Overview

LayerZero serves as an all-encompassing, interoperable protocol with the goal of integrating every smart contract across all blockchain networks. By employing an Ultra Light Client architecture, LayerZero is capable of establishing a universal messaging protocol that spans multiple chains, thereby facilitating more cost-effective validation of Ethereum and other high-throughput blockchains.

Fundamentally, LayerZero functions as a generalized communication protocol, eschewing a narrow focus on cross-chain decentralized exchanges (DEX) in favor of a more expansive vision. Its design as a foundational messaging protocol allows higher-level applications to build on top of it, thereby providing a variety of functionalities. LayerZero's innovative cross-chain communication primitive paves the way for an array of omnichain applications to be developed on its platform. Some potential use cases include:

Cross-chain decentralized exchanges
Cross-chain yield aggregators
Cross-chain lending platforms

It's important to note that LayerZero merely serves as the communication foundation for these applications and operates at different levels within the implementation stack. Its scope extends to support all layers, including direct messaging between Layer 1 and Layer 2 chains.

Presently, when a DEX aims to expand its reach to multiple chains, liquidity is fragmented across these networks. Consequently, DEXs, such as Sushi, though deployed on 25+ chains, are unable to compete with native DEXs on other chains due to lower volumes and fragmented total value locked (TVL). This fragmentation of liquidity leads to elevated fees, increased slippage, reliance on third parties, and various other challenges for end-users attempting to bridge across chains.

LayerZero addresses these issues by using a fundamental concept known as "valid delivery" to facilitate cross-chain communication. This mechanism allows for cross-chain token transfers or arbitrary data exchange by providing two essential guarantees:

Every message transmitted across the network is accompanied by a transaction on the sender's chain.
A message is delivered to the recipient if, and only if, the associated transaction is valid and has been committed on the sender-side chain.

To ensure "valid delivery," LayerZero mandates that the oracle and relayer involved in the process be independent entities. Additionally, LayerZero has recently integrated Inter-Blockchain Communication (IBC) to offer a robust set of communication and token standards built atop LayerZero's transport layer.

Abandoning the need for a central chain, LayerZero relies on off-chain entities—oracles and relayers—to facilitate message transmission between chains. When a request is received by LayerZero's smart contracts on chain A, the relayer forwards the transaction proof to chain B, while the oracle submits the current block header of chain A. Validators on chain B then verify the compatibility of the transaction proof and block header before directing the request to its intended destination on chain B.

Background, Definitions, and Scope

Cross-chain

In blockchain technology, cross-chain refers to any technologies that actively enhance the connection and interoperability between independent blockchain networks to facilitate the transfer of digital assets, information, and value. Initially, numerous blockchain networks were designed as siloed, self-sufficient ecosystems with little need to have interconnectivity between ecosystems. Users would exist and manage digital assets solely within the system.

With the onset and expansion of DeFi and other decentralized applications (dApps), blockchain network utility has grown substantially. Higher user demand for utilities has also resulted in demand for a presence in multiple ecosystems, leading to the necessity of cross-chain technologies in which users can interact across multiple blockchains. Cross-chain technology essentially creates messaging or communication rails between blockchains and can execute asset swaps or transfers, allowing users to exchange digital assets between blockchains.

Users leveraging this technology helps to remove the isolated and siloed nature of blockchains, resulting in the creation of an interconnected, diverse, distributed internet of blockchains. This can materialize in different ways depending on the needs of each individual user but typically comes from things such as yield opportunities across ecosystems, demand for governance of differing protocols, or taking advantage of varying consensus algorithm designs to reap the benefits of multiple ecosystems at once. As of 2023, cross-chain technologies operate mostly independently of the blockchain ecosystems themselves, meaning the platforms being connected are operating through separate systems from the interfaced networks. Alternatively, there are entire projects, such as Cosmos, Polkadot, Avalanche, and others, that are architected to create (somewhat) frictionless interoperability across sub-layers within their own ecosystem to avoid outside, third-party solutions.

Cross-chain technology is widely considered one of the most fundamentally important developments in the entire crypto economy, as success in this area creates an entire interconnected system that streamlines financial applications, utilities, interoperability, and overall ease of adoption.

A major subsection of cross-chain technology is conceptualized via the blockchain bridge, an independent protocol that creates a connection (or bridge) between two different blockchain networks. This allows users to swap or transfer digital assets between networks using various methods depending on the bridge’s underlying design. However, blockchain bridges don’t physically transfer digital assets or tokens.

Instead, blockchain bridges operate by using two separate smart contracts on each side of the bridge: one containing the tokens and the other to determine where the value of those tokens needs to end up. Messages containing cryptographic signatures facilitate the transfer of this information between smart contracts, telling the destination chain of the appropriate value that needs to be released to the user on that chain, pending the transfer. Blockchain bridges carry the responsibility of maintaining the legitimacy and integrity of these messages, ensuring security for the user in that the funds will be appropriately and safely transferred.

Shortcomings of Cross-Chain Technology

Mainstream cross-chain technologies have not yet been perfected. Multiple shortcomings that plagued users in 2022, mainly stemming from centralization issues, security flaws resulting in loss of funds, and problems with high fees. Generally, blockchain bridges operate as independent third parties. This typically means the blockchain bridge is centralized around a few external entities. This introduces a high degree of centralization and increased trust in an independent party beyond what decentralized blockchain networks provide for users. Blockchain bridges act as custodians of digital assets in their present form.

When there’s a security flaw, user funds being transferred are at their highest risk. Centralized bridges initiate user fund transfers by taking custody of the assets, sending a message across the bridge to the other smart contract that a transfer’s been initiated, and then releasing the equivalent tokens on the destination chain. However, this doesn’t mean the tokens were actually transferred. It means the destination chain simply released an equivalent token on its own network with the user’s actual tokens being held on the bridge. This is where a high degree of trust is needed on the user’s part for the independent bridge.

Use Case

LayerZero is the first trustless omnichain interoperability protocol, providing the base infrastructure (blockchain primitive) for low-level communication between blockchain networks. At its core, LayerZero is a messaging protocol that allows for communication between apps across blockchains. It enables dApp developers to turn their once-isolated and fragmented projects into omnichain-applications that can communicate and transact across multiple chains all from one interface.

The project was founded by a core team of three co-founders, one of which is 0xMaki. The protocol itself went live in March 2022, launching on the following blockchains:

This project attempts to resolve the bottleneck with current bridge technologies, which requires users to trust a third party to bridge funds between networks. This problem has led to the theft of over $2 billion through bridge hacks.

