Explaining Stargate The first cross-chain bridge launched by LayerZero to solve the trilemma of bridging difficulties.

LayerZero launched Stargate, the first cross-chain bridge, to solve bridging difficulties.

Author: HotairballoonCN Hot Air Balloon

Stargate Finance is a multi-chain cross-chain bridge protocol based on Layerzero. It was created by LayerZero Labs in March 2022 and is a protocol that enables asset transfers between multiple blockchains.

1. Background

First of all, with the continuous development of the blockchain industry, various forms of chains have emerged, such as Layer1, Layer2, Layer3, sidechains, Rollups, etc. There are both homogeneous and heterogeneous chains, and on each blockchain, there are many different protocols.

These different blockchains and protocols have divided the world of blockchain into isolated information islands, with a large number of encrypted assets distributed across these different chains and protocols, which undoubtedly reduces the efficiency of capital utilization.

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The emergence of cross-chain bridges can build bridges between these different chains, allowing assets on one chain to be bridged to other blockchains.

For example, the introduction of the Base cross-chain bridge on the Layer 2 network by Coinbase can bridge encrypted assets from other chains to the Base network. Users can enjoy some early benefits of the Base chain. At the same time, through cross-chain bridges, assets on the Base chain can also be bridged to other blockchains.

The emergence of cross-chain bridges greatly improves the efficiency of capital utilization.

According to defillama’s data statistics, the total value locked (TVL) of cross-chain bridges ranks fourth in the current DeFi landscape, reaching a volume of 9.7 billion US dollars, second only to the Dex track.

In addition, there are commonly encountered problems in the cross-chain bridge track, such as low security, high fees, and slow cross-chain speed. Stargate appears in such a background.

2. Overview of the Stargate Protocol

Stargate Finance is a multi-chain cross-chain bridge protocol based on LayerZero. It was created by LayerZero Labs in March 2022 and is also the first DApp based on the LayerZero protocol. It is a protocol that enables asset transfers between multiple blockchains.

The goal of Stargate is to simplify the process of transferring assets from one blockchain to another, eliminating the need for cumbersome locking, minting, burning, and redemption steps, to achieve the convenience of completing the transfer in one transaction.

Since Stargate is a cross-chain protocol built on LayerZero, it is necessary to start with LayerZero when talking about Stargate.

What is LayerZero

LayerZero is a chain-agnostic interoperability protocol. LayerZero has built a new type of ultra-light node model, providing a secure and reliable infrastructure for various cross-chain protocols.

In theory, LayerZero can achieve message transmission between any chains that support smart contracts. For example, when a user sends a message on Chain A, these messages can be passed to Chain B, allowing the smart contract on Chain B to perform the corresponding operation. LayerZero can achieve information communication between different chains, and this information communication naturally includes the transfer of assets between different chains.

LayerZero is not a public chain or an application ecosystem, but a more underlying protocol. LayerZero is positioned similar to the TCP protocol in the transport layer of the Internet, and many different DApps can be built on top of this protocol.

How does LayerZero achieve full chain interoperability

First, let’s understand the differences between full node, light node, and super light node.

• Full node: A node that synchronizes all blockchain data, storing block headers, specific transaction information, etc.

• Light node: Only stores a small portion of blockchain data, such as block headers and other information, and does not store specific transaction information within blocks.

• Super light node: Instead of retaining all block headers, it transmits streamable block headers on demand through oracles, making it more efficient to synchronize with off-chain entities to achieve the desired state.

LayerZero’s full chain interoperability is achieved by deploying an endpoint (client) on each chain. The endpoint runs an ultra-light node (ULN) and then uses an Oracle to transmit block headers containing cross-chain information on demand (rather than transmitting all block headers in order, reducing costs). The Relayer is then used to deliver transaction proofs (Proof information), and both parties verify each other to ensure the correctness of cross-chain information.

The following diagram shows the process of a user application (UA) on Chain A sending a message to a user application on Chain B through LayerZero.

LayerZero’s full chain interoperability is achieved through the combined action of these three core components: Endpoint, Oracle, and Relayer.

Based on LayerZero’s full chain interoperability, many businesses that were previously difficult to implement can be realized, such as full chain cross-chain bridges, cross-chain transactions, cross-chain lending, etc. Stargate is the official cross-chain bridge launched by LayerZero and the first DApp based on the LayerZero protocol. The LayerZero team calls it the first product to solve the “trilemma of bridging”.

