introduction

Today, the importance of cross-chain Bridges remains self-evident.

However, the flood of VC infrastructure coins has also dimmed after the storm of inscriptions and Meme+AI. When the market is flat, it is more suitable to use objective emotions to examine the evolution of history and take the opportunity to dig the immortal truth behind it.

In 2023, LayerZero rose rapidly with its unique “ultra-light node” architecture and became the star project of the cross-chain track, at that time, the valuation was as high as $3 billion, and the LayerZero V2 version launched in 24 years brought 3000W on-chain cross-chain transactions, which is also the industry leader.

The Omnichain vision has attracted many developers and won the favor and investment of top institutions such as Sequoia Capital, a16z, Binance Labs, etc. But on the other hand, it has also been questioned because of centralization, security and other issues, causing hot discussions in the industry.

• Some people dubbed it “technical garbage”, “super intermediary”, that his V1 version only does the framework does not do practical “model is” technical garbage, the essence is just 2-of-2 multi-signature model, and V2 version itself does not bear the security responsibility of cross-chain verification network (DVN), is empty handed white Wolf.”

• It is also said that LayerZero’s entry into the business model for more than three years can be described as a surprise and a contemporary revival.

Who is right and who is wrong? Let the 14 companies conduct an in-depth analysis of their business model based on technical solutions to assess whether the foundation is solid or just a castle in the air built on the beach?

1、Technical analysis: LayerZero’s architecture evolution and security assumptions

1.1 V1: ultra-light node and security risks

The LayerZero V1 introduces the concept of an “Ultra Light Node (ULN)” Its core is to deploy a lightweight endpoint contract on each chain as a message sending and receiving point, by Oracle and Relayer The two off-chain entities work together to verify cross-chain messages

In essence, he offloads the heavy work of block synchronization and validation calculations to prophesies and Repeaters, thereby keeping on-chain contracts minimal.

V1 refers to this design as the “ultimate trust link separation,” which costs much less than other architectures that span chain Bridges because it avoids the source chain light nodes that operate fully on the target chain.

So obviously, V1’s “2-of-2” trust model is an efficient advantage, but there are also obvious security risks:

1. The risk of collusion, This “anti-collusion” is based entirely on social trust and economic motivation Lack of coercive constraints of crypto economics

2. Unclear boundary of responsibility: both predictor and relay are off-chain roles, V1 Beyond direct control Their operation. If the Oracle service breaks down and Relayer stops running, cross-chain messages will not be delivered, affecting availability (just as in 2023, Stargate Bridge was called “cross-chain assassin” due to cost issues, which is essentially a problem of service supply).

3. Chain level risk: It relies entirely on the security of each access public chain itself, while LayerZero lacks the arbitration mechanism of an intermediary actor.

4. V1 claims that Oracle and Relayer are permissionless actors and that “anyone can run” these nodes, but in practice this is not the case, and in the early 2023 Uniswap cross-chain bridge scheme vote, some people questioned V1’s excessive centralization. Wormholes with large institutional validators are preferred.

The detailed mechanism of V1 has been fully interpreted by the author 2 years ago, and this article will not be repeated: Cross-chain track research report: Why the LayerZero full-chain interoperability protocol is valued at $3 billion (above)

1.2 V2: DVN mechanism and security analysis

LayerZero V2 (hereinafter referred to as V2), launched in early 2024,Core changes are introduced at the validation layer”Decentralized Verifier Network (DVN)”The concept,Get rid of the original mode of relying only on prophecy + repeater.

With a network composed of multiple authentication nodes for the signature confirmation of cross-chain messages, developers can independently select and combine multiple DVNS to verify messages according to application requirements, so that the security policy is no longer limited to a fixed 2-of-2 model.

Obviously, there are advantages:

1. The sources of DVNS can be very diverse. According to Irene, head of strategy at LayerZero, teams can run their own DVN or use another existing cross-chain bridge/network as a DVN. Even individual teams can, which introduces more into the system If there are more independent stakeholders, the cake will be bigger.