It employs a straightforward concept consisting of one on-chain endpoint smart contract, one on-chain relayer, and one off-chain oracle. The protocol uses Chainlink as an oracle provider while running its relayer as a public good, shifting the task of selecting oracle and relay providers to the applications using it. Currently, Sequoia and Polygon's oracles are used by LayerZero.

Essentially, LayerZero improves upon the middleman of trusted custodians, such as Wormhole and ChainBridge, allowing for trust-minimized communication between apps. This is possible due to omnichain, a new concept of inter-blockchain communication enabling dApps to exist simultaneously across multiple blockchains. Most bridging solutions focus solely on asset transfers between chains, but LayerZero aspires to achieve true composability by serving as a generic cross-chain messaging platform. This means that contracts on one chain can connect with any other contract on a different chain, leading to a wide range of new functionalities (a couple of examples below).

It's important to note that LayerZero itself doesn’t handle any of the creation, burning, or transfer of tokens, but rather simply employs the most efficient communication between different blockchain networks.

Cross-chain DEXs

Unlike existing DEX designs that use wrapped tokens or intermediaries, such as sidechains, a DEX built on LayerZero can be designed in such a way that liquidity pools exist on both chains, allowing users to deposit native assets on one chain and withdraw native assets from another chain. Managing state sharing for protocols that operate across multiple chains, such as DEXs and aggregators, can be challenging as they typically require separate sets of codes for each chain and bridge. However, LayerZero offers a single interface and codebase for all cross-chain protocols, eliminating the need for multiple sets of codes. Additionally, LayerZero enables existing automated market makers (AMMs) to execute cross-chain swaps without having to modify their codebase.

LayerZero's messaging feature can support direct bridges (1:1 pricing), automated market maker (xy = k pricing), and other pricing models, such as those used by Curve DAO.

Most yield aggregators currently operate within a single-chain ecosystem, such as Yearn Finance. However, single-chain yield aggregation systems can't take advantage of yield opportunities outside of their ecosystem (hence, the name). A yield aggregator that uses LayerZero for cross-chain transactions would be able to execute strategies that tap into the best opportunities across all ecosystems, increasing access to high-yield opportunities and allowing users to take advantage of market inefficiencies.

Multichain Lending

Currently, it's difficult for users to benefit from opportunities on different blockchain networks where they don't hold their assets. Suppose you have assets on Ethereum and want to take advantage of an opportunity on Polygon. You can either transfer all of your assets to another chain and convert it to the native token ($MATIC in this case), or to lend your assets on Ethereum, borrow the desired asset, and then transfer it to the destination chain. LayerZero introduces a lending protocol, allowing users to keep their assets on Ethereum, lend them out, and then borrow the $MATIC directly on Polygon. This removes the need for any intermediaries, such as cross-chain bridges and swap fees.

Modular Approach (Including Security)

LayerZero is a versatile framework designed to promote generalized interoperability, empowering applications to make trust-based decisions for individual transactions. Its streamlined architecture consists of a single off-chain oracle, an off-chain relayer, and on-chain Endpoint smart contracts. Applications using the framework are responsible for specifying their preferred oracle and relay providers. To facilitate this decision-making process, LayerZero recommends delegating oracle responsibilities to Chainlink and operating its relayer as a public service. At present, Polygon and Sequoia operate the oracle used by LayerZero.

Endpoints facilitate the exchange of arbitrary messages between them, allowing applications to select third-party services for the actual transmission of messages (block headers and transaction proofs) across endpoints. Applications can choose oracle/relay services according to their specific cost and security requirements or configure custom settings within the messaging library employed for sending and receiving verified messages. This design strategy also simplifies the process for LayerZero to introduce new proof validation libraries in the future, potentially enabling applications to use zero-knowledge proofs to enhance security or performance.

The Endpoint comprises four modules: Communicator, Validator, Network, and Libraries (not shown). The Communicator, Validator, and Network form the Endpoint’s core functionality, while additional chains are incorporated as Libraries. This modular design allows LayerZero to effortlessly integrate new chains without altering the core modules. Each chain within the network possesses its unique Library, and every Endpoint retains a copy of all Libraries, enabling seamless communication between two chains with only their respective libraries on both ends.

For cross-chain transactions, the workflow is as follows:

messages from the sender side are passed down the stack through Communicator -> Validator -> Network, and then up the stack on the recipient side via Network -> Validator -> Communicator.

LayerZero ensures scalability without incurring excessive costs through its Ultra Light Node (ULN) design. It accomplishes this by assigning the task of obtaining cross-chain headers and transaction proofs to off-chain entities, namely, the relayer and oracle.

The oracle streams block headers on-demand, enabling the desired full header sync state more efficiently. The submitted header is cross-verified with the transaction proof provided by the relayer, thus offering the security of a light node while maintaining cost-effectiveness.

Initiating a message transfer request begins with applications sending transactions to a chain's Endpoint. The Endpoint then requests the chosen oracle provider to retrieve the corresponding block header from the source chain and transmit it to the Endpoint on the destination chain.

Simultaneously, the source chain's Endpoint generates a transaction proof, which the relayer conveys to the destination chain's Endpoint. The block header and transaction proof are verified and matched by the destination chain's Endpoint before the message is submitted on-chain. Both the oracle and relayer are compensated per transaction by the requesting user on the source chain.

While LayerZero markets itself as the first "trustless interoperability protocol," this claim is contingent on the assumption that the oracle and relayer don't conspire to compromise the security of the sender's message. An attacker who infiltrates the oracle network could operate their own relayer to undermine safety, meaning that the message sender must trust the oracle provider for security. Although an application could operate its own relayer to ensure proper delivery, this would negate the cost benefits of using a third-party service.

L0 messaging diagram — How messages get sent via LayerZero. Source: Messari

Competitive Advantages

Most bridge exploits in the cryptocurrency space from 2020-2023 have been caused by compromised relayers/external validators and liquidity being stored in a single pool. Bridges add trust assumptions and carry additional risks, such as:

Centralization/Censorship/Custodial Risk - Some bridges have a small set of operators that can censor and, in the worst cases, steal user funds.
Poor Security Practices - Trusted third parties are human and make mistakes. As in the Ronin hack (discussed later), the Sky Mavis team had poor multi-sig security practices, and one individual was the victim of a social engineering hack.

LayerZero looks to address these issues by siloing risk into "application-specific risk," which requires collusion between a specific oracle and relayer for an attack to occur. This means that only protocols using the rogue oracle-relayer pair may be vulnerable, minimizing the damage to specific liquidity pools. However, the overwhelming majority of projects using LayerZero use the default oracle-relayer setup.

