LayerZero Security Prospects and Ecological Opportunities Capture

LayerZero Security and Ecological Opportunities

Author: Kyle Liu, Investment Manager of Bing Ventures; Source: Bing Ventures

Key Points

LayerZero has a very high processing throughput, and the middle layer will not be a limiting factor as long as the cross-chain throughput is sufficient.
The design philosophy of LayerZero is very much in line with the current lightweight trend, providing developers with a simpler, more efficient, and flexible development experience. For liquidity providers and applications, the development prospects of LayerZero are very optimistic.
Since end users cannot recognize the security of cross-chain transactions, those “user-oriented” projects need to be cautious when accessing protocols like LayerZero to avoid being contaminated by malicious applications belonging to the same ecosystem. This to some extent presents a pattern of “prosperity and loss together” in ecosystem construction.
Bridging should eventually be abstracted from the user experience, which is a larger market. Existing bridges require multiple wallet changes, custom processes, and multiple clicks, while Stargate is a wrapper contract that allows users to obtain the assets they want on the target chain with just one click, without the need for gas or any other steps on the target chain.
Looking at the rankings of LayerZero’s ecosystem projects, they are currently mainly focused on DeFi infrastructure, NFT, GameFi, and cross-chain bridge projects. The “whole chain” scenario provides a more unified and collaborative blockchain ecosystem. We are more optimistic about the introduction of zero-knowledge proof cross-chain message relay protocols, which will promote secure and free flow of liquidity and trustlessness between different blockchain networks. DeFi and NFT are expected to benefit greatly from this transition, with greater liquidity and flexibility in yield farming and lending protocols, as well as better investment strategies for on-chain derivatives and more asset management applications.

LayerZero is a developer-friendly, highly usable, and highly scalable full-chain development framework. Its technical architecture provides a certain level of security, effectively disperses risks, and has great flexibility to meet the needs of different types of blockchain applications. Therefore, LayerZero has a very broad future in full-chain applications.

LayerZero is moving towards a trustless cross-chain framework, which is currently the most dangerous and fascinating area in the blockchain world. Can LayerZero withstand the security storm? What opportunities should we explore in this wave of full-chain narratives? This article will explore the development space of LayerZero based on the trend of cross-chain evolution.

1. The Technical Architecture of LayerZero

LayerZero is a protocol aimed at achieving comprehensive cross-chain interoperability. Its technical architecture includes Ultra Light Nodes and Block Header Relays (Oracles). LayerZero is committed to building a simple, easy-to-use, secure, and reliable blockchain development framework, and its technical architecture has the following two important characteristics.

The worst-case security of this architecture is equivalent to the best security of the selected Oracle. For example, if Chainlink is chosen as the Oracle, even in the worst case where the Oracle and Relayer are the same entity and they reach a consensus, whether malicious or not, the basic security is still equivalent to the security of Chainlink.
Even if the Oracle becomes malicious and colludes with Relayer A to launch an attack, only user applications using Relayer A will be affected, while applications using other relayers and other Oracles will not be affected at all. This feature can disperse risks and exponentially increase the cost of attacks.

Source: LayerZero

From a security perspective, this is a feature that existing solutions do not possess. Therefore, LayerZero’s technical architecture is very attractive, and its specific effects are reflected in the following aspects:

Improving cross-chain efficiency

LayerZero’s biggest advantage is its ability to improve the efficiency of cross-chain transactions. During the transmission process in the middle layer, there is no consensus formation or verification process, which means that there is no additional complexity added. Compared to other solutions, LayerZero’s middle layer is very lightweight, and the Oracle and Relayer can efficiently forward transaction proofs. Therefore, LayerZero has a high processing throughput, as long as the throughput of the crossed chains is large enough, the middle layer will not be a limiting factor.

LayerZero ensures the security and reliability of transactions by performing direct verification on the chain, and it has great scalability, providing a better user experience for cross-chain transactions. However, there are still some limitations, such as the capacity limit of blocks, which is caused by the characteristics of the underlying chain itself. The design goal of LayerZero is to minimize additional overhead while maintaining the trustworthiness of cross-chain transactions.

