Layer Zero is an Omnichain Interoperability Protocol designed for lightweight message passing across chains. It is capable of sending a message to any contract on any chain. A simplified way of putting it is a messaging transport layer for smart contracts to communicate between chains. This opens up a world of possibilities not yet realized in current blockchain infrastructures.
They are currently live on Ethereum, Avalanche, Polygon, BNB Chain, Fantom, Arbitrum, and Optimism. In 6–8 weeks they plan to be live on Solana, Terra, Cosmos Hub, and Osmosis. And then everywhere else in 4–6 months.
Traditionally the user in order to get their tokens from say Ethereum over into Avalanche would have to go through a series of different websites/UI, swap fees, wallet networks, and bridges/DEXs/CEXs depending on how they go about it. This is very inefficient but is the current state of chain hopping.
Traditional cross-chain bridging fails in 2 broad areas, having a consensus forming middle chain validate and forward messages between chains, and running a light node on-chain. I will cover these in more detail below.
Middle chains receive, validate and forward messages between chains. Hence the name “middle chain”. Middle chains are granted full signing power to all messages, making for a single point of failure.
This is worrisome because, in the event of a consensus corruption event, all liquidity can be stolen across all chains. Middle chains bond 100’s of millions while simultaneously securing tens of billions. You can see the issue here around these being insecure.
On-chain light nodes receive and validate the block headers for each pairwise chain on the opposing chain. Transaction proofs containing messages are forwarded and validated on-chain against those block headers. Transmitting messages this way is the most secure way of doing it however it's also the most expensive. Running a light node on Ethereum currently costs tens of millions per day per pairwise chain.
Layer Zero fixes this with what it calls Ultra LightNodes (ULN). These offer the security of a light node as stated above but with the cost-effectiveness of middle chains. This is possible because ULNs perform the same validation as an on-chain light node but instead of keeping all the block headers sequentially, they are streamed on-demand by decentralized oracles.
If you use Chainlink as your oracle any malicious action in the system is still predicated on first being able to defeat the Chainlink DON (no easy task). Even if the Oracle’s consensus is corrupted, it also requires that the Relayer is actively colluding.
LayerZero protocol also involves specific modules like the LayerZero protocol, LayerZero Endpoints, and third-party Oracles & Relayers which I will cover in more detail below.
Messages in LayerZero are sent and received by LayerZero Endpoints. Each chain in the LayerZero network has one LayerZero Endpoint which is implemented as a series of on-chain smart contracts.
These endpoints are what handle message transmission, verification, and receipt. Their purpose is to guarantee valid delivery when the user sends a message using the protocol.
Each LayerZero Endpoint is split into four modules:
Communicator
Validator
Network
Libraries
The first 3 communicator, validator, and network modules are what make up the core functionality of the Endpoint. These modules act similar to a traditional network stack. Messages are sent down the stack on the sender side (communicator), to Validator to Network and then up the stack on the recipient side.
While each new chain supported by LayerZero is added as an additional library. These libraries are auxiliary smart contracts that define how specific communication for each chain is handled. Each chain in the LayerZero network has an associated Library and each Endpoint includes a copy of every Library.
Communication between 2 chains only requires that their Libraries be present on both ends, allowing LayerZero to be a fully connected network capable of performing transactions between any pair of nodes.
The Oracle is a third-party service (expected to use Chainlink) that allows for reading a block header from one chain and sending it to another. It does this independent of any other LayerZero components.
The Relayer is an off-chain service that is used to fetch the proof for a specified transaction
To ensure trustlessness and valid delivery, the only requirement for any message sent using the LayerZero protocol is that the Oracle and the Relayer must be independent of each other. This design ensures that the Oracle and the Relayer cannot collude with each other.
The flow goes like this (follow with the photo below).
User Application sends a message from chain A to chain B
Message routed through Endpoint on chain A
Endpoint notifies the User Application specified Oracle and Relayer of the message and destination chain
Oracle forwards block header to the endpoint on chain B and the Relayer submits the transaction proof
The proof is validated on the destination chain and the message is forwarded to the destination address.
This photo may be extremely confusing and technical, that is ok it’s not necessary to understand what is happening. This is what happens in the backend when the LayerZero protocol executes a cross-chain transaction.
For those interested, I will list the technical breakdown steps in the drop-down below.
Currently, there is no native token for Layer Zero.
In every LayerZero transaction, the sender is expected to pay (fees):
Oracles for moving the block data.
Relayers for delivering the messages with proof.
LayerZero for developing the messaging protocol. UA can choose to pay in the native token at the source chain (e.g. ETH for Ethereum) or pay in LayerZero token (ZRO)
The fee variabilities are also handled on the app level as each transaction will require different levels of security.
LayerZero lads Series A round boasts some of the biggest and most impressive names in Crypto in many different areas.