LayerZero (ZRO) is the leading technology for creating cross-chain solutions in the DeFi environment
Over time, many blockchains similar in functionality have emerged, and quite a few of them are still in high demand. For example, according to Flipside Crypto's 2023 data, the number of active users of the top 8 blockchains exceeded $62 million.
However, the main problem of these blockchains was fragmentation: it is impossible to transfer assets, for example, from the Ethereum network to Polygon or from Solana to Arbitrum, without additional tools. One solution to this problem is LayerZero.
What is LayerZero, and how did it come about?
LayerZero (or simply L0) is an interchain or cross-chain protocol designed to solve problems with the secure transfer of digital assets between different blockchain networks. It is worth noting that LayerZero is specifically a technology that provides standards and tools for developing cross-chain solutions such as cross-chain bridges. In other words, LayerZero is neither a blockchain nor a decentralized application (DApp) but rather a protocol for exchanging messages between decentralized networks.
The main prerequisite for the founders of LayerZero Labs to create L0 technology was the need to develop a blockchain bridge for their own Ethereum-based NFT game: they wanted to utilize the speed and cost-effectiveness of the then-new Binance Smart Chain (now BNB Smart Chain). During the development process, the founders studied the risks associated with transferring assets between blockchains and decided to create a more efficient and reliable solution — this is where the story of LayerZero began in 2020.
They started developing the LayerZero protocol in 2021. In the same year, LayerZero Labs, the company behind the development of L0, was also founded, with world-renowned poker player Brian Pellegrino as one of its co-founders. Brian is also one of the early proponents of cryptocurrencies, having been introduced to them back in 2010 when Bitcoin was only worth about a cent.
As of February 2024, over 80 million messages had passed through the LayerZero protocol, but this statistic is not entirely objective, as a good portion of them were initiated by users motivated by the then-upcoming airdrop.
How is LayerZero organized?
The LayerZero protocol is based on a universal cross-chain technology called Omnichain. With this technology, the developers of LayerZero created a standard that allows different blockchains to be "linked" together, whether they are Layer 1 or Layer 2.
The LayerZero network messaging protocol consists of the following elements:
- Endpoints — through which all communication between blockchains takes place. Endpoints determine how blockchains send, receive, and verify messages in the LayerZero protocol;
- Ultra-Light Nodes (ULNs) — these are nodes that play a crucial role in verifying transactions in LayerZero and are powered by smart contracts;
- Oracle (blockchain oracle) is a blockchain oracle that reads block headers from one network and then sends them to another. LayerZero uses the oracles of the leading blockchains in this segment, Chainlink and Band Protocol;
- A repeater is a node that reads an acknowledgment of a specific transaction and then sends and executes a message on the other side.
ZRO token
ZRO is a native token of the LayerZero protocol, originally issued on the Ethereum blockchain under the ERC-20 standard in late June 2024 in an airdrop (free token distribution to active participants in the ecosystem). However, the token soon became available on other networks:
As of August 2024, 110 million ZRO tokens had been issued and were circulating on the market, which is only 11% of the cap issue size of 1 billion. All existing ZRO tokens on the market were distributed to community members and the LayerZero team, but the team required a donation of at least $0.10 in ETH, USDT, or USDC for each ZRO token to be branded. The community heavily criticized the donation requirement for token branding, and it was seen as a public sale of ZRO.
Immediately after the listing, the price of the ZRO token fell heavily. Still, after reaching a local low of $2.47, it began to recover and, in July 2024, even reached the historical high at $5.57, after which it corrected amid the general decline in the crypto market.
LayerZero outlook
LayerZero has become one of the most sensational projects, and the community expected its airdrop for about two years. However, the ZRO token distribution became as disappointing as it was spectacular. The fact is that many users, even those who fit the LayerZero drop criteria, were "shaved off" — that is, excluded from the giveaway by mistake or because they got on the so-called "sibil list" (a sibil is a person who has more than one account), including by accident. This list contains wallets found guilty of multi-accounting (using several wallets by one user to get drops).
In May 2024, the LayerZero team started the so-called "witch hunt," i.e., sybils, which lasted until the end of June and was intense. As a result, the giveaway caused outrage in the crypto community, just as with other notorious drops such as Starknet and zkSync. According to analytics platform Dune, almost immediately after the ZRO token giveaway, the number of daily transactions on LayerZero dropped to ~12,000, down 97.5% from its peak in July 2023. This indicates that many users continued to transact solely to obtain ZRO drops.
Nevertheless, LayerZero remains a reasonably strong technology with a well-developed ecosystem that is utilized by large and well-known DeFi protocols such as:
- Ethena,
- Etherfi,
- Aave,
- PancakeSwap,
- Balancer,
- Bitcoin Bridge,
- Portal,
- Venus, and many others.