Source: LayerZero

More than just asset transfers

In the current blockchain ecosystem, most of the focus is on asset transfers, such as decentralized exchanges and asset cross-chain bridges. However, with the emergence of LayerZero, developers can use it to build applications beyond asset transfers, such as applications for sharing states, which can achieve cross-chain profit aggregation and rebalancing. At the same time, through unified governance, voting can be decentralized from a single chain to the entire protocol. In addition, LayerZero can also play an important role in scenarios such as lending and gaming, making cross-chain operations simpler and more efficient.

LayerZero can also be seen as a new type of data messaging protocol, rather than just a tool for transferring digital assets. It can provide developers with a brand new design space to build applications that were previously impossible on a single blockchain. It can be foreseen that with the popularization of LayerZero and the continuous expansion of application scenarios, it will bring about a completely new transformation.

Source: LayerZero

Developer-oriented

The design philosophy of LayerZero is developer-oriented. Applications only need to implement two functions: sending and receiving. When sending, they send generic byte payloads, and when receiving, they parse the byte payloads. Developers can use languages like Solidity and Rust to write any application that can be built on the chain, and they can operate across multiple chains with a high degree of modularity. This design philosophy is in line with the current trend of lightweight development, and it can provide developers with a simpler, more efficient, and more flexible development experience. Compared to existing solutions such as middle chains and IBC-style cross-chain, LayerZero’s ultra-lightweight nodes have the following advantages:

Higher security: Compared to the intermediate chain solution, LayerZero does not rely on the intermediate chain for communication, thus avoiding the security risks of the intermediate chain;
Lower cost: Compared to the IBC-style cross-chain solution, LayerZero only needs to request a single block and does not need to synchronize the entire blockchain, thereby reducing costs.

However, we also note that LayerZero needs to use an Oracle to forward the block headers for cross-chain communication, which may increase complexity and centralization. Although LayerZero adopts a layered architecture and an open relay network to ensure security, it still needs to cooperate with Oracle and relay providers. In this process, LayerZero adopts a decentralized risk structure. Applications can choose suitable Oracle and relay providers according to their own needs to avoid potential risks.

In addition, LayerZero adopts a modular implementation approach, allowing different relays to be integrated and combined, further enhancing security and reliability. LayerZero’s security is built on multiple factors, including a decentralized risk structure, user application control, and modular implementation, which together constitute LayerZero’s security architecture.

Source: Dune

II. Security Controversies and Future Analysis

LayerZero’s security model is based on two independent participants, the Oracle and the Relayer, working together to ensure the security of the protocol. Whenever a message is sent from one chain to another, the Oracle waits for the transaction to complete on the sending chain, then writes the relevant information on the receiving chain, and the Relayer sends a proof to the receiving chain, proving that the stored block header contains the message. The security foundation of LayerZero is as follows:

The independence of the Oracle and Relayer is the basis of security.
Users can choose different Oracle/Relayer combinations to diversify risks.
Users can run their own Relayer to protect their assets.

Custom Risk Structure

LayerZero adopts a layered architecture to address interoperability issues between blockchains. One of the core security features is a decentralized risk structure, where any running entity needs to bear its own risks. This means that user applications and liquidity providers have different trust assumptions. Another key feature is an open relay network, where anyone can run a relay, and user applications have full control over all security levers, including choosing the Oracle and relay they want. User applications can also have confirmation numbers from the source chain to control risks. This decentralized design ensures the security of user applications and avoids potential risks of a centralized control architecture.

However, LayerZero assumes that the Oracle and Relayer are independent and honest participants. If they collude, it may lead to message verification failure. Although LayerZero claims that its design eliminates the possibility of collusion, in reality, each application can define its own Relayer and Oracle. Therefore, LayerZero itself cannot guarantee the independence and non-collusion of these components, but relies on the application to provide these guarantees. If the application chooses to undermine them, LayerZero has no mechanism to prevent it. By default, all user applications can change relays and Oracles at any time, thus completely redefining security assumptions. Therefore, it is not enough to only check the security of a given application once.