2. Different cross-chain authentication schemes can coexist: whether it is Arbitrum’s official cross-chain bridge verifier, Wormhole’s 19 guardians, Axelar’s PoS node, or MPC multi-signage, it can be used as part of its verification layer.

3. Users choose to be autonomous: you can choose a combination of “Chainlink Oracle Network +LayerZero Labs DVN+ Community DVN”

Is that enough?

No, the security of the user depends on the quality of the DVN itself and the combination strategy, or the shortest board of the barrel:

1. **Security policies are fragmented, and the strength of different DVNS may vary greatly. Some DVNS are backed by professional institutions and have pledged tokens,Some may just have more signatures or a few nodes.**There is no uniform security standard for the entire network, butIsolated islands of security.

2. Although V2 offers multiple DVNS to choose from and is recommended for combination, But the choice is ultimately with the app . If the developer chooses a weak DVN to validate alone, there is a risk. In the market, if a single DVN is powerful enough, other DVNS are often considered redundant, and many projects may prefer to use only one (for cost or convenience reasons). DVN therefore needs to ensure that the pledge penalty is greater than the value of the theft or is supplemented by other deterrents (legal, reputational).

3. The introduction of multiple DVN combinations also increases system complexity. Attackers can exploit technical vulnerabilities rather than economic attacks. For example, the Nomad bridge was designed to be an optimistic validation, but an implementation bug resulted in 190M being stolen.

1.3 How do I technically evaluate V1 to V2?

• First, from a compatibility perspective

V2 is now the king of compatibility, for EVM, SVM and even Move system can be easily accessed, and supporting documentation, use cases, developer community, developer relations (hackathons, etc.) are the industry leader level benchmark, all of which make his access difficulty reduced, and eventually become one of the preferred solutions for a large number of new public chains.

• Secondly, from the perspective of security

Although V2 provides a stronger upper limit of security, the lower limit is also pulled down, after all, at least in the past was a respectable prophecy mechanism.

It becomes more like a marketplace platform, allowing various authentication networks to compete to provide security services.

However, from the user’s point of view, the issue of liability disputes will appear sooner or later, and now the official claim is only to provide a neutral agreement, the specific security is determined by the DVN choice of the application, and once an accident, the definition of responsibility will appear to shirk each other.

And just look at the current V2 hit the “decentralization” flag is still quite water. DVN seems to eliminate the single point, but most applications still tend to use a few officially recommended DVN combinations, and the actual control of the system is still in the hands of LayerZero and its partners.

Unless DVN networks can develop hundreds of independent validators and enforce honesty through powerful economic game mechanisms such as pledge + punishment, LayerZero will remain vulnerable to the trust model. But at that time, there will be an economic perspective that will affect the motivation of DVNS.

Next, let’s move on to the business perspective

2. the hidden transformation of the cross-chain track

2.1 Macro trends of capital concern

Looking directly at the numbers, here are the funding figures for each track in the Web3 space from 2022 to 2024:

Since the track division may not be completely consistent, different statistical amounts may be different, the statistics in this paper only reflect the trend, it is recommended to take the original as the standard, data source see the reference link at the end of the article:

As a whole:

The sharp decline is Cefi facilities, here my understanding is that in 22 Cefi still need financing, while in 23/24 can self-hematopoietic has survived to occupy the market, it is unlikely to produce competition around the Red Sea, so the overall decline.

Web3 games have brought some volume after a wave of TG popularity in 24 years, but from a personal perspective, with the TG hot spots declining again,Both Gamefi and OnChain are almost falsified by the market, and the pseudo demand is left behind.

No matter how you look at it, infrastructure actually has the best certainty in an uncertain market.

2.2 Is financing still keen on cross-chain track?

As infrastructure, in addition to the public chain, the most typical is the cross-chain bridge, and its track advantages are clear:

• Multi-chain outbreak, cross-chain is just needed, who can master cross-chain flow, will have the opportunity to become a multi-chain world “highway” toll side.

• Pain points and opportunities coexist: Cross-chain bridge is known as the key element of Web3 innovation, can stimulate cross-chain DeFi, cross-chain NFT, inter-chain identity and other new applications; However, cross-chain bridge security accidents are frequent, and the hacked funds account for nearly 70% of the total amount stolen from the entire industry.

