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Original title: " An article to understand the cross-chain communication protocol LayerZero and the cross-chain bridge Stargate "

Original author: Brocken, Deep Chain DeepChain

Introduction

LayerZero is a lightweight multi-chain interoperability protocol for DApp. It has achieved better compatibility in terms of cross-chain security and operating costs, and can effectively solve the problems of current DApp projects that cannot be synchronized on multiple chains and have liquidity fragmentation.

LayerZero is backed by luxury investors, Multicoin co-led its $6M Series A with Binance Labs, and appears to be preparing for its next $100M round financing. In addition, Stargate, the first product based on the LayerZero protocol, is now officially launched. Stargate is a fully composable native asset bridge (currently focusing on Stablecoin assets), which perfectly inherits LayerZero's global liquidity and fast finalization of transactions sex.

Multi-chain and cross-chain is a deterministic trend of future industry development. At the same time, LayerZero's technical solutions have made innovative breakthroughs, and there are currently products that have landed. So, overall, LayerZero is one of the projects worthy of long-term attention.

However, it is worth noting that there are many powerful competitors on this track (such as Axelar and cross-chain duo Cosmos & Polkadot), Therefore, peer comparison is also necessary. At the same time, it is also necessary to observe the reliability and stability of the LayerZero cross-chain technology solution in the actual network environment, as well as the relevant operational data dimensions, such as the degree of integration and adoption of the LayerZero protocol by the DApp project party.

LayerZero

LayerZero It is a lightweight multi-chain communication protocol. Its core feature is the original Ultra Light Node communication architecture model, which completes multi-chain communication operations with the help of oracles and repeaters.

At present, there are two common cross-chain methods in the industry:

1. Intermediate chain Mode: That is, third-party external verification, usually with one or a group of validators monitoring specific addresses on the source chain. In the process of asset cross-chain, the user first sends the asset to the specific address of the source chain, and then locks it. A third-party validator will verify this information and a consensus needs to be reached. Once a consensus is reached, an equal amount of assets will be minted on the target chain. Typical representatives are Anyswap, Synapse, PolyNetwork, etc. The risk of this scheme is that if the third-party verification network is attacked, almost all liquid funds on the network will be at risk. The advantage is that the operating cost is relatively cheap.

2. On-chain native light node mode: no need to rely on third-party verifiers, witnesses and guarantees by verifiers (miners/nodes) on the source chain . The participants of the cross-chain bridge monitor the messages on the source chain, and then forward the monitoring records and block headers including encrypted proofs to the contracts on the target chain. Actions are performed on the target chain after validation of recorded events. Typical representatives include Near’s Rainbow Bridge, Polkadot SnowBridge, Movr, etc. The biggest advantage of this model is that it does not require trust and has better security; but the disadvantage is that it costs more.

According to LayerZero, their ultra-light node (ULN) can not only achieve the security of the light node mode, but also the cost is close to the intermediate chain mode. And its implementation principle is similar to the light node verification on the chain, except that instead of receiving and verifying all block headers, it receives the corresponding block headers according to the requirements of the oracle machine, which may be the reason for Ultra Light.

The approximate message delivery process is as follows:

1. UA links from A to B The message is routed through the terminal (endpoint) on the A chain, and the terminal notifies the oracle and repeater designated by UA of the message and the destination chain; (Note: User Application (UA) is a cross-chain platform using LayerZero The function contract is usually written and deployed by the DApp project party to integrate LayerZero; in addition, the DApp project party can also customize the configuration of the oracle and repeater)

< p>2. The oracle machine forwards the block header to the terminal of the B chain;

3. Then the repeater submits the transaction proof (transaction proof);

4. The transaction proof is verified on the destination chain, and then the message will be forwarded to the destination chain.

At this time we may be able to understand why LayerZero's solution can achieve the security of the light node mode, and the cost is also close Intermediate chain mode.

In terms of cost, since the ultra-light node (ULN) essentially conducts transaction verification on the chain, it is only on-demand verification, so the cost will be between light Between nodes and intermediate chains.

In terms of security, it mainly depends on the comprehensive performance of the oracle and the repeater. The LayerZero mode inherits the security of the oracle, and at the same time has the security bonus of the open repeater ecology, which can achieve higher security.

Just imagine, under what circumstances will there be a security incident in the agreement? A security threat will only be caused when the oracle and the repeater are required to collude maliciously. However, the overview of this situation is very low, because if you choose a relatively mature oracle network such as Chainlink, you already have high security guarantees; and even if there is an ultra-small probability of the two colluding to do evil, the risk will be limited Transactions that use the pairing of oracle A and repeater A will not be affected by UA that uses other oracle & repeater pairings.

It is worth noting that we cannot simply confuse LayerZero with the current common asset cross-chain bridge. LayerZero can easily realize asset cross-chain, but it is more worthwhile The function we are looking forward to is: cross-chain of data messages. This will largely solve the problems of liquidity and status segregation caused by the current multi-chain situation in the industry. We can understand the utility of LayerZero more directly through some case explanations.

Status Sharing

At present, many protocols have implemented multi-chain deployments, such as SushiSwap, Synthetix, Aave, etc.; however, the status of these protocols on each chain cannot be synchronized. The global debt of Synthetix cannot be synchronized, resulting in the inability to make full use of liquidity; The fund pool data of each chain cannot be synchronized, so the interest rate of the same asset on each chain is also different.

Unified Mobility Bridge

At present, various cross-chain bridges in the industry have divided the already limited asset liquidity into pieces, and each pair of bridges has its own liquidity; LayerZero breaks this model, it can make a single The liquidity pool is shared with all chains.