Source: Bing Ventures

The development prospects of LayerZero are very optimistic for liquidity providers and applications. Developers have full control and can avoid risks caused by malicious relays or oracles. Liquidity providers can choose to run their own relays according to their needs and risk preferences, further reducing risks. The layered architecture of LayerZero can also ensure the isolation between different blockchains, preventing possible attacks and vulnerability propagation. In general, the security of LayerZero is built on a decentralized and open relay network, and users and applications have full control, bringing higher convenience to liquidity providers and users.

Collusion Risks

LayerZero is essentially a “super light” cross-chain solution, with its architecture composed of Relayer and Oracle. Relayer acts as an intermediary for message transmission, while Oracle supervises Relayer. The trust assumption of LayerZero depends on the independent operation of the oracle and the relayer, so it is not possible to send invalid messages. The bridging model of LayerZero includes the requirement for applications to select relayers on the target chain. Therefore, in this model, the key to the security functions within the protocol lies in the relayers. Although this type of project is lightweight, has less code, and is easy to launch, it has several issues:

Reduced node validation, decreasing security;
The trust assumption of Relayer and Oracle cannot always hold true, and it cannot fundamentally guarantee that they will not collude and act maliciously;
LayerZero is only responsible for message transportation and is not responsible for the security of applications.

Opening the Relayer to everyone to operate cannot solve the above problems and may introduce new ones. If LayerZero nodes with configurable settings are allowed, attackers may replace them with their own “LayerZero” nodes and forge messages.

Source: Bing Ventures

Containing Malicious Behavior

Since end users cannot recognize the security of cross-chain transactions, “user-oriented” projects need to be cautious when accessing protocols like LayerZero to avoid contamination by malicious applications within the same ecosystem. This to some extent leads to a pattern of “rising together, falling together” in ecosystem development. Therefore, the security issues of LayerZero need to be highly concerned. To address the issues of LayerZero, the following two aspects can be considered:

First, increase the number of node validations to enhance security. LayerZero reduces dozens of node validations to a single Oracle validation, naturally lowering the security factor. Therefore, it is particularly important to increase the number of node validations to enhance security. Based on multiple node validations, further introducing consensus algorithms can increase the difficulty and complexity of on-chain validation, thus improving security.

Second, establish a trusted relayer mechanism. Since the security issues of LayerZero are mainly caused by the trust assumptions between Relayer and Oracle, it is necessary to establish a trusted relayer mechanism. This can be achieved through zero-knowledge proof technology, utilizing the decentralized and tamper-proof characteristics of blockchain to establish a trusted relayer mechanism and enhance the security of LayerZero.

Source: Way Network

3. Key Product: Stargate

Stargate is a cross-chain bridging protocol that allows assets to be quickly transferred between different chains without changing existing protocols and liquidity. Cross-chain transactions have always been a challenge in decentralized finance. The three goals of cross-chain asset transfer are immediacy, security, and capital efficiency. Most existing cross-chain bridges cannot simultaneously achieve these three goals and must compromise on one or two aspects.

Stargate allows users and decentralized applications to transfer native assets between different blockchain networks without the need for wrapping or intermediary tokens. Stargate adopts a mechanism of “lock + mint” and “burn + redeem”, which can achieve instant guaranteed finality, as the assets minted on the target chain have no risk of reversal. At the same time, Stargate also utilizes a composable design, which allows for bidirectional connections between any two blockchains that support smart contracts, thereby improving security and capital efficiency.

Source: Ryan Zarick

Compared to other cross-chain bridging protocols, Stargate’s advantage lies in its universal and composable nature. It can be applied not only to cross-chain transactions but also to various other cross-chain applications. With the emergence of more and more blockchain projects, the demand for cross-chain transactions will continue to grow, and Stargate can serve as a bridge to make it more convenient for users on different chains to trade and provide liquidity.