• Platform Network effects and moats: That’s what capital has always valued Future monopoly or oligopoly potential, if a cross-chain protocol becomes the de facto standard (as TCP/IP did in the Internet era), the early investment will pay off handsomely. This also explains why a16z, Jump and others are willing to go to war on the Uniswap cross-chain bridge option.

• Cross-chain is more than asset transfer: in traditional cognition, cross-chain Bridge is a tool for transferring tokens, but the greater imagination of capital lies in the prospect of “Arbitrary Message Bridge” (AMB), LayerZero, Hyperlane, etc., are also positioned as full-chain communication protocols

In short, the capital’s enthusiasm for the cross-chain track is the result of multiple factors: the reality driven by the outbreak of demand and pain points to be solved, and the strategic consideration of competing standards in the future multi-chain interworking pattern.

However, in fact, the number of new financing generated by the cross-chain bridge in the past 24 years is very small, but this does not mean that he is not hot, but because the track is not new players can eat, and the product shape of the bridge on the market has changed.

2.3 Transformation of cross-chain bridge A and B under multi-chain trend

In the early blockchain era, cross-chain Bridges usually appeared as independent service providers, but with the development of multi-chain application ecology, the positioning of cross-chain Bridges is changing, and it is more inclined to the underlying service (Party B), integrated into the use experience of applications or wallets:

• Cross-chain gradually background, service, quasi-interface. For example, MetaMask, OKX and other wallets integrate bridge aggregators, and the bridge no longer directly controls the C-end user, but obtains traffic through the B-end (DApp, wallet). This requires that the cross-chain scheme must be easy to integrate, modular, and meet the needs of the application, otherwise the application will choose another service provider, and the cross-chain bridge provider becomes To B mode .

• The difference of the right to speak: in the “bridge control user” mode, the bridge can dock which chain, how much fee, are dictated by the bridge, and the project party often has to cooperate with its rules if it wants to access a bridge, which is still the case on the new chain. In large chain projects, however, the opposite is true. For example, when Uniswap was deployed in BSC, it selected the cross-chain bridge solution through a governance vote, and the bridge was to be bid.

In another role shift, layerZero’s original V1 version was still based on a reliable prophecy machine, in which the bridge was Party B and the prophecy machine was Party A.

Now, the launch of v2 version has triggered more competition between DVN roles, which instead makes layerZero become Party A, while the actual implementation of bridge verification function becomes Party B. In order to better recommend positions, Party B will naturally change the distribution logic with Party A.

Being a platform is always more fragrant than being a shop, which is not only close to the transaction, but also does not stain the dust. It has to be said that layerZero’s transformation of its own business positioning has brought about the current market discourse power.

2.4 LayerZero’s alliance strategy

LayerZero is uniquely positioned as a public utility for cross-chain communication, but not as the ultimate undertaker of the business.

As a witness to the outbreak of mobile Internet platforms for 10 years, it has to be said that this kind of early subsidy accounts for the market, and the later period of volume accounting for profits is too familiar!

After platformization, the safety responsibility sinks.

As mentioned earlier, LayerZero gives the user application the option to verify security, that is, “the application owns its own security.” Contractually, in the event of cross-chain theft, LayerZero Labs can claim that they are not involved in the custody of the assets and that the responsibility lies with the DVN or app concerned.

Win-win cooperation replaces subsidies: Many infrastructure projects use incentive programs or subsidies in order to attract applications. LayerZero, on the other hand, is more interested in benefits (such as investing in each other’s projects or having the other party invest in them).

These chains even received grants from the Eco-Fund to encourage protocol integration with LayerZero. LayerZero Labs also actively attracts parties in financing and cooperation (Coinbase and Binance are shareholders, not to mention a16z, circle and other resource-rich background parties), and this VC lineup has meant that it has been recognized by most on-chain ecological entities.

2.5 Why is LayerZero’s C Wheel so hard to find?

But on the other hand, he is already a B round of financing (valued at 3 billion), and the time has passed 2 years, so what scale should be used in C round to catch his expectations?

