LayerZero's functioning and mechanics explained and comprehensible.

LayerZero is an omnichain protocol that enables communication between blockchains. In the era of rapid development of blockchain technology, interoperability protocols are the key to ensuring seamless collaboration between various blockchain networks.
This article discusses in detail about LayerZero starting from the explanation to the implementation of this protocol against existing dApps.

What is LayerZero?

LayerZero is an open source omnichain interoperability protocol that enables multiple blockchains communicate cross-chain and share information seamlessly. It is an interoperability protocol that uses new techniques to make it easier for different blockchain networks to connect to each other.
In simple terms, LayerZero allows all supported blockchains to communicate with each other easily enabling features such as swap, transfer, lending, borrowing, and others occur across blockchains.

How LayerZero Works

Komponen utama dari protokol interoperabilitas LayerZero adalah Ultra Light Nodes (ULNs), oracle terdesentralisasi, dan relayers.
Image: Diagram of how LayerZero works. Source: LayerZero

Ultra Light Nodes (ULNs)

In the world of interoperability protocols, Light Nodes are the bridge in the chain purpose. This Light Node can predict data from chain sources and seamlessly aggregate it into chain purpose. But even though it is very safe, Light Node is less cost efficient.
As a solution, LayerZero uses Ultra Light Nodes (ULNs). ULNs are very similar to Light Nodes, but instead of sequentially adding each new transaction to the chain destination, ULNs aggregate these transactions and send them all at once according to the chain destination request.
LayerZero claims that this process saves costs while maintaining the level of security offered by Light Nodes.

Oracle

Oracle is a database management system. Oracle blockchain allows decentralized systems to communicate with the world outside the system. It covers the relationship between the Web3 and Web2 worlds as well as between two decentralized applications.
Oracle basically creates feeds data and associates target systems with that data in a form they can make use of it easily. The LayerZero interoperability protocol uses decentralized oracles like those developed by Chainlink and Band Protocol.

Relayers

Relayers complete the message cycle between communicating networks by sending proof of transaction to the destination. With this evidence, the destination chain can integrate data or messages from the source chain into its own system and execute possible commands from the message.

LayerZero Team and Investors

Bryan Pellegrino is Co-Founder and CEO of LayerZero. Bryan has over eight years of experience in the technology industry, with a focus on start-up companies. Bryan has a proven track record in successful product development and growth hacking.
LayerZero is backed by some of the biggest names in the crypto industry, including Sequoia, a16z, and Coinbase Ventures.
Image: Investor LayerZero. Source: LayerZero
The project completed its Series B funding round in early April 2023, raising US$120 million at a valuation of US$3 billion. This funding involves the support of several well-known institutions including traditional names such as Franklin Templeton and Christie's.

Use of LayerZero on dApps

Bridge

The direct implementation of LayerZero technology lies in the bridge. The first DApps built on LayerZero was the bridgeprotocol, Stargate Finance. Stargate Finance is a bridge omnichain protocol that supports cross-chain layer-transfers 1 and layer-2.

Swap Cross-chain

In addition to bridge, LayerZero also allows swap between tokens in a cross-chain manner. Decentralized exchanges (DEX) such as Sushiswap, Hashflow, and WOO Network are already integrating LayerZero solutions to enable cross-chain swaps to supported chains.

Lending Cross-chain

DeFi protocols, especially lending platforms can implement LayerZero technology to enable lending < a i=4>and borrowing in a cross-chain manner. Radiant Capital, is one of the omnichain lending protocols that has implemented LayerZero technology.

Governance Cross-chain

Cross-chain governance is also possible with LayerZero. For example, the tokenization protocol yield, Pendle Finance enables voting cross-chain by locking the PENDLE token as vote-escrowed PENDLE (vePENDLE).
Support multi-chain governance will likely be important to support the growing popularity of multi-chain protocols chain.

Omnichain Fungible Token (OFT)

Going beyond the usual DeFi functionality, some multi-chain projects have gone further by converting their native tokens into omnichain fungible token (OFT). OFT allows tokens to be accessed on many supported chains.
A project that has implemented OFT is Trader Joe's which has converted their tokens to omnichain, leveraging LayerZero to allow 1:1 transfer of native tokens across supported chains.

Omnichain NFT (ONFT)

With OFT that can be implemented, it is possible that omnichain NFT (ONFT) can also be implemented. Popular NFT collection, Pudgy Penguins, has opened a bridge with LayerZero that allows one of its sub-collections, Lil Pudgys, to be connected to Arbitrum, Polygon, or BNB Chain

LayerZero is a protocol that allows for communication and cross-chain swaps, transfers, and lending. It is supported by investors like Sequoia, a16z, and Coinbase Ventures.