods, such as during the last bull market when many airdrop farmers continued to participate in projects after receiving airdrops. In this case, exchanging benefits for users is feasible and reasonable. However, as a few individuals control hundreds or thousands of addresses, obtaining airdrops and then selling out to move on to the next project, it becomes an inevitable trend to issue fewer airdrops or to give them to those who genuinely contribute to the project's development rather than to airdrop hunters who merely traded 10 USDT tokens or minted an NFT.

If you made money from airdrop farming, then congratulations on seizing an opportunity of an era. But when the era passes, choosing to gracefully exit or learn how to make money in the new era is clearly more admirable than complaining about why the era did not continue. And don't say you contributed user numbers and transaction counts that helped the project secure investment; investment institutions are not fools; they know how many real users there are and how much the project is worth. It is not something you can decide by interacting with two contracts using scripts.

The protagonist of today's story, poker genius Bryan Pellegrino, is not perfect; he has also been confused and has jumped back and forth between AI and Crypto. But aside from the project itself, he has established the first real and effective witch address database, pushing Web3 forward from the era of blindly attracting users with airdrops and interacting with projects solely for airdrops.

In the future, I believe more projects will allocate airdrops to those who genuinely contribute to the project's development rather than just to airdrop hunters who traded 10 USDT tokens or minted an NFT. More projects will also focus their efforts on how to create truly good products rather than racking their brains to design airdrop rules to satisfy a group of ingrates.

In an article published on Sequoia Capital's official website, there is a point I did not mention at the beginning, which is that Bryan Pellegrino, when feeling disgusted with merely making money, said he wanted "practical returns" and aimed to excel in a certain field. At LayerZero, Bryan Pellegrino practices his ideals, both in the project itself and in the efforts made for the development of the Web3 industry. Perhaps in the future, there will be more omnichains or new concepts, but the emergence of LayerZero has undoubtedly left a significant mark.

"If in the midst of chaos, you remain calm instead of following the crowd; if when others suspect and doubt you, you can remain confident and not engage in unnecessary debates; if you have dreams and do not lose yourself; if you have thoughts but do not become obsessed…" wrote British author Joseph Rudyard Kipling, who won the Nobel Prize in Literature in 1907, in a poem for his son, and I share this with you all. After all, when you create a phenomenal product like MetaMask, does it really matter whether there are airdrops or not?