Stargate eliminates the extra steps of acquiring unwanted assets that need to be exchanged on the target chain. Instead, users can get what they want and save on slippage and exchange fees. Existing bridges require multiple wallet changes, customized processes, and multiple clicks, while Stargate is a wrapping contract that allows users to get the assets they want on the target chain with just one click, without the need for gas on the target chain or any other steps. Bridging should ultimately be abstracted from the user experience, which is a larger market.

Source: Bing Ventures

4. Introduction to the LayerZero Ecosystem

Looking at the rankings of projects in the LayerZero ecosystem, the current focus is mainly on DeFi infrastructure, NFT/GameFi, and cross-chain bridge projects.

Source: LayerZero.Corner

DeFi

AMM

SushiXSwap – SushiXSwap is a LayerZero-based full-chain trading protocol launched by SushiSwap, supporting networks including Optimism, Arbitrum, Fantom, BNB Chain, Polygon, and Avalanche. Users can perform cross-chain transactions between supported networks and assets.
Hashflow – Decentralized trading platform Hashflow announced the launch of Hashflow’s bridgeless cross-chain exchange service based on LayerZero at the end of April. It adopts a Request for Quote (RFQ) model, with token prices set by professional market makers. It supports token trading between Ethereum, Avalanche, BNB Chain, Arbitrum, and Polygon.
Cetus – Cetus is a pioneer dex and liquidity protocol built on the Aptos & Sui blockchains. It focuses on providing DeFi users with a better trading experience and higher capital efficiency through the process of building its centralized liquidity protocol and a series of auxiliary functional modules. It established a new strategic partnership with LayerZero_Labs on October 22, 2022.
interswap – A fully composable native asset cross-chain AMM with unified liquidity built on the LayerZero network.
starswap – The dex of the Move ecosystem, with asset security and stability, and the advantages of fast transactions and low fees.

Lending

Radiant Capital – Radiant Capital is a LayerZero-based cross-chain lending protocol that allows users to deposit collateral on Chain A and borrow on Chain B, integrating liquidity from multiple chains. The project has currently launched the v1 version on Arbitrum, which only supports borrowing and lending of assets on Arbitrum. The project documentation indicates that the v2 version will support cross-chain lending of WBTC, ETH, and USDC.
Cedro Finance – Cedro Finance is a cross-chain decentralized liquidity protocol where users can borrow and lend listed assets on multiple chains at affordable transaction fees. Lenders can deposit their assets to increase the platform’s liquidity, while borrowers can borrow liquidity by overcollateralizing.
Clearpool – Clearpool is a decentralized financial ecosystem that includes an uncollateralized and permissionless marketplace for liquidity. Driven by market forces of supply and demand, Clearpool’s uncollateralized single borrower pool allows institutions to raise short-term capital while providing DeFi lenders with the opportunity to earn risk-adjusted returns based on market consensus-derived interest rates. Fully licensed institutional-grade platforms further meet institutional market participants’ compliance requirements for wholesale lending of digital assets.
Venus Protocol – A high-liquidity lending protocol on BNBChain.
tapioca – Tapioca DAO enables users to borrow and lend across 12+ EVM and non-EVM blockchains. The core products include Singularity, an independent risk lending market based on Sushiswap’s Kashi product, and Yield Box (BentoBox V2), a permissionless token vault.

Derivatives

Aries – Aries Markets is a decentralized exchange based on Move. The product covers lending, swaps, margin trading, and account risk management, all centralized on one platform. Through a unified margin account, users can easily earn interest on deposits, borrow from shared liquidity pools, exchange, trade, and access other DeFi products on Aptos.
Rage trade – Rage Trade is a cross-chain Ethereum perpetual contract market, supporting Ethereum, Arbitrum, Avalanche, and Fantom. Rage Trade allows direct deposit of ETH-USD LP from supported networks’ DEXs, money markets (such as Aave, Rari, Euler), and derivative markets (GMX, Ribbon) into Rage Trade through the LayerZero-based cross-chain bridge Stargate. 80% of the TVL is allocated to revenue-generating services (Curve, GMX, Sushi, etc.), and 20% of the TVL provides liquidity to support users in contract trading.

