LayerZero Cross-Chain Interoperability Protocol: Behind the $3 Billion Valuation

In just one year, the full-chain interoperability protocol LayerZero has raised $120 million at a valuation of $3 billion, which is three times its previous valuation. This article will comprehensively outline the technical principles of LayerZero and evaluate its advantages and disadvantages.

1. LayerZero Technology Principles

1.1 Overview

LayerZero is a trustless cross-chain communication protocol. It utilizes the technical principles of light nodes, designing an ultra-light node mechanism that splits the intermediate trust links into two through relayers and oracles, thus achieving better security at a lower cost.

LayerZero focuses on message cross-chain rather than asset cross-chain. It serves as a underlying protocol, while asset cross-chain is an application layer that is included within it. More specifically, the asset cross-chain is developed by LayerZero Labs' StarGate.

1.2 Light Node

Cross-chain communication is mainly completed through external validation or on-chain light nodes. A light node is a node operation mode that only saves the historical headers of all blocks and does not store specific transaction information within the blocks.

By running verification on the chain through light nodes, the external role interference of notaries can be completely eliminated, achieving a high degree of decentralization based on the security of the chain itself, thus making it safer. However, this will significantly increase cross-chain costs.

1.3 Ultra-light Node

Ultra-Light Node, ULN( performs the same validation as an on-chain light node, but does not retain all block headers in order; instead, they are streamed on demand by decentralized oracles.

This allows for starting the block header data stream without relying on light nodes, significantly reducing costs. The trade-off is the lack of historical sequential data flow, which may lead to malicious information being executed when oracles and relayers collude.

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2. The Core Role of LayerZero in Cross-Chain

) 2.1 Positioning of Oracle and Relayer

The main function of the Oracle### oracle( is to let contracts on the target chain know when to verify and what the answer to the verification is. The Relayer) relayer( is responsible for providing the proof process required for validating transactions and the specific content of cross-chain information.

) 2.2 The Division of Labor Between Oracle and Relayer

The oracle passes the Blockhash and Block Receiptsroot of the cross-chain request on the source chain to the target chain.

The relay will pass the path information required for the Receipt and Merkle Proof of the cross-chain message to the contract on the target chain for verification.

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) 2.3 LayerZero's Cross-Chain Lifecycle

A complete cross-chain trading process is as follows:

1. The user application initiates a cross-chain request.
2. The communicator sends the request to the validator.
3. The validator sends the information to the network layer.
4. The validator forwards the information to the relay.
5. The network layer sends information to the oracle. 6-11. The oracle and relay perform related operations
6. The validator confirms the validity of the transaction
7. The communicator sends the information to the target chain for execution.

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3. Evaluation of the advantages and disadvantages of LayerZero protocol

) 3.1 Security Analysis

LayerZero allows applications to customize relayers and oracles, forming a many-to-many selection pattern, resulting in decentralized mutual supervision amid competition. Even if individual oracles and relayers collude maliciously, the impact is isolated.

LayerZero does not store funds and data itself, reducing the likelihood of being attacked. It has undergone several rounds of security audits and established a $15 million bug bounty.

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) Advantages of 3.2 over other protocol layer cross-chain products

• Extremely low cross-chain verification costs
• Stronger general extensibility, supporting multiple public chains
• Lower complexity of developer access
• Solve the fragmentation problem of multi-chain assets

3.3 Summary

Cross-chain is an important investment track in a multi-chain landscape. LayerZero, as an underlying communication protocol, has been embedded in the basic code of many Dapps. The future development prospects are broad, the business model is clear, and it has good revenue capabilities.

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