III. How does Stargate achieve cross-chain interoperability

As we all know, there is an “impossible triangle” theory in public chains, referring to the decentralization, security, and scalability, and a public chain can only satisfy two of them at most.

For example, for Bitcoin, its decentralization and security are relatively high, but its scalability is poor. For many public chains, although scalability and security have been improved, they have sacrificed decentralization.

The “impossible triangle” dilemma in the public chain field can be solved by modular public chains.

Similarly, in the field of cross-chain, there is also an “impossible triangle” theory, which includes:

• Guaranteed instant finality;

• Unified liquidity;

• Native assets.

In most cross-chain bridges, only one or two of these three points can be achieved at most, and not all three can be achieved at their best.

However, Stargate cross-chain bridge built on the LayerZero protocol can simultaneously satisfy these three major characteristics of a cross-chain bridge, namely, ensuring instant finality, achieving unified liquidity, and supporting native assets.

In some common cross-chain bridges, the method used is “lock+mint+burn”. In other words, the assets are locked in the source chain and synthetic assets are minted in the target chain. When the assets need to be transferred back to the source chain, the previously minted synthetic assets need to be burned and the original tokens redeemed. This method does not achieve instant finality.

Stargate has developed a new resource balancing algorithm that can unify the liquidity of all native blockchains and provide instant finality guarantee.

Stargate adopts a “liquidity swap” solution for asset cross-chain operations. Unlike most cross-chain bridges that set up independent liquidity pools for specific networks, Stargate uses a unified liquidity pool to support asset cross-chain operations.

In other words, Stargate can achieve unified liquidity pool management, and each chain can also access the liquidity on other chains.

For example, if there is a USDT liquidity pool on Chain A, other chains can borrow and return the USDT liquidity of Chain A for USDT-related transactions, thereby maintaining liquidity balance in the face of imbalanced transaction volumes and improving the efficiency of fund utilization.

However, when multiple chains share one liquidity pool, there may be transaction failures due to insufficient liquidity depth. When multiple chains share one liquidity pool, the number of users and the number of parallel requests increase, thereby reducing the liquidity in the pool and causing some cross-chain transactions to fail.

For example, if Chain A has a liquidity of 100 USDT, Chain B requests a liquidity of 60 USDT, and Chain C requests a liquidity of 50 USDT, the total USDT liquidity of Chains B and C exceeds the total USDT liquidity of Chain A, and as a result, one of the chains’ cross-chain requests will fail.

To solve this problem, Stargate introduces a resource balancing algorithm. Stargate divides the liquidity pools on each chain into multiple intervals, also known as soft partitions, according to different blockchains.

For example, the 100 USDT on Chain A is soft partitioned into 50 USDT on Chain B and 50 USDT on Chain C.

In order to maximize the possibility of liquidity meeting cross-chain needs, the protocol allows for “borrowing” and “returning” of liquidity between different chains, thereby maintaining liquidity balance in the face of imbalanced transaction volumes.

When a cross-chain request is received, the resource balancing algorithm examines the liquidity of each interval and allocates the assets deposited by users to intervals with insufficient liquidity to supplement them, thereby avoiding transaction failures caused by liquidity depletion.

If there are frequent cross-chain consultations on Chain B, it can be set to a higher weight. When new liquidity comes in, in addition to filling the liquidity gap of each chain, the excess liquidity will be virtually allocated to other chains according to the pre-allocated weight.

In addition, Stargate also introduces Equilibrium Fees (incentivizing liquidity to be evenly distributed across chains).

For example, when there is excessive fund outflow on Chain A, higher fees will be charged for further fund outflows from Chain A. This way, the liquidity on each chain can be maintained through user-initiated transactions.

In summary, Stargate improves the utilization of funds through a “resource balancing algorithm,” utilizing the liquidity of single-coin assets on each chain as a complete liquidity pool, avoiding the depletion of individual chains as much as possible, and achieving timely distribution and on-demand mobilization under a unified liquidity pool.

IV. Team

The specific number of team members of Stargate Finance is currently unknown. However, considering that Stargate Finance is the first application on LayerZero Labs, based on feedback from the early community, there is a close connection between Stargate Finance and LayerZero, and there is a certain overlap in the development team. The whitepaper of Stargate was jointly written by the three co-founders of LayerZero.