Aggregators

mugen.finance – RealYield based on LayerZero.
Cashmere – Cashmere Labs aims to be a cross-chain interoperable anti-MEV DEX aggregator. The product is not yet launched, but according to the official introduction, Cashmere Labs consists of two main products: stablecoin trading and anti-MEV cross-chain DEX aggregator. Stablecoin trading improves issues like slippage and liquidity through single-sided liquidity and incentives. The cross-chain DEX aggregator combines LayerZero’s cross-chain interoperability with 1inch’s liquidity. Due to the inability of arbitrageurs to access order information during inter-chain message passing, preemptive trading, sandwich attacks, and other MEV-related attacks are not possible.
OmniBTC – OmniBTC is a LayerZero-based cross-chain DEX aggregator that supports Ethereum, BNB Chain, Avalanche, Polygon. The team states that they will focus on the new public chains Aptos and Sui in the future.

Stablecoins

Circle – USDC issuing company
Angle Protocol – Angle Protocol is a decentralized stablecoin protocol that announced its integration with LayerZero in August, enabling cross-chain transfers of its Euro stablecoin, agEUR, between Ethereum, Polygon, Optimism, and Arbitrum.

Bridges

Stargate – Stargate is a fully composable liquidity transfer protocol. With Stargate, users and dApps can transfer native assets cross-chain and access the protocol’s unified liquidity pool, ensuring instant finality. Stargate is the first project built on LayerZero and aims to create a fully composable native asset cross-chain bridge protocol.
AptosBridge – LayerZero Aptos Bridge enables seamless asset transfers between Aptos and the blockchain world. Outbound transfers of Aptos require 1 million block confirmations and are expected to take approximately 4 days.
Bloctoswap – Blocto is a cross-chain wallet that provides a seamless experience through developer-friendly SDKs, an embedded decentralized exchange called BloctoSwap, and its custodian-free NFT marketplace, BloctoBay.
LianGuairakeet.dao – LianGuairakeet.dao is a LayerZero-based cross-chain bridge that supports Ethereum, Polygon, Arbitrum, Optimism, BNB Chain, Avalanche, and Fantom. The project is currently in the testing phase and only supports cross-chain transfers of NFTs on the above networks’ testnets. Users can submit applications for their desired NFTs to be supported for cross-chain transfers.

Tools

Lz Domain – Lz Domain is Layer Zero’s domain name service. Through Lz, users and businesses can replace computer-generated identifiers (such as wallet addresses) with human-readable and easily memorable names, such as LayerZero.lz.
Notify – Notify allows Web3 developers to integrate communication into their applications without the need to build their own infrastructure. Notify will soon introduce the Web3 inbox, Notifi Hub, to aggregate cross-chain notifications and messages into a single hub. Notifi currently supports Solana, NEAR, and Ethereum and plans to expand to Polygon, Avalanche, Aptos, and Sui. Notifi has completed a $10 million seed round with Hashed and Race Capital as lead investors, with participation from Struck Capital, HRT Capital, Wintermute, Superscrypt, and others.
LayerZero.scan – With LayerZero Scan, users can gain deeper insights into on-chain and cross-chain activities.
Reunit – All-in-one wallet.

Infrastructure

Chainlink – Oracle
zokyo – Audit company
Zellic – Audit company
dlab – Omnichain Interoperable Payment Protocol (OIPP). Building a decentralized NFT AMM protocol on LayerZero.