Technology

LayerZero enables trustless, cross-chain communications through the use of an oracle and relay, which work separately from one another. The full LayerZero communication mechanism can be seen below:

In this scenario, the relayer operates off-chain and serves to carry the proof that a transaction has occurred. This proof can be traced back to the block ID to identify the transaction in question. On the other hand, the oracle simply passes along the transaction’s original information.

The wallet on the receiving end of the transaction can communicate with the relayer. By presenting the block ID from the oracle, the relayer can use that information and match it with the original transaction, proving its legitimacy.

LayerZero establishes heightened security due to the separation between the relayer layer and oracle layer. LayerZero leverages the accuracy of prominent oracles, such as Chainlink, while also benefiting from an open relayer system, creating a form of checks and balances.

Typical Cross-chain Bridging

In cross-chain scenarios, bridge contracts assume that transactions executed on the other blockchain are valid based on the rules of that chain. Users need to trust that another chain’s validators won’t collude, be corrupted/compromised, and that they can execute transactions and withdrawals at any time. This must be considered before evaluating any additional trust assumptions introduced from an external relayer bridge.

Additionally, networks connected by a bridge but don't have a shared state (i.e., EVM-to-EVM chain) entertain additional risk, specifically around finality on each chain. For blockchains, a transaction is considered final when the block containing it can't be altered.

However, the finality of most blockchains (specifically, Ethereum, as it's involved in the majority of bridging activity) is probabilistic, not deterministic. That is, there’s no set number of blocks after which the block becomes immutable. It merely becomes evermore expensive with each additional block built on top of it, and thus, less economically rational/feasible for an attacker to alter the transaction.

When a transaction is conducted on a source blockchain, an event is typically recorded and used to trigger a similar transaction on a destination blockchain. For a relayer to transfer an event on the source chain, the source chain transaction must be finalized. The destination chain must select the number of block confirmations required to feel comfortable that the block is final and that security on the Ethereum base layer can't be compromised.

Assets that have been bridged from chain A and “wrapped” on chain B would suffer if chain A is 51% attacked and transactions are reverted. This would result in chain B assets no longer being fully collateralized. In these scenarios, the bridge and bridged assets are only as safe as the weakest blockchain.

With L2 networks and rollups, bridge smart contracts don't make these same assumptions. They can verify that transactions executed on L2 are valid per the rules of Ethereum L1. Validation is executed by proving systems (fraud proofs and validity proofs) that can be checked on L1. Therefore, L2 users are far less exposed to the centralization risks presented by the validator sets of other chains or bridges.

With an L1 rollup, a protocol only needs to deploy an asset once for default interoperability with all rollups. Rollups inherit the L1’s security while featuring “escape hatches” that allow users to exit to L1 vs. being stuck on the destination chain if something goes wrong. Because of this, they need an exponentially cheaper security budget than creating your L1 or bridge with a validator set. Finally, rollups can store data on or off-chain depending on their need, creating flexibility in the design space and user experience.

However, interacting with any type of bridge carries risk (on both chains):

Smart Contract Risk — A bug in the code that can cause user funds to be lost
Technology Risk — Software failure, buggy code, human error, spam, and malicious attacks can disrupt user operations
Speed — If adequate liquidity isn’t available, users must wait until there is. This can be hours, days, or even weeks while the crypto markets continue to trade and funds are tied up

Differences

Upon full development, LayerZero presents several distinct features that differentiate it from its competitors. Firstly, LayerZero can operate on any chain, encompassing both fast-finality and probabilistic-finality chains. Additionally, the protocol facilitates cross-chain swaps in a single transaction, incurring gas fees only on the source chain, resulting in a user experience akin to a native swap.

For developers, LayerZero provides a straightforward protocol to achieve cross-chain functionalities in a trustless manner without the need for intricate intermediate chains or smart contracts. Endpoints’ modular design enables LayerZero to seamlessly integrate support for new chains by merely introducing an additional Library rather than modifying the three core modules—Communicator, Validator, and Network. Libraries serve as auxiliary smart contracts that delineate a specific chain’s communication standards.

In terms of the threat model, LayerZero's security relies on the fact that a compromised or colluding oracle and relayer combination would only impact user applications using that particular oracle and relayer. Applications employing different oracle and relayer combinations would remain unaffected.

How Does LayerZero Work?

To initiate a message transfer, transactions are dispatched to a chain's Endpoint. The Endpoint then requests the pre-selected oracle provider to obtain the pertinent block header from the source chain and transmit it to the destination chain's Endpoint.

A transaction proof is also created by the source chain's Endpoint and sent by the relayer to the destination chain's Endpoint. The destination chain's Endpoint compares and confirms the oracle's and relayer's block headers and the proof before submitting the message on-chain. The user on the source chain compensates the oracle and relayer for each transaction.

However, if an attacker successfully infiltrates the oracle network and operates their own relayer to collude and push transactions through the network, safety can be compromised. The protocol claims to be the first trustless interoperability protocol. Consequently, the message sender must trust the oracle provider to ensure security. Although the application could run its own relayer to ensure proper delivery, this would negate the cost advantage of using a third-party service. Therefore, it can't be called a completely trustless interoperability protocol, nor can it resolve the interoperability trilemma in this situation.

Breaking it apart into pieces:

Initiating Cross-Chain Transactions with Oracle and Relayer: To begin a cross-chain transaction, a user submits a transaction request to the Oracle, which is responsible for verifying the request's authenticity and ensuring the user possesses the necessary assets to complete the transaction. Upon validation, the Oracle then communicates with the Relayer, which initiates the transaction on the destination chain.

The Relayer's role is to create and sign the transaction on the destination chain, utilizing the assets provided by the user on the source chain. Once signed, the Relayer sends the transaction back to the Oracle for a final check on the signature and authenticity of the transaction.

Transaction Confirmation and Verification: When the Oracle has validated the transaction, it notifies the user on the source chain to confirm the transaction's successful execution. The user can then proceed to verify the transaction on the destination chain, ensuring a secure and transparent process.

Extensibility and Scalability with LayerZero Endpoint Design: LayerZero's Endpoint design allows for an effortless integration with any blockchain, offering a lightweight and scalable solution that can run on costly Layer 1 chains like Ethereum without prohibitive expenses. This flexibility opens the door for greater adoption and interoperability among various blockchain networks.

Security and Independence through Arbitrary Relayer Services: The LayerZero protocol does not limit users to a specific relayer service, effectively preventing collusion between the Relayer and Oracle, and ensuring the integrity and security of the transaction process.

Eliminating Intermediary Costs and Maximizing Liquidity: By enabling native transactions between supported chains, LayerZero eliminates the need for intermediary costs such as bridge and swap fees. This allows users to move liquidity freely across chains, capitalizing on opportunities on chains where they may not hold assets.

