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Every day sees the birth of various new cryptocurrency projects. While some of them might have a bright future and under the right conditions, financing and community, might have the potential to shine, others will not survive the next bear market.
However, for all the projects that are being developed and that are entering the cryptocurrency market, it is getting increasingly difficult to communicate with each other. New technologies, innovations and advancements are being developed almost as fast as new cryptocurrencies, which can often lead to problems connected to communication, scaling, interoperability or security of these projects.
Luckily, there are already teams and companies working on solutions that would help with this problem by creating omnichain infrastructures. LayerZero is one of those projects which has already seen rather interesting innovations through the success of its flagship Stargate or a funding round which valued it at 1 billion dollars. What is LayerZero and how is it contributing to the cryptocurrency world?
In the cryptocurrency world, the term layer zero (or layer-2) refers to projects upon which multiple different layer-1 blockchains and projects can be built. These types of infrastructures are crucial for better interoperability between various protocols. Through this they provide critical support for scaling and security of protocols and improve the communication between different projects that are not built on top of each other (vertically) but rather horizontally.
Thus, increasing the scalability as well as efficiency and interoperability are all key components of what layer zero protocols are trying to do. They include hardware and infrastructure that could support any given blockchain.
Layer zero protocols usually support directly layer one protocols, which are base blockchains used by developers to build various applications. Layer two protocols are then programs that aim to scale the solutions built on layer zero and layer one, usually by easing the transactional load of the previous layers. They are followed by layer three, which is an application layer that includes wallets, dApps or for instance games.
While some projects can have all the layers and be built using all the different layers, other projects will only have some of them or will have some other, additional layers, which is however relatively rare. But why is this important?
Well, because today’s article does not only carry the name LayerZero, but it also tries to solve the problems connected to layer zero in the cryptocurrency world. Layer zero solutions are very often used to help support the existing layer one protocols and remedy their challenges and drawbacks. How is it trying to do this?
As was previously stated the problem with countless new projects coming to life in the crypto sphere is mostly connected to the interoperability of the whole sector. While projects that are built for instance on Ethereum, can communicate very efficiently and easily with each other, projects built on different chains such as Bitcoin, Ethereum, Cardano, Polkadot and so on, have a rather hard time communicating with each other.
This therefore means that each blockchain works as an individual self-contained network, which can barely “talk” to other blockchains. However, for a future where people can use different cryptocurrencies and tokens without friction and without the need of thinking which blockchain they are using, the interoperability problem must be solved. This would elevate the whole cryptocurrency sector as such.
And while there have been some projects such as Cosmos or above mentioned Polkadot, which are trying to do this, these solutions mostly look for bridges of specific blockchains. Therefore, their solutions cannot be used on a whole industry scale, which is right where LayerZero comes in with its omnichain solution.
LayerZero is an omnichain interoperability protocol. It is created to allow dApps to build across multiple blockchains in a trustless and efficient manner without any unnecessary friction. The goal of LayerZero is to serve as a transport layer via usage of smart contracts that would allow different blockchains to communicate with each other.
The main reason why this solution is necessary is rather simple. In recent years the cryptocurrency market has seen a huge spike in the number of projects that are within this sector. New and more innovative cryptocurrencies are entering the markets daily, making it rather difficult to communicate within each other, since most of the time they are not blockchain agnostic, but rather monolithic.
This simply means that it is ever more challenging for any blockchains to communicate effectively with other projects. And this is where LayerZero is trying to step in. The project connects dApps across multiple chains using its own solution known as Ultra-Light Nodes. These achieve the security of light nodes with the cost-efficiency of a middle-chain.
Ultra-Light nodes use the techniques implied in on-chain light nodes, which is a commonly used solution to scalability and interoperability. In this case, a light node is a type of a node that stores only some part of the transaction history of the given ledger. It is also connected to the full node. Light nodes are used to validate block headers which are received from an opposing chain.
This solution thus led to unlocking the cross-chain composability and helps with the interoperability of different blockchain solutions. All of this helps with simplifying the process in which the developers are able to turn their dApps into omnichain applications in a simple and pre-specified manner with an easy interface. Moreover, the developers would be able to build decentralized applications that they were not able to build prior to this solution.
“LayerZero unlocks a future of blockchains without borders. Users will interact with omnichain dApps that exist on multiple blockchains. These dApps will seamlessly communicate over LayerZero without the user even realising it.”
Those were the optimistic words about LayerZero by Ryan Zarick, CTO and co-founder of LayerZero Labs, entity responsible for development of LayerZero and projects connected to it. His optimism was also shared by Bryan Pellegrino, the CEO and co-founder of LayerZero Labs, who believes that LayerZero has brought together the most respected entities in the cryptocurrency world in their latest finance round.
“This round is a massive step forward for LayerZero Labs and the unfolding interoperability landscape. We have brought some of the best and most well-respected entities in the world together to accomplish the same goal: create the generic messaging layer that underpins all interoperability between blockchains.”
These include for instance Sequoia, Andreessen Horowitz, Coinbase Ventures or PayPal Ventures. LayerZero Labs raised more than $135 million at the beginning of the year from these, and several other companies, with a clear goal of accelerating the development of cross-chain decentralized applications. The funding round values the company at $1 billion.
While most of the implementing and developing of this project is yet to be done, there have already been some bright stars that show the promise of the whole solution that LayerZero is trying to provide. The ecosystem of LayerZero is currently rather small, but that does not mean that there are no projects that are not worth mentioning due to their success stories. One of such success stories is Stargate.
Stargate is a liquidity transfer protocol that is built on top of LayerZero and its generic messaging, which enables cross-chain liquidity transfers. These are allowed in native assets, which means that different projects and blockchains can now communicate with each other in their native tokens without the need of transacting or exchanging one for another.
Stargate solves one of the key problems of the cryptocurrency world called the Bridging Trilemma. It also allows for unified liquidity and instant guarantee of finality of transactions. The teams building on Stargate and LayerZero believe that Stargate will be an integral part to any application that would want to transfer assets across blockchains. As of now these transactions can be done over for instance Ethereum, Polygon, Avalanche, Optimism, Arbitrum or Binance Chain.
Several investors, partners or supporting projects have spoken very highly of this solution. For example, Shaun Maguire, partner at Sequoia, believes that Layer Zero Labs is solving one of the key problems in the cryptocurrency market. When talking about Stargate, Maguire specified that:
“The early success of Stargate shows the potential for a new ecosystem to be developed on top of LayerZero and we look forward to helping the team grow and nurture this community.”
LayerZero is clearly trying to find a solution to an important problem that the whole cryptocurrency market suffers from. The division between blockchains means that the whole infrastructure of the crypto market suffers as scalability and interoperability are far from being optimised, which is something that LayerZero is aiming to change. The recent optimism around the project is pretty high, which clearly shows that this project is onto something and might actually lead to a positive change that could elevate the whole cryptocurrency world.
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