NFT

Omni X – Omni X is a LayerZero-based cross-chain NFT platform. According to official information, Omni X aims to connect creators and users, allowing users to mint and trade NFTs on the supported chains, aggregating users and communities scattered across multiple chains.
Trantor – Trantor is a LayerZero-based NFT cross-chain communication infrastructure that supports cross-chain transfers of NFTs. Currently, it only supports testnets of BNB Chain and Polygon and allows users to mint test NFTs for cross-chain operations on the testnets.
Omnisea – Omnisea is a LayerZero and Axelar Network-based cross-chain NFT launchpad where creators can issue LayerZero-compatible NFTs. The project has also launched the OSEA token, and locked tokens can receive a portion of the platform’s revenue as rewards.
Omnite – Omnite provides a LayerZero-based cross-chain NFT solution. Its products have not been launched yet, but developers can use the SDK developed by Omnite to build cross-chain NFT projects.
Oswap – Oswap is a LayerZero-based cross-chain NFT DEX protocol developed by dLab. Its Alpha testing phase has concluded. The protocol is similar to SudoSwap but supports cross-chain transactions based on LayerZero.
Holograph – Holograph is a LayerZero-based NFT protocol launched by CXIP Labs. The Holograph suite includes three initial products: Bridge, Core, and Mint. Bridge enables NFT transfers between Ethereum Virtual Machine (EVM) blockchains. Core is a multi-chain application programming interface (API) for software developers, and Mint is an NFT minting product for creators. All three products are currently in the testing phase and only support Goerli, Polygon, and Avalanche testnets.
tofuNFT – Cross-chain NFT marketplace
AllsLianGuairk – NFT Omnichain-Liquidity aggregation protocol.
Trackstack – Marketplace for audio NFTs.

GameFi

Catddle – Catddle is a Web3 pet game, and its NFT is issued on LayerZero. At the time of writing, the floor price on OpenSea is 0.035 ETH, with a trading volume of 11 ETH. The game content is not yet available, but according to official documentation, the game is similar to a pet raising game. It will issue tokens MEO and governance token CAT for in-game functions. The total supply of MEO is unlimited, and the total supply of CAT is 1 billion, with 5% allocated for airdrops.
Beyond – Beyond is a Web3 space exploration game, and the NFTs in the game (such as planets) support cross-chain functionality based on LayerZero.
DeFi Kingdoms – DeFi Kingdoms combines the appeal of decentralized finance and the emerging Play-to-Earn economy. It is live on the Harmony ONE network.

SocialFi

APOLLOFI – A socialfi project based on LayerZero.

Opportunities in the LayerZero Ecosystem

Driving Ecosystem Development with Cross-Chain DeFi Protocols

The DeFi protocols on LayerZero are flourishing, including decentralized exchanges, lending protocols, and derivative exchanges. In terms of AMMs, SushiXSwap, Hashflow, interswap, and starswap support cross-chain transactions, providing users with more asset choices and trading options. In terms of lending, Radiant Capital, Cedro Finance, Clearpool, and Venus Protocol support lending on multiple chains, increasing user liquidity and options. Meanwhile, Cetus improves users’ trading experience and capital efficiency through centralized liquidity protocols and multiple subsidiary functional modules. In the derivatives sector, Aries and Rage Trade offer various products such as lending, futures, margin trading, and account risk management. The future trends of LayerZero will include broader cross-chain support, faster transaction speeds, lower fees, higher security, and more innovative products. As LayerZero becomes more popular across multiple blockchains, it will continue to play an important role in the DeFi ecosystem and drive further development in the DeFi market.

The Future Road of the Cross-Chain Bridge Ecosystem

Another key feature of the LayerZero ecosystem is the construction of a series of cross-chain bridge protocols and applications, aiming to bridge the gap between different blockchains and provide comprehensive asset liquidity support. First, there are bridge protocols. Stargate Finance on LayerZero is a fully composable liquidity transfer protocol that provides a seamless experience for users and dApps to transfer native assets across chains. AptosBridge, on the other hand, is a bridge protocol on LayerZero that enables asset transfers between Aptos and the blockchain world. These two bridge protocols are built on LayerZero and have the characteristics of being fast, efficient, and reliable. In the future, as blockchain technology continues to develop and application scenarios expand, bridge protocols will become important hubs connecting different blockchains, and LayerZero has tremendous potential in this regard.

