The Technology Behind LayerZero: Enabling Generic Messaging in Crypto
Introduction
Gm Gm frens, it’s been a minute. 🐍 been occupied with Slytherin activities, but now I'm back doing what I do best. Let's take a look at this protocol that has been making waves in the crypto world recently.
I won’t spill the name of the protocol or its context yet - but wait, it's in the title! Ha! 🐍 could tell lies, so don't believe anything until 🐍 say so.
Now, imagine Twitter users DMing Instagram users or Facebook users emailing gmail users. Doesn’t seem possible, does it? Same goes for crypto - you can’t send a token from ETH to solana onchain without using a bridge or you might wanna use a CEX. But the fear of “not your keys, not your wallet” is the beginning of wisdom, but are you really wise cos considering the amount of $ lost in bridges, even got Vitalik scared. Ha!
Current Condition of Bridges
To transfer tokens from one chain to another in the current crypto market, one can use a bridge.
In the image above, a degen trader spots a big farming opportunity on AVAX that requires him to use his ETH. However, he cannot move his ETH to AVAX directly, and needs to use a bridge instead. After sending his ETH to the bridge, the tokens get locked, and the bridge confirms that the funds have been locked up. It then unlocks and sends the tokens to AVAX. However, the trader receives a wrapped AVAX version instead of native ETH and needs to perform additional transactions that require gas fees to finally receive ETH on the Avalanche farm.
The key takeaway is that the trader relies on the security of the bridge to access his/her ETH on AVAX. Past hacks on bridges have been devastating, so it's important to be cautious. Here are some examples of past bridging hacks:
Layer Zero the Messiah
What I'm about to explain here is at a basic level so that even beginners can understand. As we delve deeper, I will cover the main technology for developers and researchers.
From the image above, we can see that there is a LayerZero endpoint on both chains, which is managed by the LayerZero team. When a user sends a transaction to AAVE on ETH, the transaction is first sent to the LayerZero endpoint. The endpoint then confirms the transaction to LayerZero (the oracle and relayer) that the user has tokens on the ETH chain and wants to send them to AVAX. LayerZero communicates with the endpoint on AVAX, and the transaction is processed (resulting in the arrival of native ETH on AVAX instead of wrapped tokens).
This allows for the interoperability of chains, enabling developers to build DEX or other DeFi applications on a particular chain. With LayerZero, users can stay on that chain and farm from other chains using any yield aggregator or DEX.
The Oracle (Chainlink) updates and provides accurate price feeds, while the relayer ensures that the information is correct before updating each endpoint. Ha! Ha! Ha!!!!!!
Technology and Everything you need to Know
On the internet you’ll read: “LayerZero is a trustless omnichain interoperability platform that enables users to …………..” no need for all that just simply put— Layer Zero is a platform for generic message, infact a hub of generic messaging.
The technology behind LayerZero is based on two independent entities - the Oracle and Relayer - which work together to achieve valid delivery of cross-chain transactions.
One key feature of LayerZero is its ultra light node, made of lightweight design, which allows it to run on expensive Layer 1 chains such as Ethereum without incurring prohibitive costs. This is achieved through the use of a light client, which enables LayerZero to efficiently process transactions and verify cross-chain interactions.
Another important aspect of LayerZero is its ability to support native transactions between supported chains. This is made possible through the novel LayerZero Endpoint design, which can be easily extended to support any chain.
The Endpoint design enables developers to write their applications without worrying about differing semantics between inter- and intra-chain transactions, and allows users to take advantage of opportunities on chains where they do not hold assets.
It’s a module within LayerZero that operates on each participating blockchain and facilitates communication between different chains by communicating with the Relay. It acts as an interface between LayerZero and the specific blockchain it runs on, and is responsible for validating incoming transactions, creating outgoing transactions, and ensuring they comply with the rules of the respective blockchain.
Endpoints are critical to the success of the LayerZero protocol because they enable it to support multiple blockchains with varying transaction formats and rules. Without the Endpoint, the Relay would not be able to communicate with the different blockchains.
A significant advantage of the Endpoint design is its lightweight nature, allowing it to operate on expensive Layer 1 chains like Ethereum without incurring excessive costs. This design choice enables LayerZero to support cross-chain communication even on chains with limited resources.
Here are the step-by-step details of how LayerZero works:
1. To initiate a cross-chain transaction, a user submits a transaction request to the Oracle. The Oracle verifies the authenticity of the request and validates that the user has the necessary assets to complete the transaction.
2. Once the transaction request is validated by the Oracle, it sends a message to the Relayer to initiate the transaction on the destination chain. The Relayer is responsible for creating and signing the transaction on the destination chain, using the assets provided by the user on the source chain.
3. The Relayer then sends the signed transaction back to the Oracle, which verifies the signature and the authenticity of the transaction.
4. Once the transaction is validated by the Oracle, it sends a message back to the user on the source chain to confirm the transaction's execution. The user can then verify the transaction on the destination chain.
5. The LayerZero Endpoint design allows for easy extension of the platform to support any chain. This design is lightweight enough to run on expensive Layer 1 chains such as Ethereum without incurring prohibitive costs.
6. The LayerZero protocol does not preclude the use of arbitrary relayer services, which ensures that there is no collusion between the Relayer and Oracle.
7. The LayerZero protocol enables native transactions between supported chains, eliminating intermediary costs such as bridge and swap fees. This allows users to freely move liquidity across chains and take advantage of opportunities on chains where they do not hold assets.
8. LayerZero's light client architecture allows for efficient cross-chain communication without requiring costly cross-chain state machine replication. This makes it an ideal solution for enabling interoperability between different blockchain ecosystems.
Conclusion
In conclusion, LayerZero has introduced a new era of interoperability in the crypto. By using a combination of lightweight nodes, endpoints, and a reliable oracle and relayer system, LayerZero has enabled seamless and trustless cross-chain transactions. The protocol allows users to stay on their preferred chain while accessing opportunities and assets on other chains, without the need for costly bridges or centralized exchanges. While there are still challenges to be addressed in the ever-evolving crypto landscape, LayerZero offers a promising solution to the problem of interoperability. As the crypto space continues to mature, we expect to see more innovative solutions like LayerZero emerge to drive further growth and adoption.
Source https://layerzero.network/pdf/LayerZero_Whitepaper_Release.pdf