Therefore, in terms of the team, let’s start with the team members of LayerZero.

The team has three co-founders: Bryan Pellegrino serves as CEO, Ryan Zarick serves as CTO, and the other member is Caleb Banister.

All three graduated from the CS program at the University of New Hampshire and have had extensive professional intersections after graduation.

The specific situation of the founding team members is as follows:

Ryan Zarick:

Co-founder and CTO of LayerZero Labs, graduated with a master’s degree in computer science from the University of New Hampshire.

November 2011 – March 2013 served as CTO of BuzzDraft; September 2010 – January 2020 served as co-founder of Coder Den; January 2018 – March 2020 served as co-founder of 80Trill; June 2019 – January 2021 served as co-founder of Minimal AI; Founded LayerZero in 2021 and served as CTO.

Bryan Pellegrino:

Co-founder and CEO of LayerZero Labs, graduated with a major in computer science from the University of New Hampshire.

October 2010 – January 2013 served as co-founder and COO of Coder Den; June 2011 – January 2013 served as CEO of BuzzDraft; October 2017 – August 2019 served as co-founder of OpenToken; June 2016 – present, Chief Engineer of Rho AI; Founded LayerZero in 2021.

Prior to founding LayerZero, Pellegrino was a professional poker player and co-founded a machine learning company with Ryan Zarick, successfully selling a set of machine learning tools to an MLB team.

Caleb Banister:

Founder of LayerZero Labs, graduated from the University of New Hampshire in the United States with a major in computer science.

From June 2005 to December 2010, he served as a software developer at the UNH Interoperability Lab; from September 2010 to February 2021, he served as co-founder of Coder Den; from March 2018 to February 2021, he served as co-founder of 80Trill; from June 2019 to February 2021, he served as co-founder of Minimal AI; in 2021, he founded LayerZero.

From the resumes of the three core members of the team, it can be seen that the three individuals reunited in 2021 and co-founded LayerZero Labs. They have outstanding innovation capabilities in machine learning algorithms and blockchain development, and have long-term cooperative relationships with each other. They have years of development experience and successful entrepreneurial experience.

In addition, 0xmaki, co-founder of Sushiswap, has joined the team full-time as the Chief Strategic Advisor, helping with the cross-chain ecosystem construction of Layerzero.

5. Basic Products

1. Cross-Chain Functionality (Transfer)

Cross-chain functionality is the most important feature of Stargate and is very intuitive in the operation interface. It can achieve cross-chain 1:1 exchange of native assets and ensure instant final results.

Currently, the available chains include Ethereum mainnet, BNB Chain, Avalanche, Polygon, Arbitrum, Optimism, Fantom, Metis, Polygon zkEVM, zkSync Era Mainnet, and the recently supported Base network.

In the Stargate platform, in addition to stablecoins and ETH, the supported cross-chain tokens also include CAKE, STG, CRV, RDNT, and other tokens.

2. Liquidity Provision (Pool)

Liquidity providers can add liquidity to Stargate and receive certain rewards in each Stargate’s cross-chain (transfer) transaction.

Users can add liquidity to different liquidity pools. Currently, the pools are mainly stablecoin pools. After providing liquidity, users will receive LP tokens and receive cross-chain transaction fee rewards from the protocol.

3. Liquidity Mining (Farming)

Liquidity providers on Stargate can stake their LP tokens in exchange for STG rewards.

After users obtain LP tokens by providing liquidity, they can use them for liquidity mining and receive STG rewards. The current APY can be as high as 12% or more, which is already considered a good return for stablecoin mining.

4. STG Staking (Stake)

Users can stake their STG tokens and choose the duration of the stake. The longer the stake, the more veSTG tokens they can receive.

veSTG will serve as the governance token of the Stargate platform, and holding more will grant more governance weight.

Six, Token (STG) Economic Model

The token of the Stargate platform is STG, with a total supply of 1 billion tokens, distributed as follows:

• 17.50% – Stargate Core Contributors (1-year lockup, followed by 2-year linear unlock);

• 17.50% – Investors (1-year lockup, followed by 2-year linear unlock);

• 65.00% – Stargate allocated to the community, dedicated to realizing the vision of the protocol: making cross-chain liquidity transfer a seamless single transaction process.

The following is a breakdown of the community allocation:

1) 15.00% – Stargate protocol launch;

a. 10.00%: STG launch auction purchase (snapped up by 2 addresses from Alameda).

b. 5.00%: STG-USDC pool on Curve.fi.