Next is decentralized exchanges. LayerZero’s Bloctoswap is a cross-chain wallet that provides users with seamless asset trading and transfer services through its built-in decentralized exchange BloctoSwap and non-custodial NFT marketplace BloctoBay. Decentralized exchanges have obvious advantages in asset security, liquidity, and fees. In the future, LayerZero can consider adding more cross-chain asset support, improving transaction speed and user experience, and further developing decentralized exchanges.

Lastly, there is the full-chain cross-chain bridge. LayerZero’s LianGuairakeet.dao is a full-chain cross-chain bridge based on LayerZero, supporting multiple blockchain networks such as Ethereum, Polygon, Arbitrum, Optimism, BNB Chain, Avalanche, Fantom, etc. The project is currently in the testing phase and only supports cross-chain transfer of NFTs on the testnet, but it has great development prospects. Full-chain cross-chain bridges can achieve seamless connectivity between different blockchains, greatly improving asset liquidity and interoperability, and have high application value and market potential.

Building a diverse and scalable NFT and GameFi ecosystem

In LayerZero’s NFT ecosystem, there are currently multiple NFT projects developed based on LayerZero. For example, Omni X platform aims to connect creators and users, enabling NFT minting and trading on multiple supported chains; Trantor is an NFT cross-chain communication infrastructure that supports cross-chain transfer of NFTs; Omnisea is a full-chain NFT Launchpad where creators can issue LayerZero cross-chain compatible NFTs and receive part of the platform revenue as rewards by locking tokens. These projects demonstrate the diversity and scalability of the LayerZero NFT ecosystem, providing strong support for the further development of NFTs.

In addition, LayerZero also has some NFT projects in the testing phase, such as Omnite, which provides a full-chain NFT solution, and the Holograph protocol, which includes the Bridge, Core, and Mint products, offering NFT cross-chain transfer, multi-chain application programming interfaces, and NFT minting products. These projects are expected to further expand LayerZero’s NFT ecosystem.

In LayerZero’s GameFi ecosystem, Catddle, Beyond, and DeFi Kingdoms are all games developed based on LayerZero. Among them, Catddle is a Web3 pet game where NFTs are issued based on LayerZero, supporting trading and governance token CAT airdrops; Beyond is a Web3 space exploration game with NFTs that support LayerZero’s cross-chain functionality; DeFi Kingdoms combines decentralized finance and Play-to-Earn economics, providing players with rich gaming experiences and earning opportunities.

Source: Bing Ventures

Summary: Opportunities in the full-chain era

Based on the above data and introduction to the main ecosystem projects, we can see that besides cross-chain infrastructure, projects on LayerZero mainly include various DeFi derivatives, NFTs, GameFi, and tools such as yield aggregators. The full-chain aggregation track is also a diverse and broad track. Therefore, if you are looking for opportunities on LayerZero, you can focus on the following points:

Full-Chain DeFi

The value and opportunities of full-chain lending within the LayerZero ecosystem mainly lie in solving the liquidity fragmentation problem between different chains/L2. It provides users with cross-chain lending services while reducing the hassle for ordinary users and improving asset utilization. Unlike Aave, Radiant (RDNT) builds its full-chain interoperability through LayerZero’s Omnichain technology, allowing its users to deposit assets on any supported chain and borrow various assets across multiple chains without the need for cross-chain asset operations to complete lending operations on different chains or L2s. The essence of Radiant’s full-chain money market is to integrate liquidity from different chains and provide users with more convenient and efficient lending services.

Technically, Radiant achieves cross-chain interoperability through Stargate’s routing interface, utilizing cross-chain operations that occur after borrowing. According to Defillama’s data, TVL on Ethereum L1 only accounts for about 60%, with the rest distributed across different chains. Radiant’s goal is to integrate liquidity from different chains and build a full-chain lending market to solve the liquidity fragmentation problem between different chains/L2 and improve asset utilization for users.

