Exploring how LayerZero can lead the arrival of the whole-chain era.
Examining how LayerZero can usher in the whole-chain era.
Translation: BlockingBitpushNews Mary Liu
LayerZero is an emerging interoperability protocol aimed at making interactions between blockchains smoother. This article will discuss LayerZero’s promises, shortcomings, and potential competitors.
One reality is that blockchains often struggle to work together.
Interoperability solutions come in different forms and sizes, but they all have a common goal: to achieve seamless communication between different blockchains. The ability to exchange information and transfer value between these networks is crucial for the long-term development of crypto.
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Despite significant innovation in the field of cross-chain solutions to date, current solutions still have core issues. Take the standard “lock and mint” bridge, for example — the most commonly used solution for transferring tokens from Chain A to Chain B. This mechanism locks users’ assets on the source chain while generating an equivalent wrapped asset on the target chain (e.g., ETH on Ethereum mainnet = wETH on Avalanche).
These wrapped assets result in liquidity being spread across many different chains, dApps, and ecosystems, which could potentially undermine the collective power of the assets. Bridges have also become targets for some of the biggest attacks in the DeFi space. In just one year in 2022, losses from various bridging protocols amounted to $2 billion — 64% of all stolen funds in DeFi that year!
As blockchains continue to proliferate, the demand for smooth blockchain interoperability (especially between EVM and non-EVM chains) will continue to grow.
LayerZero is a special type of cross-chain communication primitive that enables chains to communicate with each other without the use of wrapped assets, sidechains, or other intermediaries. LayerZero is not a blockchain, nor is it a novel chain like L1 and L2.
LayerZero is a cross-chain infrastructure protocol that provides applications with a simple, modular framework to build cross-chain solutions on top of. Formally, it can be defined as a general message-passing bridge that enables local transmission of assets and other data across different chains.
LayerZero also has a built-in feature that further enhances security and prevents hackers from attacking. The pre-crime function allows relayers to run transaction tests in a secure environment before delivering them to their destination. Specifically, this involves forking the target chain and running the transaction locally.
Why is LayerZero important?
LayerZero envisions a world where all chains are seamlessly connected and users can even interact between different chains without realizing it. However, currently there are 197 chains tracked on DefiLlama, and a large number of new L1 and L2s are under development, which raises the question: Is this vision realistic?
LayerZero’s approach is to keep developers and applications simple, providing them with an efficient cross-chain framework that can be configured according to their specific preferences. LayerZero enables dApps to use a single interface and code library for all their cross-chain pairs without having to write separate code libraries and independently develop their ecosystem (writing separate code libraries quickly becomes difficult to manage).
dApps only need to implement a send function to form a message for the target chain and a receive function to interpret the message.
For developers, LayerZero’s modular design means that implementation is simple and intuitive. For users, this means that cross-chain interaction is easier, cheaper and safer, achieving a win-win situation.
Limitations and Alternatives
Like any new technological solution, LayerZero also has its own limitations. For beginners, it should be noted that oracles and relayers run out of the chain to obtain and store transaction data. Although this mechanism is designed to reduce the high cost of on-chain processes, it creates additional trust assumptions as users cannot simply “check the chain” to verify their transaction data.
Although Chainlink and other established entities are unlikely to take malicious action, there is no guarantee that small applications that choose to use their own Oracle/Relayer will not take malicious action or deploy flawed code, thereby placing their users in danger.
Given the still quite limited selection of relayers, this creates a dilemma. While applications can implement their own Oracle and Relayer, this requires a lot of resources and operational risk. However, LayerZero needs the number of relayers to grow over time in order to truly achieve decentralization in essence. If the same small number of oracles and relayers are responsible for verifying the majority of transactions passed through LayerZero, then the protocol is not as decentralized in practice.
Also, remember that Chainlink and Band are the default oracle providers for LayerZero.
While Stargate Finance has always been the flagship application of LayerZero, who will sit in the top seat of the ecosystem with the emergence of new applications and innovative solutions remains to be seen. Altitude DeFi is building a unified liquidity bridge similar to Stargate, but with enhanced security, performance, and practicality. Tapioca Dao is building a cross-chain, seamless lending market where users will be able to borrow and lend using native assets.
As blockchain continues to evolve and develop, interoperability will continue to be a key factor in the overall success of the industry. The LayerZero simple framework’s customizability and a handful of notable partners can make the project a foundational part of this vision, but only time will tell!
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