LayerZero: The Rise of the Cross-Chain Interoperability Protocol

Preface

In just one year, the full-chain interoperability protocol LayerZero has raised $120 million in funding, reaching a valuation of $3 billion, which is three times the valuation of the previous financing round. The investors in this financing round include several well-known institutions.

This article will comprehensively outline the mainstream models of the cross-chain track, the technical principles of LayerZero, the cross-chain lifecycle, and a comprehensive analysis of the protocol. As a continuation of the previous article, this text focuses on the technical solutions of LayerZero and evaluates its strengths and weaknesses.

1. LayerZero Technology Principles

1.1 Overview

LayerZero is a trustless cross-chain communication protocol. It leverages the technology principles of light nodes and has designed an ultra-light node mechanism that splits the intermediate trust link into two through relayers and oracles, sacrificing lower costs for better security.

It is worth noting that LayerZero primarily provides cross-chain messaging services, rather than asset cross-chain. It serves as a underlying protocol, while the asset cross-chain application layer is a subset, with the specific asset cross-chain functionality provided by StarGate developed by Layerzero Labs.

1.2 Concept of Light Node

Cross-chain communication is mainly accomplished through external validation or on-chain light nodes. Light nodes are a type of node operating mode, different from full nodes and archive nodes, as they only store all block headers and do not store specific transaction information. By using multiple Merkle Roots from the block headers, it can be verified whether a transaction exists in a specific block.

The advantage of using light nodes for on-chain verification is that it completely avoids external interference from notaries, relying on the security of the chain itself to achieve a high degree of decentralization, thereby enhancing security. However, this method also brings higher cross-chain costs.

1.3 Concept of Ultra-light Node

Ultra-Light Node, ULN( performs the same validation as light nodes, but does not sequentially retain all block headers. Instead, it streams on demand from decentralized oracles. This approach reduces costs but also incurs a certain loss of security. In specific scenarios, such as social protocols, this trade-off may be acceptable.

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2. The Core Role of LayerZero in Cross-Chain

In the cross-chain process of LayerZero, Oracle) and Relayer( play a key role.

) 2.1 Positioning of Oracle and Relayer

The Oracle is mainly responsible for informing the contracts on the target chain when to validate and the results of the validation. The Relayer is responsible for providing the proof process required for the verification transaction and the specific content of the cross-chain information.

( 2.2 The roles of Oracle and Relayer

The Oracle is responsible for transmitting the Blockhash and Block Receiptsroot of the cross-chain request on the source chain to the target chain. The Relayer is responsible for transmitting the Receipt of the cross-chain message and the path information required for the Merkle Proof to the contract on the target chain for verification.

) 2.3 LayerZero's Cross-chain Lifecycle

The cross-chain process begins with a transaction initiated by the user application. With the assistance of oracles and relayers, the transaction is broken down into multiple parts. When the oracles and relayers send their respective messages on the target chain and are verified by the LayerZero Endpoint, the messages will be executed on the target chain.

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3. Evaluation of the advantages and disadvantages of LayerZero protocol

3.1 Security Considerations for Dependence on Oracles

LayerZero allows applications to customize relayers and choose different oracles, creating a many-to-many selection pattern that achieves decentralized mutual supervision through market competition. Even if a single oracle and relayer collude maliciously, the impact is limited.

LayerZero, as an underlying information transmission mechanism, does not directly store funds or data, reducing the likelihood of attacks. Currently, LayerZero has passed audits from multiple security audit agencies and offers a large bug bounty program.

( 3.2 Advantages compared to other protocol layer cross-chain products

LayerZero has significant advantages in terms of versatility, developer integration complexity, and multi-chain compatibility.

1. Stronger general extensibility: Compared to Cosmos's IBC protocol and Polkadot's XCMP protocol, LayerZero has an advantage in supporting EVM-compatible chains.

2. Lower developer onboarding complexity: LayerZero's design focuses on simplifying contract integration, which has been adopted by numerous well-known DeFi projects.

3. Eliminate the compatibility of multi-chain fragmentation: LayerZero supports non-encapsulated assets, EVM and non-EVM compatibility, and can bundle complex transactions for processing.

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3.3 Summary

As an important infrastructure in the multi-chain ecosystem, cross-chain protocols have broad development prospects. LayerZero, as a communication protocol embedded in the basic code of various Dapps, is expected to become an indispensable component of the decentralized application ecosystem.