Efficient Cross-Chain Communication with Light Client Architecture: LayerZero's light client architecture enables swift and efficient cross-chain communication without necessitating expensive cross-chain state machine replication. This makes LayerZero an ideal solution for fostering interoperability between various blockchain ecosystems, unlocking the full potential of cross-chain transactions.

Omnichain Fungible Token (OFT)

The Omnichain Fungible Token (OFT) standard, developed by LayerZero Labs, functions as a comprehensive multichain standard for fungible tokens. Designed to ensure compatibility with various established fungible token types across chains, OFTs are interoperable with ERC-20s, BEP-20s, Aptos-based fungible tokens, and others. Since the introduction of the first OFT alongside Stargate Finance's governance token, STG and OFTs have been gaining substantial traction.

To illustrate the problem that OFTs resolve, consider a hypothetical scenario in which 2 UNI tokens are transported from Ethereum to Avalanche via Wormhole and Synapse. The distinct wrappers used on Avalanche would disrupt the fungibility previously enjoyed by UNI tokens on Ethereum. Furthermore, these wrapped UNI tokens would lack the same utility (voting) as their Ethereum counterparts unless the protocol endorsed a specific wrapped configuration.

OFTs offer a solution by enabling applications to natively mint and burn a single, unified token standard across multiple chains using LayerZero's Endpoint smart contracts. When a user transfers their OFT from chain A to chain B, the Endpoint on chain A burns the OFT, logs the change in overall OFT supply, and requests the Endpoint on chain B to mint the corresponding amount for the user. This cross-chain message transfer complies with LayerZero's modular interoperability framework.

Although this process necessitates trusting an oracle-relayer pair for accurate delivery, LayerZero's design permits applications to select trust assumptions on a transaction-by-transaction basis. Essentially, LayerZero's OFT standard allows any application to operate as a bridge for its native tokens.

The unified and adaptable design of OFTs presents several notable advantages:

OFTs eliminate the need for assets to be locked on one chain before being minted on another. Assets are burned on the source chain and issued to the destination chain, removing honeypots typically associated with bridge exploits.
There's no canonical version of the token. An application's OFT deployed on chain A holds the same value as the version on chain B, as both can be minted and burned at a 1:1 ratio.
The requirement for liquidity networks common in other bridging solutions is eliminated due to the fact that assets can be minted and burned 1:1 on demand. Users only pay gas fees to bridge an OFT, making transfers of varying amounts equally cost-effective.

As Ethereum Layer 2s and other Layer 1 networks continue to gain traction, the benefits offered by OFTs have led to their widespread adoption across the multichain landscape.

Oracles and Relayers

LayerZero is an innovative protocol designed to address the limitations of existing cross-chain solutions in the blockchain space. It facilitates seamless cross-chain transactions by leveraging a combination of Endpoints, oracles, and relayers while ensuring a secure and cost-effective process.

Endpoints are lightweight on-chain clients implemented as smart contracts, with each supported chain having a LayerZero Endpoint. These Endpoints serve as the user-facing interface for LayerZero, enabling direct transactions across chains without intermediaries.

Oracles, independent third-party service providers, play a vital role in LayerZero by reading block headers from one chain and sending them to another. Chainlink and Band Protocol are currently the chosen oracle service providers, although the protocol allows for the integration of other providers as well.

Relayers, on the other hand, are responsible for fetching transaction proofs in off-chain functions. Since LayerZero doesn’t specify a specific relayer implementation, users have the freedom to implement their own versions, promoting a collusion-resistant, trustless, validated delivery.

LayerZero's security is built on the independence of the oracle and relayer, ensuring the protocol remains lightweight while maintaining a high level of security. For an attack to be successful, both the oracle network and the relayer must be compromised or collude.

Existing cross-chain transaction solutions often suffer from drawbacks, such as multiple transactions, high costs, and the involvement of trusted intermediaries. LayerZero addresses these issues by enabling single transaction swaps and achieving trustless Valid Delivery for tokens and arbitrary data.

The protocol distinguishes between two types of cross-chain bridging and messaging: the middle-chain method and the on-chain Light Node method. Both approaches come with their own trade-offs in terms of cost and security. LayerZero enhances these methods by introducing a hybrid solution called Ultra Light Nodes, combining the benefits of both approaches.

In summary, LayerZero's unique hybrid approach streamlines cross-chain transactions, offering a secure and cost-effective solution for the blockchain ecosystem. By incorporating Endpoints, oracles, and relayers, LayerZero sets a new standard for seamless communication between different blockchains, paving the way for enhanced interoperability and user experiences.

Differences Between a CEX, DEX, and a DEX built on LayerZero

Centralized exchanges require custody of user assets to use their products, trading services, and other features. This allows the exchange to keep track of the deposits off-chain and even use those assets (no different than a typical bank) to generate yields and offer customers rewards. This forgoes the fundamental ethos of blockchain in the first place and puts user assets in the hands of central authorities. In the event of a failure or bankruptcy, as shown in multiple recent examples (i.e., Voyager, Celsius, FTX, etc.), users may receive only a small percentage of their original funds, if any, back following a crisis.

Because of this major shortcoming in CEXs, decentralized exchanges (DEXs) have grown substantially in popularity and scope. A DEX uses smart contracts to facilitate the automatic minting of coins when a user swaps between assets. Although this methodology is far more centralized and safe than CEXs, it still requires an intermediary token (or pool) and an additional transaction. This adds time and cost to the end user submitting the transaction.

DEXs that leverage LayerZero technology can provide services that avoid trusting a central authority while also eliminating the need for intermediaries, saving the end-users time, money, and effort. With increased efficiency, this also makes the blockchain economy more usable in general, adding value to stakeholders and making individual ecosystems more accessible.

Exchanges built on top of LayerZero can execute single cross-chain transactions that send a local transaction from chain A and then notifies the destination chain (chain B). This enables a clean and simplified transaction swap without any dependencies on third parties. Smart contracts on either side of the transaction handle the exchange entirely through LayerZero’s messaging protocol.

Ultra-light Node

On-chain light nodes serve the purpose of receiving and validating block headers for each pairwise chain on the opposing chain. Transaction proofs containing messages are forwarded and validated on-chain against these block headers. Although this method of transmitting messages is highly secure, it's also significantly more expensive. Running a light node on Ethereum, for instance, incurs tens of millions in daily costs per pairwise chain.

LayerZero addresses this issue by introducing Ultra Light Nodes (ULN), which provide the security of a light node while maintaining the cost-effectiveness of middle chains. This is achieved by having ULNs perform the same validation as on-chain light nodes, but instead of storing all block headers sequentially, they’re streamed on-demand by decentralized oracles.