With the support of these two functions, we can develop business models with better user experience, such as cross-chain exchange, cross-chain lending and multi-chain revenue aggregation wait.

Financing History & Token & Competition

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In April 2021, LayerZero completed a $2 million seed round of financing.

In September 2021, LayerZero completed a US$6 million Series A financing, led by Multicoin and Binance Labs, with participation from Sino Global Capital, Defiance, Delphi Digital, etc. .

In addition, it is understood that LayerZero is preparing for the next round of financing, with a target financing amount of US$100 million.

LayerZero has not issued Token yet, but according to relevant clues, it is more likely to issue Token ZRO in the future. After all, LayerZero, as a tool-oriented underlying cross-chain communication protocol, needs to use Token to better complete value capture and ecological incentives in the process of future ecological expansion and decentralization.

Although cross-chain is very common in the current industry, cross-chain duo Cosmos & In the cross-chain stage, the IBC scheme of the cross-chain duo is not yet mature, and currently only stays in the cross-chain interaction within the self-ecology. Therefore, the overall data cross-chain is still in the exploratory stage, and the future market space is huge. Of course, it will also face Many powerful competitors (such as Axelar and cross-chain duo Cosmos & Polkadot), etc.

Currently, the advantage of LayerZero mainly lies in the innovative cross-chain communication mode, and at the same time, the first product Stargate was launched quickly. Sufficient financial and institutional support can support the long-term development and expansion of LayerZero. At the same time, it is also expected that if Token is issued in the future, the design of its economic model, combined with the utility of the agreement itself and the cross-chain demand of the market, can well attract project parties to integrate the agreement.

Stargate

Stargate It is a native asset cross-chain bridge, currently focusing on the cross-chain of Stablecoin, with unified liquidity and fast transaction finality, and it is also the first project based on the LayerZero protocol.

At present, asset cross-chain bridges generally face an impossible triangle problem, that is, cross-chain bridges cannot meet the following three requirements at the same time:

1. Instant finality guarantee: When the transaction is successfully submitted on the target chain, the funds on the target chain are guaranteed to arrive.

2. Unified liquidity: shared access to a single liquidity pool among multiple chains.

3. Native assets: Many cross-chain bridges carry out cross-chain assets in the form of casting and destroying synthetic Tokens. The synthetic assets obtained at this time are not what users want Original assets need to be further exchanged.

The current way for many cross-chain bridges to achieve instant finality is through "locking original assets + casting synthetic assets | destroying synthetic assets + redeeming original assets" In this way, they also sacrifice the dimension of original assets.

Of course, cross-chain bridges can also be designed with native asset pools with unified liquidity, such as USDT unilateral pools on all chains, all chains Both can share access to their own liquidity, and in terms of capital efficiency, it will be several times higher than the current Token pairing pool (the current cross-chain liquidity is combined in the form of a pairing pool, such as Hop's hToken and synapse's nTOKEN). order of magnitude, but there will also be some potential problems, such as chain A initiates a certain amount of USDT cross-chain requests to chain C, but other chains also initiate cross-chain requests to chain C at the same time and complete the transaction earlier than chain A, causing C Chain’s USDT unilateral pool was drained or could not meet the cross-chain requirements of chain A, which caused a very bad user experience for users, that is, it was impossible to guarantee that assets could be received on the target link after a cross-chain request was initiated (unable to meet instant finality guarantee), and this is also a potential attack vulnerability.

Stargate is a cross-chain bridge that breaks through this triangular problem. After having the two dimensions of unified liquidity and native asset pool, Stargate introduces a The algorithm called Delta () provides instant finality guarantee, which is essentially similar to a set of incentive reward and punishment mechanism, which encourages arbitrageurs to replenish the insufficient liquidity pool.

Token Economy

Stargate's native Token is STG, with a fixed total of 1 billion. At present, in addition to the basic cross-chain transfer function of Stargate, users can also add liquidity to earn fee income, and stake their LP Token to earn STG Token rewards.

In addition, STG Token will also adopt the veToken model, and STG holders will be able to pledge Token to obtain veSTG and participate in the governance of Stargate DAO, but the pledge function has not yet been launched .

The specific distribution plan of STG is as follows:

•Team (17.5%) and investors (17.5%) Tokens have a one-year lock-up period and then are linearly unlocked in two years.

• 15% of protocol launch:

–10% of tokens sold at $25 million The price is auctioned, locked for one year, and then linearly unlocked within half a year. It is worth mentioning that within a few seconds after the auction started, the quota was quickly covered by two scientists.

–5% of the Token will form the Curve v2 pool with the auction proceeds of 25 million US dollars, the initial price is $0.50/STG, and the initial liquidity is as high as 50 million US dollars.

• 15.95% of Tokens will be used for bonding curve auctions on various blockchain networks.

• 2.11% will be used for the initial release to meet the needs of LP users.

• 1.55% will be added as liquidity to various DEXs on various chains.

•The remaining 30.39% will be used for future community incentives and the long-term development of the project.

Current Status

Stargate It is currently launched on Ethereum, Avalanche, Polygon, BNB Chain, Fantom, Arbitrum, and Optimism, and is expected to launch other chains such as Solana, Terra, Cosmos Hub, and Osmosis within two months. At present, less than a week after Stargate went online, the total lock-up value is close to 1.5 billion US dollars, and the annualized income of Stablecoin mining has basically remained above 20%.

Conclusion

We It is believed that the industry is about to usher in the era of cross-chain data information and truly enter the era of multi-chain, the composability between protocols will be further expanded, and the functions and user experience of various protocols will be greatly optimized; and As the first cross-chain solution to be implemented, LayerZero is expected to occupy the key market first.