2) 15.95% – Joint curve auction, released later;

3) 2.11% – Initial emission plan;

4) DEX on BNB, Avalanche, Matic, Arbitrum, Optimism, and Fantom will add up to 1.55%;

5) The remaining 30.39%: dedicated to future community initiatives and the long-term success of Stargate.

Token release cycle:

STG tokens can be staked to obtain governance tokens veSTG, which can be used for voting. The longer the staking period, the greater the voting power for the staker.

Seven, Development Status and Competitive Landscape

1. Trading Volume

According to defillama’s data, among current cross-chain bridges, the trading volume in the past 24 hours reached $170 million, and Stargate’s total chain trading volume reached over $72 million, accounting for nearly 50% of the cross-chain trading volume, far higher than the trading volume of other cross-chain protocols.

Moreover, among all cross-chain bridges on Polygon, Arbitrum, Avalanche, Fantom, and BSC chains, Stargate has the highest trading volume, indicating Stargate’s industry position.

2. TVL

Stargate’s total value locked (TVL) exceeds $300 million, far surpassing the TVL of other cross-chain bridges such as Hop.

Even among all DeFi protocols, Stargate’s TVL ranks 30th.

3. Active Users

According to the data statistics from tokenterminal, the daily active user count of Stargate has reached 48,000, which is more than 10 times the daily active user count of other cross-chain bridges. From the trend chart, it can be seen that Stargate’s active users have experienced significant growth since the end of March.

4. Fee

In the past year, the fees generated by Stargate have been continuously increasing, with an increase of over 400% in the past six months. It can be said that the growth rate is relatively fast.

Compared with other cross-chain bridges, Stargate generates more than $80,000 in fees every day, which is much higher than the fees generated by other cross-chain bridges.

5. Financial analysis

From Stargate’s financial situation, it can be seen that earnings have been continuously increasing in the past few months, with a significant increase compared to the previous month. Especially in July, earnings have exceeded $1 million.

The transaction volume in the past few months has also been increasing. The transaction volume in March exceeded $900 million, while the transaction volume in June reached $2.6 billion, nearly three times that of March.

The number of active users each month is also continuously increasing.

From Stargate’s financial data, it can be seen that whether it is active users, transaction volume, or earnings data, they are all continuously growing. These data to some extent indicate that Stargate is developing rapidly.

8. Future Potential

The native token of the Stargate platform is STG, which functions similarly to Curve. Users can lock their tokens to obtain veSTG for voting, and the weight of veSTG is allocated based on the lock-up time.

The platform primarily profits from transaction fees. Each non-STG token transfer incurs a platform fee of 0.06%.

In addition to the 0.06% fee for non-STG token cross-chain transfers, there may also be pool rebalancing fees for cross-chain transfers, and the specific fees depend on the imbalance of weights between the source chain and the target chain.

From the previous analysis data, it can be seen that Stargate’s various indicators are constantly growing.

Moreover, Stargate is a cross-chain bridge officially launched by LayerZero, and with the official endorsement of LayerZero, it has a significant promoting effect on Stargate’s development, such as bringing in a large number of users. Stargate is a leader among multi-chain cross-chain protocols.

The future will undoubtedly be an era of multi-chain coexistence, and there will be more diverse forms of blockchains. As a fully interoperable protocol with a valuation of $3 billion, LayerZero will connect assets on different chains.

As LayerZero supports more and more chains, Stargate will also support more chains and enable more token cross-chain transactions. This will continuously increase Stargate’s trading volume, user base, TVL, and promote the development of Stargate.

In addition, as a direct descendant of LayerZero, Stargate’s role goes beyond just being a cross-chain bridge. From Stargate’s documentation, it can be seen that Stargate aims to be a technology provider for asset cross-chain transactions, allowing more projects to easily utilize Stargate and achieve cross-chain functionality.

Therefore, in addition to serving 2C (consumer-to-consumer) businesses, Stargate also serves 2B (business-to-business) businesses, and even the 2B business model has more room for imagination compared to 2C. Based on Stargate, more complex DApps can be built.

Currently, the market value of STG is only over 100 million US dollars, ranking 173rd in terms of market capitalization. STG still has considerable room for growth in the future. The hot air balloon will continue to follow the latest developments of Stargate and share them with everyone in a timely manner.

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