When using Chainlink as the oracle, any malicious activity within the system hinges on the ability to defeat the Chainlink DON, which is no trivial task. Furthermore, if the oracle's consensus is compromised, active collusion with the relayer is also required.

The LayerZero protocol incorporates distinct modules, including the LayerZero protocol itself, LayerZero Endpoints, and third-party oracles and relayers, which warrant further examination. The uniqueness of this model lies in the fact that the ultra-light node (LayerZero Endpoint) does not maintain the state of other blockchains, as seen in the light client model introduced by IBC. Instead, the oracle is responsible for reporting the state of each blockchain, while the relayer handles general message passing and proofs.

LayerZero has devised the Ultra Light Node, which essentially functions as a just-in-time light client, provided on an as-needed basis. oracles transmit block headers, and relayers convey transaction proofs. Together, they fulfill the roles of an on-chain light client but at a lower cost due to their non-continuous operation.

At present, LayerZero relies on permissioned off-chain agents, drawing upon the trusted reputations of institutions for the system's functionality. Over time, LayerZero aims to establish app-designated oracle-relayer pairs to discourage collusion.

Bridging Trilemma

With 100+ bridging solutions in existence as of 2023, there remains no one-size-fits-all solution for blockchain bridging. Every bridging option comes with a tradeoff, thanks to the uniqueness of each blockchain. Aside from the security concerns and hacks, having so many bridges also fragments liquidity, partially undermining interoperable blockchains’ value proposition.

Blockchain bridges strive for three primary characteristics:

Security/Trust-minimization: The guarantee that information will be sent securely across the bridge without trusted third parties custodying funds and protecting the assets on the sending and receiving chains
Liquidity and Finality: More liquidity provides a better user experience and ensures less slippage with better prices; instant finality means a faster settlement and no delay when bridging from one blockchain to another
Native Assets: Given a choice, you'd probably prefer the native asset rather than a wrapped alternative (e.g., wETH.e on Avalanche or soETH on Solana) due to the latter having less liquidity and security guarantees

Native assets are tokens issued at the protocol level (ETH on Ethereum) or via smart contracts (ERC-20s, such as LINK, AAVE, COMP, etc.). Native assets are those that can be directly created on-chain with no third-party involvement (like a bridge). Stablecoins, such as USDC and USDT, are more ambiguous as they’re technically “native” to many blockchains, as Circle/Tether can directly mint on various chains.

Wrapped assets are inferior to native asset forms because:

Wrapped assets are IOUs on the original asset (an IOU is never as good as the real thing because it involves counterparty risk)
Wrapped assets fragment and compete with native asset liquidity
Wrapped assets as collateral in DeFi can “depeg,” resulting in liquidations not possible if holding the native asset
In some instances, wrapped assets require an external oracle for pricing, which is another vector of risk

Besides the cross-chain bridge trilemma, there's the interoperability trilemma:

Trustless - No added trust assumption outside of the native source chain
Extensible - Accommodate other chains/consensus mechanisms?
Generalizable - Is this bridge compatible with multiple assets/wallets/multi-sigs?

Most solutions can only get two out of three:

Local Verification = Trustless + Extensible (liquidity protocols that rely on the security of each blockchain, but have liquid assets on both)
External Verification = Extensible + Generalizable (connects/supports many blockchain ecosystems, but comes with the added trust assumptions of an external validator set)
Native Verification = Trustless + Generalizable (highest security via light clients verifying transactions on each chain, but expensive to implement and scale to many chains)

Economics and Token

At a fundamental level, LayerZero serves as a base messaging protocol to provide connectivity across an internet of blockchains. With that in mind, LayerZero currently doesn’t have a token. There are ongoing rumors about a potential L0 token, but as of Q2 20223, this is unconfirmed. With LayerZero Labs sitting on such a massive valuation, a token launch could end up being extremely enticing for the team.

Governance

LayerZero’s governance model is designed to provide effective oversight, improved control, integration, and decision-making throughout the project lifecycle. This responsibility is split between the core development team of LayerZero and the on-chain mechanisms that provide security guarantees and confirm transactions for projects.

LayerZero's on-chain approach is to split responsibility between a relayer and an oracle, where the relayer submits a proof for a transaction, while the oracle is responsible for broadcasting the block header on which the transaction occurs. This provides a strong guarantee that a transaction is valid. Of course, this governance over transaction execution varies by application, depending on that project’s chosen oracle and relayer.

Security and Vulnerabilities

LayerZero's protocol for "trustless inter-chain communication" operates by using two independent actors, the oracle and the relayer, to ensure its security. The LayerZero system operates as an on-chain endpoint that functions with the aid of an UltraLightNode (ULN), which depends on the actions of the oracle and relayer to facilitate communication between chains.

LayerZero distinguishes itself in the realm of blockchain technology by emphasizing modularity in its design approach. By utilizing relayers to transmit transaction messages and incorporating an Oracle for transaction verification, LayerZero offers a foundational infrastructure for cross-chain communication. This setup empowers decentralized applications (dApps) to select their preferred relayer and Oracle, rather than prescribing specific actors for these roles.

When a message (M) is transmitted from chain A to chain B, the oracle first waits until the transaction that sends the message is finalized on chain A and then writes a commitment for the message bundle (e.g., the hash of the block header containing the message M) on chain B. The relayer subsequently provides chain B with proof of the message's presence in the stored header through means such as a Merkle proof.

Critics of LayerZero have raised concerns about the platform's current security configuration, which they perceive as centralized due to the current use of the Industry TSS Oracle and LayerZero's own relayer. However, these criticisms may only be temporary as LayerZero aspires to develop a fully agnostic modular infrastructure that features a diverse marketplace of relayers and Oracles from which developers can choose.

It is LayerZero's hope that, eventually, the will not dictate the security setup for future dApps; instead, it adopts a modular approach, allowing dApps to determine the level of security they wish to implement. This strategy places the responsibility for security design choices squarely on the developers' shoulders.

Proponents of LayerZero argue that it empowers developers by granting them a broader range of security design options. In contrast, skeptics claim that LayerZero is essentially outsourcing the responsibility of security to the dApps. Regardless, the platform intends to provide developers with the freedom to choose their security setup while gradually offering content and education on best practices to guide their decision-making within the LayerZero ecosystem.

