What is LayerZero? Examining the latest bid for creating an omnichain interoperability solution

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What is LayerZero?

LayerZero seeks to provide a solution to one of the most pressing issues that blockchain technology is facing today – interoperability.  It is an interoperability protocol that uses a novel technique to make it easier for different blockchain networks to connect with each other.

One of the exciting things about blockchain technology is how well it can facilitate seamless communication between apps that exist in a common network. For example, two Ethereum apps can easily interact with each other thanks to the blockchain infrastructure provided by Ethereum. 

However, things are different when it comes to communication across different networks. It turns out that blockchain protocols are not very good at talking to one another. This limited level of blockchain interoperability creates a silo effect, where the blockchain and DLT landscape consists of disparate, mostly self-contained networks. But if blockchain technology hopes to achieve ubiquity, there needs to be a way for all blockchain and DLT platforms to be interoperable, to work in concert to elevate the blockchain ecosystem as a whole.

Blockchain developers have been working hard to solve this issue. One of the most common approaches is to build a bridge between two blockchains, allowing users to transfer tokens and other information from one network to another. However, this approach has its limitations, mainly the fact that they serve specific use cases and does not provide general interoperability.

On the other hand, we have protocols whose main goal is to serve as the connective layer between different blockchains. Currently, two of the most high-profile protocols that fall into that category are Polkadot and Cosmos, which use clever techniques to enable transfers of arbitrary data across blockchains. Both projects have ambitions to create a blockchain for blockchains.

Now, LayerZero joins that competitive environment aiming to go even further – to create a true ‘omnichain’ solution to serve as a base interoperability layer for the entire blockchain ecosystem. So, here’s how it aims to achieve that lofty ambition.

Interoperability techniques

A common technique used to facilitate cross-chain message transfers relies on a middle chain that provides consensus and validation services that facilitate the exchange of messages between chains. An example of that is Polkadot’s Relay chain, which is the heart of the platform.

The other commonly used method is via on-chain light nodes. A light node is a type of node that stores only a part of the ledger’s transaction history and is connected to a full node to strengthen verification. For the purposes of cross-chain messaging, light nodes are used to validate every block header – a de facto summary of a block – received from an opposing chain.

Both methods have their distinct advantages and disadvantages. On the one hand, the middle chain approach is fairly inexpensive, but because the middle chain is solely responsible for providing consensus, it becomes a single point of failure, which lessens security. On the other hand, the on-chain light node approach is extremely secure, but it’s quite costly, as well.

It stands to reason, then, that the ideal scenario would entail combining the strengths of both approaches, while eliminating their weaknesses. According to LayerZero Labs – the team behind the LayerZero project – this could be achieved by utilizing something they call an Ultra Light Node, or an ULN.

How does LayerZero work?

The method employed by LayerZero uses on-chain light nodes in a much more economical way. It makes use of decentralized oracles to stream block headers on demand, so it doesn’t need to keep all block headers sequentially.

So let’s talk specifics. LayerZero uses this method to transfer messages between on-chain endpoints which run ultra light nodes. The exchange is facilitated by two entities – an Oracle and a Relayer. When sending a message from one chain to another, the origin chain’s endpoint notifies the specified Oracle and Relayer of the message and its target chain. The Oracle then forwards the relevant block header to the target chain’s endpoint and the Relayer submits a transaction proof. Once that proof is validated on the target chain, the message can be sent to its designated address. 

Among the distinct advantages of this approach is the heightened security afforded by the use of a Oracle-Relayer pair. Not only does it enable the use of an established Oracle infrastructure, but the Relayer provides another level of security. For a malicious action to occur, both the Oracle and its corresponding Relayer has to be compromised.

What are the advantages of LayerZero?

We already mentioned some of the advantages that the LayerZero approach creates, namely the combination of extremely high security and cost-effectiveness. We’ve also hinted at the main selling point of the tech, which is also it’s main objective – to create a general interoperability solution. So, let’s see how LayerZero compares to other interoperability solutions.

With the crypto world moving steadily toward a multi-chain future, the value of technologies capable of facilitating seamless interoperability between several chains. Solving this problem with bridges would require a separate bridge for every pair of chains, each requiring its own interface and code. With LayerZero, all chains can connect to one another via a single interface and code, which would make multi-chain dApps much more convenient to use. The greater level of interoperability will certainly have a profound impact on many of today’s blockchain-powered activities, such as swaps, liquidity mining, lending and borrowing and others. In fact, LayerZero Labs recently launched a product that perfectly showcases this potential.

Stargate

Stargate is a liquidity transfer protocol that leverages LayerZero’s generic messaging to enable cross-chain liquidity transfers in native assets. The protocol already supports some of the most prominent blockchain protocols, including Ethereum, Polygon, Avalanche, Optimism, Arbitrum and BNB chain.

The future

Interoperability is one of the areas where blockchain technology needs further development in order for its immense potential to be truly realized. And it’s great to see that the industry is stepping up its game in this regard. With its novel approach of tackling that challenge, LayerZero certainly seems to be among the most promising interoperability protocols out there and its potential has not gone unnoticed. Earlier this year, LayerZro Labs completed a $135-million funding round, co-led by investment giants Sequoia Capital, FTX Ventures and Andreessen Horowitz. This kind of backing inspires confidence in the future of the project.

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