LayerZero Overview: The Ultimate Blockchain Interoperability Solution?

Blockchain technology has revolutionized how we store, transfer, and exchange value in the digital world. However, with numerous different blockchains, each with its own features, advantages, and architectures, there is a need for safe and secure interoperability of tokens and NFTs between chains. LayerZero, an omnichain interoperability protocol, hopes to solve this issue while adhering to the blockchain principles of decentralization and security. Let’s dive into what LayerZero is, how it differs from other blockchain bridges, and how anyone can become eligible for a potentially massive airdrop.

Blockchain interoperability is the ability of different blockchains to communicate and exchange value without relying on intermediaries or centralized platforms. For example, interoperability allows Bitcoin to be used in DeFi on Ethereum or Solana. Achieving interoperability is difficult, as blockchains have different architectures, consensus mechanisms, data structures, and governance models. Moreover, interoperability poses technical challenges, such as ensuring compatibility, finality, and atomicity of cross-chain transactions, as well as economic challenges, such as aligning incentives, fees, and risks of the involved parties. Blockchain bridges, one proposed solution to this problem, have fallen victim to numerous exploits and accounted for billions in stolen cryptocurrency in 2022 alone. Though several bridge implementations have proven to be secure, they cannot solve the problem of fragmented liquidity between different chains, making dApps like Uniswap and Aave not truly multichain by requiring liquidity to be sourced for each chain, an incredibly capital-inefficient process.

LayerZero hopes to solve these issues by taking a unique approach to interoperability. It leverages the concept of Universal Light Nodes (ULN), which are on-chain endpoints, typically implemented through smart contracts, that can verify transactions from any other chain without requiring full nodes or trusted intermediaries. To achieve this feat, LayerZero relies on two parties to transfer messages between on-chain endpoints: the Oracle and the Relayer. The Oracle, a concept already used in DeFi to make real-world data available on-chain, is responsible for forwarding the transaction information and state of the chain from the source chain to the destination chain. This verifies the validity and finality of cross-chain messages. At the same time, the Relayer is responsible for submitting the transaction proof to the destination chain to authenticate the sender and deliver the transaction to the intended recipient. The ULN validates the proof on the destination chain, and only then is the message forwarded to the destination address. Currently, Chainlink is providing the oracle service and the relayer is run by LayerZero Labs, but other relayers and oracles could be used in the future.

Most importantly, the Universal Light Node endpoints can be deployed on any chain, making the solution infinitely extensible and interoperable, even with chains that have yet to be created. This modularity is one of the main exciting features of LayerZero’s model, with many speculating that this is why it could be the ultimate interoperability platform. Unlike Polkadot and Cosmos, blockchains do not need to adhere to certain specifications. It can also be implemented upon launch and does not require liquidity as a pre-requisite like most bridges. By adopting LayerZero early, blockchains can easily capture value from other chains without a complex and exploit-liable onboarding process.

Though their solution may sound complicated, it is elegantly simple for the end user and has already been adopted by many tokens and protocols. For example, SushiSwap allows transactions to be initiated on one chain and finalized on another, like trading USDC on Ethereum for BNB on Binance Smart Chain. Additionally, LayerZero’s Omnichain Fungible Token standard, or OFT, allows for the creation of natively-interoperable tokens and NFTs that can be seamlessly sent between blockchains without fees or the need for existing liquidity on the recipient chain.

LayerZero received immediate interest from developers and investors alike. Over a few funding rounds, they have raised around $250 million from countless top venture capital firms like a16z, Sequoia, Coinbase, and Binance, and have achieved a $3 billion valuation as of their Series B in April 2023. 

As with many projects with strong VC backing, there is a lot of speculation about a future LayerZero airdrop. In fact, the project’s code has already confirmed the eventual release of a ZRO token that would be used for paying fees and participating in governance. There are numerous guides on Twitter and other websites about making oneself eligible for the airdrop, most involving interacting with LayerZero-enabled applications frequently and with high volume. Much like Arbitrum or Optimism, using the protocol early and often could be the key to a large payday, likely sometime before the end of 2023.

Though it remains to be seen if LayerZero will be the ultimate interoperability solution, it has the backing of notable leaders in the space and a sound business model. The extensibility of their Ultra Light Nodes means there is no reason for future chains to avoid using LayerZero and prevent it from becoming the main cross-chain protocol.

By Lincoln Murr

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