LayerZero assumes that the relayer and oracle are independent and honest actors. However, the whitepaper acknowledges that if this assumption isn’t true, the two actors can collude, potentially resulting in an invalid block header and proof. Despite LayerZero's assertion that its design eliminates the possibility of collusion, this is not necessarily true, as the user application can define and change the relayer and oracle at any time, thereby altering the security assumptions. Therefore, it's not sufficient to assess the security of a LayerZero-based application once, as the user application has the capability to change its relayer and oracle, potentially compromising its security.

bridge AMP security table — Source: BlockCrunch

“2-of-2 Multisig argument”/Oracle-Relayer Collusion

As the blockchain and cryptocurrency ecosystem grows, interoperability has become a crucial aspect. LayerZero is a protocol that aims to address this challenge through a unique approach, combining relayers and oracles to facilitate cross-chain communication. However, concerns about its security and trust assumptions have been raised, prompting a closer examination of the protocol's design and potential vulnerabilities.

LayerZero's Security Model and Trust Assumptions

LayerZero employs a set of contracts that define two roles: "relayers" and "oracles." Oracles are responsible for reporting the state of underlying blockchains, while relayers handle message delivery across chains and prove message validity. Users can choose which third-party relayer or oracle to use, and LayerZero serves as a neutral messaging bus and set of standards.

One point of concern is the LayerZero team's ability to modify the verification and proving library through a 2-of-5 multi-signature system.

The trust assumptions include:

Trusting that the protocol won't run or choose a corrupted relayer.
Trusting that oracles are not corrupted.
Trusting that LayerZero itself is not compromised.

The bridge's security is only as strong as its multi-signature system, potentially presenting a different security model than initially thought.

It’s been argued that setting up a custom configuration instead of relying on default settings can mitigate vulnerabilities identified by critics. With a custom configuration, validation libraries can't be modified, moved, or corrupted. However, some believe that securing the bridge should be the responsibility of the bridge team, not the projects using it.

As LayerZero's model is relatively new and untested, questions about the possibility of collusion between relayers and oracles have emerged. While users holding native assets on their native chains would not be affected by security issues, funds in liquidity pools could be exposed to risk.

LayerZero takes a different approach to blockchain interoperability than Axelar. Instead of providing the entire interoperability stack, LayerZero focuses on defining the roles of relayers and oracles. Users can choose any existing system to serve as a relayer or oracle, tailoring the solution to their specific needs.

Although LayerZero's whitepaper claims Chainlink will be the default oracle, Stargate Finance—a LayerZero-based project—currently uses a three-party signature composed of FTX, Sequoia, and Polygon as the oracle with relaying performed by LayerZero Labs. LayerZero offers an innovative solution to blockchain interoperability, but its security and trust assumptions warrant further investigation. As the protocol continues to develop, it's essential for projects using LayerZero to carefully evaluate its security model and potential vulnerabilities to ensure the safety of their assets and the integrity of cross-chain communication.

Attack Vectors

While LayerZero itself does not have any security guarantees, the security of the applications built using LayerZero is dependent on the app owners or someone in possession of their private keys not doing anything irrational. In an adversarial environment, one can't assume the security of these applications until proven otherwise. Furthermore, when the relayer and oracle are the same entity, LayerZero inherits the security of the oracle service provider. As such, the risk is siloed, meaning control over the relayer and the oracle is necessary to corrupt the system. If a specific relayer/oracle is corrupted, only applications using those specific parties (relayer and oracle) will face an issue. This way, the risk is isolated and doesn’t affect the whole ecosystem.

Recently, claims were made by L2Beat regarding LayerZero's potential attack vectors. Even though tokens may be built using LayerZero and used according to its mechanics, it's still possible to steal funds from the tokens’ escrow if there’s a fault in the application. Additionally, LayerZero's security model assumes that app owners or those in possession of their private keys won't act irrationally, which is an incorrect assumption in an adversarial environment. Furthermore, it requires trust in the application owners as a trusted third party. Therefore, one can't make any assumptions about the security of the applications built using LayerZero. Finally, it should be noted that the worst-case security scenario can occur when the relayer and oracle are the same entity, as the risk is siloed and control over the relayer and the oracle is necessary to corrupt the system.

Competitors

CCIP: Cross-Chain Interoperability Protocol (CCIP)

Chainlink’s new Cross-Chain Interoperability Protocol (CCIP) features a cross-chain message relaying service and a cross-chain token bridge. Other forms of off-chain computation are also in development, such as FSS, DECO, and Town Crier. The advancements of CCIP can create a sort of cross-chain hybrid smart contract that can allow blockchains to communicate with each other.

Chainlink's Cross-Chain Interoperability Protocol (CCIP) is poised to be a direct rival to LayerZero, particularly considering the latter's dependence on decentralized oracle networks for ensuring system security and its specific suggestion for applications to employ Chainlink as their default provider. Although CCIP remains in development and publicly-available technical details are somewhat scarce, we can draw preliminary comparisons with LayerZero based on the information at hand.

CCIP embodies a more streamlined model in comparison to LayerZero, consisting solely of Chainlink's pre-existing decentralized oracle networks (DONs) and messaging router smart contracts (MSRCs), which are analogous to LayerZero's Endpoints. In contrast to LayerZero, CCIP consolidates the oracle and relayer functions, which are managed by Chainlink's DONs. As previously discussed, this design choice doesn’t significantly impact the system's safety or liveness in real-world scenarios.

The token bridge that's part of the CCIP uses hundreds of independent Chainlink nodes to sign and validate cross-chain token transactions, which reduces a single point of failure and enables cross-chain asset transfer. CCIP creates a universal ‘plug and play’ standard for developers working on smart contracts and allows developers to select the best code for the task at hand. Developers using CCIP can take advantage of Ethereum’s security and another chain’s speed and scalability all in one smart contract.

CCIP’s cross-chain message relaying service works as follows: A smart contract from a source chain can invoke Chainlink’s Messaging Router to leverage the Chainlink DON to securely send messages to the destination chain. Then, another Messaging Router will validate it and send it to the destination smart contract. This feature enables numerous use cases, including cross-chain yield harvesting, cross-chain collateralized loans, low-cost transaction computation, and new categories of DeFi applications over time. The CCIP token bridge is powered by Chainlink’s OCR 2.0, which involves Chainlink’s nodes cryptographically signing and validating all cross-chain token transactions. The token bridge supports the minting and burning and locking, and unlocking of ERC-20 tokens and is secured with Chainlink’s anti-fraud network.

The bridge offers developers a universal interface that can transfer tokens to any Chainlink-integrated blockchain across both EVM and non-EVM chains. This eliminates the need for developers to build separate bridges with complex security vulnerabilities.