Let’s look at his current trading size, according to his official data, and the middle value, against the number of messages 1 year ago:

The latest total number of messages was 144 million, up from about 114 million a year ago, and the annual increase of 30 million transactions was only 26.3%, which is obviously much slower than in 22/23.

Obviously, the main reason is that the airdrop expectations have been greatly digested after the issuance of coins, but in any case, the issuance of coins is a kind of income, and even belongs to the overdraft of future earnings, but the project valuation is to return to revenue.

However, once the amount of revenue is calculated, it is awkward. First, simply estimate the fee by the number of transactions: 30 million x $0.10 = $3 million/year

0.1knife is the charge range of conventional bridge with low amount, if the amount is larger, it is the pledge charge route, and the average market Take Rate is 0.05%. In the data of 23 years, in the asset cross-chain bridge Stargate based on LayerZero, Users will be charged 0.06% for each use.

Assuming a total transfer of $10 billion over the past year (estimated by the number of transactions versus the total), the revenue would be $6 million at a rate of $6,000.

Therefore, when the two algorithms are combined, the gross profit income is reasonable between 300–600W. However, considering the actual operational support, it is likely that the current state is still a loss.

Therefore, even if the cost is completely ignored, according to the highest income, with a valuation of $3 billion to look at, its PE has reached 500 times. You should know that Apple, Amazon and other Internet heads that are highly rated as bubbles are only more than 30.

Obviously, the next C round, in the short term is unable to talk about a good price, after all, the current is no one can digest the 500 times PE expectations.

Conclusion

Two years later, the author wrote LayerZero again before and after the comparison, but also quite see its breaking creativity, but also glimpse the shadow of the next generation of cross-chain bridge, and finally with objective comments, talk for reference.

Since its birth, LayerZero has completed the journey from 0 to 1 across the chain bridge and from following to leading in just three years.

It in the V1 version with the “ultra-light node” innovation, combined with the streamlined version of the prophecy machine 2of2 multi-signature, small steps fast run to seize the market.

In the V2 version, it binds multi-chain ecology with the platform strategy of “framework is protocol”, and guarantees its own robustness with the clever design of “risk sinking”. It is currently the cross-chain protocol that supports the chain and the most chain types on the market, and it is indeed worthy of the industry leader.

Despite the criticism that it does not do the “dirty work” (DVN verification) but merely acts as an intermediary, there is no denying that this is the business logic of LayerZero’s success: to be the bottom layer of the most common stable standard, leaving the specific implementation to the market to choose. As a platform to use the lower level of competition to convert traffic revenue.

This idea does fit the needs of the multi-chain world (the emergence of a large number of new chains urgently need cross-chain basic support), and also conforms to the tide of cross-chain bridge role change from A to B.

Technically, the evolution of LayerZero V1/V2 demonstrates the industry’s ongoing quest to balance security with decentralization, the Oracle +Relayer model, and the DVN mechanism, allowing us to reflect on the boundaries of trust minimization.

The author believes that although the V2 version is not available now, it does have the potential to achieve complete decentralization in theory, but the market and users may not have such high decentralized security requirements.

From a business perspective, LayerZero’s platformization strategy is worth investigating, with a focus on developer standards leading to the strongest compatibility. By being modular and standardized, it becomes a torch for everyone to gather firewood, rather than a stove to burn wood alone.

This model reduces its own risk, although DVN share profits, but achieve a larger ecological map.

Finally, the estimate of PE in the absence of official announcement of operating costs, is just the author’s words, perhaps the future from the cross-chain charges to asset management charges and other changes, are likely to instantly bring a lot of cash, after all, in any era of traffic is always king, monopoly is always profitable.

Finally, another measurement algorithm is to look at the market value of the circulation of the issued currency, 7b is obviously fanatical sentiment, and now 2B how to understand it?

参考资料：

https://layerzero.network/publications/LayerZero_Whitepaper_V2.1.0.pdf

https://www.chaincatcher.com/article/2162896

https://www.chaincatcher.com/article/2085560

https://www.rootdata.com/RootData2023年Web3行业发展研究报告与年度榜单.pdf

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