However, the update of Radiant v2 may bring uncertainties to existing lenders and borrowers. Although the update may be aimed at changing the unsustainability of current liquidity mining, it may also lead to reduced interest splits, longer attribution periods, increased penalties, and the need to provide liquidity to receive mining rewards. The release time of RDNT will also be extended, which may have a negative impact on users who want to withdraw their earnings as soon as possible. However, for users who hold RDNT in the long term and are willing to provide liquidity for liquidity mining, such updates will bring longer-term benefits.

In summary, Radiant’s full-chain lending market solves the liquidity fragmentation problem between different chains/L2, improves asset utilization for users, and provides more convenient and efficient lending services. Although the update of Radiant v2 may bring some uncertainties, for users who hold RDNT in the long term and are willing to provide liquidity for liquidity mining, such updates will bring longer-term benefits.

Source: DefilLama

Full-Chain NFT

With the launch of Stargate Finance, full-chain NFTs have gradually become a highly regarded area within the LayerZero ecosystem. As a full-chain interoperability protocol, LayerZero achieves the transfer of data and assets between source chains and target chains through endpoints, oracles, and relayers. Gh0stly Gh0sts is the first full-chain NFT project on LayerZero. Full-chain NFTs can bring opportunities to many projects and many chains. It can bring meaningful NFT assets to other chains and act as a catalyst. With the cross-chain support of LayerZero, the application scenarios of NFTs will be expanded more widely, and users can transfer their NFT works to other chains to attract more users to participate in the NFT market. In addition, the launch of full-chain NFTs will also bring more opportunities in cross-chain asset management, blockchain games, social networks, digital identities, and other fields.

The whole-chain NFT also has a strong winner-takes-all effect. Over time, whole-chain NFTs may ultimately prove to be most beneficial to Ethereum, as they play a greater role in consolidating and expanding Ethereum’s already extensive influence while parallelly advancing the influence of other chains. Therefore, for other chains to gain a larger share in the whole-chain NFT market, they need to engage in more active innovation and marketing in order to stand out in the fierce competition. As for Gh0stly Gh0sts, the project brings innovation to NFT cross-chain transfers, solves the high gas fee issue required for high-value minting, and preserves the “nativeness” of cross-chain items. However, there are also some shortcomings, such as the high cost of frequent transfers and the inability to achieve “whole-chain universality” for NFTs. Therefore, as a whole-chain NFT project, Gh0stly Gh0sts needs to innovate more and address these issues to meet the needs of more users and gain a larger share in the whole-chain NFT market.

Source: NFTSCAN

Introduction of ZKP

The cross-chain message relay protocol based on zero-knowledge proofs (ZKP) can to some extent improve the security of cross-chain communication. DeFi products within LayerZero can integrate liquidity from different chains, enabling DEXes, cross-chain transactions, and aggregators to provide better user experiences, lower slippage, and higher trading pair liquidity. In other words, yield strategies can be more flexible as more profit opportunities can be explored on different blockchains. Lending protocols can collaborate with more DeFi protocols on different chains and accept deposits of different tokens from different chains.

On-chain derivatives will greatly benefit from liquidity. Through secure cross-chain communication, the derivatives market can reach potential customers from different chains, aggregate more liquidity, and provide a better trading experience. Asset management protocols can also access more assets from different chains, as well as derivatives from different chains, allowing managers to use more investment strategies.

In conclusion, the “whole-chain” scenario provides a more unified and collaborative blockchain ecosystem. We have a more positive outlook on the cross-chain message relay protocol with the introduction of zero-knowledge proofs, as this design will facilitate secure and trustless liquidity flow and communication between different blockchain networks. Both DeFi and NFTs are expected to greatly benefit from this transition, with greater liquidity and flexibility for yield farming and lending protocols, as well as better access to on-chain derivatives and more asset management applications for investment strategies.

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