Network Effects

IBC Partnering with LayerZero

The Cosmos ecosystem, known for its interoperability, relies on the Interblockchain Communication Protocol (IBC) to facilitate seamless communication between different chains. Launched for token transfers in March 2021, IBC has enabled 25+ chains, securing more than $60 billion in value. However, its current transport layer presents challenges when connecting to Ethereum or other EVM-based chains. LayerZero has emerged as a solution to extend IBC's reach and bring forth new opportunities for interchain communication.

IBC has established a generalized standard for communication between various chains and with a set of standards for token transfer message formatting. However, the IBC transport layer necessitates a full light client between the connected chains, making it cost-prohibitive for Ethereum and most EVM chains.

To address this limitation, LayerZero has adopted IBC by replacing its transport layer with LayerZero's protocol. This allows IBC to connect to all chains that LayerZero can access through its transport layer. Consequently, IBC and LayerZero emerge as symbiotic entities, with IBC serving as the data layer and LayerZero functioning as the transport layer.

IBC's infrastructure layer handles the transport, authentication, and organization of IBC messages. As a chain-agnostic general messaging protocol, LayerZero can complement IBC by using its protocol as a transport layer while preserving other aspects of IBC. In essence, LayerZero can transmit IBC messages with a different verification model, relying on oracles in LayerZero's network instead of each blockchain's validators.

Modularity of the interoperability layerzero protocol stack — Modularity of the interoperability protocol stack. Source

LayerZero's introduction of an ultra-light on-chain client capable of communicating with EVM blockchains presents a significant opportunity. By combining Cosmos's interoperability principles with the ultra-light, ultra-simple ethos of wrapped asset bridges, LayerZero creates a potentially superior solution for cross-chain communication.

Projects, such as Composable Finance and Polymer, are exploring ways to leverage cross-chain general messaging protocols. Composable Finance is working to bring IBC to the Near blockchain by using IBC as the messaging layer and Composable Finance as the transport layer. Similarly, Polymer aims to employ the IBC messaging layer to facilitate cross-chain general messaging, showcasing the modularity and adaptability of the interoperability protocol stack.

The collaboration between IBC and LayerZero represents a promising development in the blockchain ecosystem, enabling seamless and cost-effective communication across various chains. As the landscape evolves, the synergy between these protocols is expected to unlock new possibilities and drive innovation in blockchain interoperability.

Further Network Effects

LayerZero functioned privately before emerging from stealth mode in September 2021. The project gained prominence with a demo video showcasing the capabilities of cross-chain general messaging. LayerZero developed Stargate, a bridge built on the LayerZero protocol, which purportedly resolves the interoperability trilemma. Other protocols have started to build on LayerZero as well, including Hashflow, a notable bridgeless cross-chain swap protocol.

LayerZero is an all-encompassing interoperability protocol aiming to connect every smart contract across every blockchain. One of the primary innovations introduced by LayerZero is the concept of an "ultra-light" node. The ultra-light node model seeks to uphold the security of the light client model (with IBC being a prime example) while reducing transaction costs.

The ultra-light nodes consist of LayerZero Endpoint smart contracts on each respective blockchain. These smart contracts possess separate modules that are easily extensible and can be implemented on new blockchains. One such module is a "library" responsible for validating proofs from other blockchains.

Chains Supported

Ethereum
Arbitrum
Optimism
BNB Chain
Polygon
Avalanche
Fantom
Aptos
Harmony
Moonbeam
Swimmer Network
DeFi Kingdoms

Future chains include non-EVM chains, such as Sui and Solana.

Core Team and Founders

LayerZero Labs, a Canada-based company, has been gaining attention in the cryptocurrency industry for its innovative approach to solving the interoperability problem. Co-founded by Bryan Pellegrino, Ryan Zarick, and Caleb Banister, the team boasts a rich background in online fantasy sports, predictive AI, and blockchain-related startups. The addition of the renowned anonymous developer, 0xMaki, further strengthens the core team.

The three co-founders have previously worked together on multiple projects and have co-published academic research with notable names, such as Polynomial and Facebook AI Research. Their technical expertise and commitment to quality have set them apart in the industry. As LayerZero Labs continues to grow, the team plans to expand its resources in areas like community, content, and business development.

Investors

LayerZero Labs recently announced a $135 million Series A+ funding round at a $1 billion valuation. The impressive list of strategic investors includes a16z crypto, Sequoia, FTX, PayPal Ventures, Animoca, Softbank CEO Rene Marcelo Claure, Avalanche's ecosystem fund “Blizzard,” Polygon's ecosystem fund, Fantom's ecosystem fund, Dapper Labs, Kronos Research, Ethernity, ImToken Ventures, Matrixport, Coinbase, and Gemini. Additionally, notable angel investors, such as Tom Brady, Justin Timberlake, and Maria Eitel have also joined the round, further solidifying LayerZero Labs' position in the market.

The involvement of PayPal Ventures is noteworthy as LayerZero Labs is their first web3 project in their portfolio. This support from industry giants and influential individuals demonstrates the potential of LayerZero Labs as a game-changing force in the cryptocurrency and blockchain space.

User Experience

Integrating LayerZero messaging into a developer's application involves using LayerZero's User Application (UA) configurable on-chain endpoint that runs an Ultra-Light Node (ULN). To get started, developers can visit the official LayerZero documentation on Gitbook, which provides a detailed explanation of LayerZero's system architecture and code examples for integrating LayerZero into contracts.

LayerZero messaging is sent and received by LayerZero Endpoints, which handle message transmission, verification, and receipt. LayerZero Endpoints consist of two components: a collection of versioned messaging libraries and a proxy to route messages to the correct library version. When a message arrives at an endpoint, the endpoint selects the User Application configured library version to handle the message. Developers can also refer to the LayerZero Whitepaper to understand how LayerZero provides trustless omnichain interoperability and supports messaging directly between Layer 1 and Layer 2 chains.

To integrate LayerZero messaging into their application, developers need to route messages through the endpoint on the chain where the message originates, and then the message is transmitted to the endpoint on the destination chain. LayerZero's approach to transferring messages between on-chain endpoints involves using a relayer and an oracle. The relayer submits a proof for a transaction while the oracle broadcasts the block header on which the transaction occurs. This approach provides a strong guarantee that a transaction is valid.

Developers can also join the LayerZero community of developers who are integrating the technology and learn how to launch their dApp using LayerZero by visiting the LayerZero Gitbook.

Here's an example of code for integrating LayerZero messaging into a developer's application:

In the example code above, the MyContract contract uses the LayerZero contract, which is imported and instantiated in the constructor. The sendMessage function is used to send a message to a recipient address by calling the sendMessage function from the LayerZero object.

