LayerZero - Pioneering Omnichain Transactions Across Chains

Sean ButterField
Last Updated:
August 12, 2023
Published:
August 12, 2023


Table of Contents

LayerZero - Pioneering Omnichain Transactions Across Chains

The vast blockchain ecosystem suffers from a fragmentation of liquidity and secure bridging solutions. Moving assets from one chain to the next is cumbersome and exposes users to bridge and smart contract risks. LayerZero is a protocol that connects different blockchains and allows for secure transactions between them. It improves user experience by making transactions easier and pooling liquidity across chains without needing a middleman.

What is LayerZero?

LayerZero is a communication protocol that facilitates inter-chain transactions in the blockchain ecosystem. Its core function is to ensure "valid delivery." This means the receiving chain correctly matches and verifies transactions from the sender chain, eliminating the need for middlemen.

The protocol implements generic messaging that provides trustless valid delivery of arbitrary data. Its capabilities extend beyond simply enabling single swap transactions between different blockchains. It can support various omnichain applications, creating an interoperable, efficient, and trustless blockchain ecosystem.

Ryan Zarick (Co-Founder and CTO), Bryan Pellegrino (Co-Founder & CEO), and Caleb Banister (Co-Founder) founded LayerZero. All three were previously cofounders of a company called CoderDen, and are alums of the University of New Hampshire.

You can find real time updated news and recent developments about LayerZero here.

Building Blocks of LayerZero

LayerZero Endpoints

The LayerZero Endpoints, or Ultra Light Nodes, bridge the user and the protocol’s backend. It serves as the user interface to the LayerZero network and facilitates sending messages, and ensures the principle of “valid delivery.” These smart contracts are created to be immutable and permissionless. Each supported chain has a node, forming a direct link with every node on the LayerZero network.

Source: LayerZero Whitepaper

Three main modules in LayerZero Endpoints each have a specific function, making inter-chain communication smoother and more efficient.

Communicator

The Communicator module initiates the cross-chain transaction, creates a packet, forwards the data to the Validator, and then sends the validated packet to the destination chain. This series of steps is integral to maintaining trustless, secure, and efficient inter-chain communication within the LayerZero protocol.

Validator

The Validator module checks if transactions are valid and committed on the source chain before send themring to the destination chain. It ensures that it processes only valid transactions.

Network

The Network module helps facilitate the communication and transfer of information between chains. The Oracle is instructed to retrieve the block header. The validated block header is obtained from the Oracle. The obtained block header is sent to the Validator for checking.

Oracle

Oracles provide block header details to the destination chain, collaborating with the Network module. It is critical in the on-chain validation of messages, forming one-half of the dual-layered security mechanism. LayerZero uses Chainlink's secure Oracle solution for safe interconnected blockchain applications, ensuring top-tier security in omnichain dApps.

Relayer

Relayers are independent entities responsible for fetching and submitting transaction proof during cross-chain communications. Once an oracle provides the block header data, a relayer extracts the transaction proof from the source chain and forwards it to the destination chain. If the block header and transaction proof match and are both validated, the smart contract posts a transaction.

The combined action of an oracle and a relayer forms a dual-check mechanism, enhancing the security and trustworthiness of cross-chain transactions. Further, this design prevents oracles and relayers from colluding, resulting in lightweight LayerZero Endpoints.

Source: LayerZero Whitepaper

Bridge Design and Vulnerabilities

Many current cross-chain methods use intermediaries, adding risks and making transactions more complex. Using middle chains or tokens can lead to delays and extra fees, worsening the user experience.

In recent years, hackers compromised over $3 billion of user funds, with roughly two-thirds resulting from bridge hacks. Most of these resulted from compromised multi-signature wallets and exploiting smart contracts. Most trusted bridge solutions rely on the “decentralized security” of a multi-sig. However, prominent bridges like Horizon and Ronin were victims of sophisticated social engineering.

LayerZero Ecosystem

LayerZero’s ecosystem has experienced substantial growth onboarding 30+ networks, 25+ DeFi applications, 8+ bridges, ten decentralized exchanges, and more. These integrations and partnerships have enabled seamless one-click swaps, and pools liquidity from many blockchains and their dApps.

Source: Flipside

In April, the number of cross-chain users on Layerzero increased by nearly 5 times. This growth followed LayerZero's successful fundraising round, where they raised $120 million at a valuation of $3 billion. Many expected a LayerZero airdrop due to its launch without native tokens, which likely boosted interactions between users and other L1s.

Getting Started With LayerZero

LayerZero exists as Endpoints on specific blockchains or dApps. To use its secure cross-chain swaps, access supported apps shown in the ecosystem diagram.

Stargate Finance is a DeFi protocol with its own decentralized exchange. Users can swap tokens and add liquidity across 8+ chains, and liquidity providers get stablecoin rewards. Liquidity providers can also farm their LP tokens and earn STG tokens.

  • Head over to Stargate Finance, connect your wallet and select a token and the network you want to swap

  • Select your preferred slippage tolerance by navigating the Advanced Settings. Depending on the tolerance, transactions will revert if price execution exceeds the percentage selected
  • After inputting the swap amount, click "transfer," and then confirm the slippage and gas fees
  • Enter the maximum amount you are prepared to spend and select "Next."
  • The following prompt will display the estimated gas and will ask to approve. The transfer will require a brief moment for authorization, and voilà! It will be completed.