Regulation

The obvious difference between LayerZero and most crypto projects is the lack of a token. This should, theoretically, help LayerZero avoid much of the scrutiny levied on the space. Since there is no token, individual retail investors have nothing to buy or speculate on. However, LayerZero does help facilitate the movement and exchange of other cryptocurrencies and, therefore, may not be immune to the impending regulations that seem to be coming to the space.

For the crypto market, regulation continues to be a large gray area. As the crypto market continues to grow in popularity, so too does the attention being paid to it by governments and regulating agencies. In the U.S., crypto is at the mercy of the Financial Services Oversight Council (FSOC) and its ten voting members. There’s the Federal Reserve (Fed), the Department of Treasury, the Commodities & Futures Trading Commission (CFTC), the Securities & Exchange Commission (SEC), the Office of the Comptroller of the Currency (OCC), the Federal Deposit Insurance Commission (FDIC), the Consumer Financial Protection Bureau (CFPB), and a couple of others that are less directly relevant to crypto.

The FSOC’s duties include identifying risks and emerging threats to the financial system. This gives the FSOC the authority to organize a policy response to emerging tech like cryptocurrencies. The committee is led by Treasury Secretary Janet Yellen and aims to create and enforce a “proper” U.S. financial regulatory framework. As the U.S. makes up ~40% of the world’s financial market, the FSOC’s impact is far-reaching and critically important to the global economy.

The SEC's laws on the marketing and sale of securities are intended to prevent a certain mischief: insiders and promoters of a business will have more information than investors (information asymmetry). This is remedied by the SEC requiring truthful and comprehensive disclosure in a regulated format.

The Howey test, the main case law on the features of a security', remains the best measuring stick despite its many shortcomings when applied to crypto assets. For the purposes of this analysis, understand that the degree of decentralization of a protocol is a significant factor in determining which, if any, United States securities regulations apply.

“When a promoter, sponsor, or other third party (or affiliated group of third parties) (each, an “Active Participant” or “AP”) provides essential managerial efforts that affect the success of the enterprise, and investors reasonably expect to derive profit from those efforts, then this prong of the [Howey] test is met.

There are essential tasks or responsibilities performed and expected to be performed by an AP, rather than an unaffiliated, dispersed community of network users(commonly known as a “decentralized” network).”

-SEC guidance “Framework for ‘Investment Contract’ Analysis of Digital Assets

In April 2023, the SEC announced that the rules governing traditional exchanges would also apply to decentralized finance (DeFi) platforms. The proposal aims to clarify that current exchange regulations also apply to decentralized cryptocurrency platforms. SEC Chair Gary Gensler made a strong statement, asserting that many crypto trading platforms already fall under the existing definition of an exchange and are thus obligated to comply with securities laws. Gensler added that these platforms seem to be acting as if compliance is optional, which is not the case.

Many argued that the proposal is ambiguous and targets decentralized finance (DeFi) platforms, which would not typically fall under the regulator's purview. The SEC has made a deliberate effort to clarify that traditional exchange regulations apply to DeFi platforms. The proposal, initially introduced in January 2022, seeks to extend the definition of an exchange to encompass platforms utilizing "communication protocols," including request-for-quote systems. Given the broad definition the bill is using, LayerZero could obviously be interpreted to fall with DeFi or "communication protocols."

If implemented, this change is expected to bring a wider range of venues under regulatory control, beyond the conventional exchanges that facilitate transactions between multiple buyers and sellers. Initially aimed at Treasury markets and other government securities marketplaces, the proposal sought to address situations where inter-dealer crypto brokers operated like exchanges without proper registration. However, crypto firms resisted the plan amid escalating tensions with the regulator, asserting that existing securities regulations are ill-suited for the industry and that new rules are necessary.

The decision has been met with mixed reactions, and even SEC Commissioner Hester Pierce has publicly criticized it. The SEC has opened a 30-day comment period to gather public opinion on the matter. A vote will be held to finalize the proposed clarification and amendments to the definition of an "exchange," which is expected to pass.

Roadmap

In 2024, LayerZero will release its v2. The transition from Version 1 (V1) to Version 2 (V2) of a system often signifies refinement rather than a complete overhaul. This is precisely the approach taken with the V2 upgrade of LayerZero, a protocol designed to underscore its foundational principles: permissionlessness, resistance to censorship, and immutability. V2 introduces key enhancements aimed at improving the developer experience and reinforcing the protocol’s core values. This article delves into the modifications from V1 to V2, highlighting their implications for developers and the broader blockchain ecosystem.

Decoupling Execution from Verification

A significant shift in V2 is the separation of execution from verification roles. In V1, the Relayer was responsible for both verifying and executing transactions, posing a potential bottleneck and risk of downtime. V2 addresses this by introducing a permissionless Executor role, distinct from the verification process, thus eliminating concerns over liveness and enhancing the protocol's robustness.

Modular Verification Approach: X of Y of N

V2 adopts a modular verification strategy, allowing applications to tailor security levels to their specific needs without overspending. This flexibility is embodied in the "X of Y of N" framework, where applications can specify a combination of Decentralized Verification Nodes (DVNs) for message verification. This model not only optimizes cost but also ensures continuity in message flow, even if certain DVNs are unresponsive, thereby enhancing overall liveness and security.

Horizontal Composability

The introduction of horizontal composability marks a departure from the previous model of vertical transaction composition, which could lead to failures if any transaction leg failed. Horizontal composability allows for the independent execution of transaction legs on the destination chain, improving reliability and success rates of omnichain transactions.

Unordered Delivery

V2 enables developers to choose between ordered and out-of-order transaction execution, aligning LayerZero's throughput with that of the destination chain and maintaining its commitment to censorship resistance. This flexibility is crucial for optimizing transaction processing and ensuring efficient cross-chain communication.

Enhanced Programmability

With improvements in protocol contract interfaces, path-specific libraries, and new design patterns, V2 significantly advances programmability. These enhancements, coupled with horizontal composability, offer developers greater flexibility and ease in facilitating uninterrupted cross-chain transactions.

Expanding on X/Y/N and Security Stacks

The "X of Y of N" configuration and Security Stacks are pivotal in understanding V2’s architectural advancements. They allow developers to designate a quorum of DVNs for cross-chain message integrity checks, enabling applications to significantly strengthen their verification processes. This flexibility ensures that applications can adapt to new verification methods and reconfigure their security settings in response to emerging risks, thereby future-proofing their operations.

Applications and Security Flexibility

LayerZero’s design philosophy stands out for its unbiased stance on verification, offering a stark contrast to the one-size-fits-all security models prevalent in many cross-chain protocols. By enabling a modular set of DVNs, LayerZero empowers developers to tailor security parameters to their specific needs, avoiding the pitfalls of monolithic security models and enhancing application extensibility.

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