In the second quarter of 2024, LayerZero expanded its full-chain interoperability protocol, adding support for 12 new networks and facilitating the transfer of $50 billion in encrypted assets. The article was written by Ishraq Alim and Mihai Grigore, and translated by Deng Tong for Jinse Caijing.
In the second quarter of 2024, the average transfer value increased by 78%, reaching over $400 per transaction. The transfer volume of Ethereum increased by 26% quarter-on-quarter, from $725 million in the first quarter of 2024 to $913 million in the second quarter of 2024, thanks to the gas fee reduction caused by the Dencun upgrade and the introduction of full-chain re-mortgaging, which incentivized the use of LayerZero.
The ZRO token was launched on June 20, 2024, airdropped to 1.28 million eligible wallets, implementing anti-Sybil measures for token distribution and a claimable "donation proof" mechanism.
In the second quarter of 2024, LayerZero deployed over 50,000 full-chain applications (OApps), with applications in gaming, DeFi, AI, bridging, and other areas utilizing its full-chain communication experiencing growth.
LayerZero is an interoperability protocol that allows full-chain applications (such as tokens) to securely communicate across more than 80 networks. It achieves this through a set of immutable endpoints for sending and receiving messages, verified and executed by a permissionless decentralized validator network (DVN) and executors. Each independent application built on LayerZero can configure a security stack (including executors and DVN) and block confirmations based on the required security level for sending and receiving messages.
LayerZero V2 was launched in January 2024, featuring a universal messaging system and universal security attributes to simplify cross-network communication and improve developer experience. LayerZero Labs is the initial developer and core contributor of the LayerZero protocol, having raised $120 million in Series B funding in April 2023.
On June 20, 2024, the LayerZero Foundation launched the native token ZRO, which grants governance control over protocol fee switches to holders. ZRO's market value exceeded $1 billion at launch, with a token price of $4.40. In the second quarter of 2024, ZRO ranked among the top three cross-chain messaging protocols with a market value exceeding $860 million and a price of $3.30.
As of the second quarter of 2024, LayerZero has over 54,000 contracts using its full-chain communication protocol, operating on over 80 different networks, including Ethereum, Optimism, Arbitrum, Polygon, Solana, BNB Chain, TRON, and Base. These contracts utilize LayerZero messaging for various use cases, supporting nearly 300 user-facing applications.
The most common use case for LayerZero is asset transfer (bridging) between different networks. Other use cases include gaming, cross-chain governance, and identity solutions. Through bridges built on LayerZero, native assets on the source chain can be exchanged for native assets on the target chain (e.g., Stargate) or transferred using LayerZero's token standards (referred to as full-chain fungible tokens (OFT) and full-chain non-fungible tokens (ONFT)).
In the second quarter of 2024, the total value of assets transferred through bridging applications on LayerZero across the top ten networks amounted to $50 billion, a 26% decrease from the previous quarter. This decrease is mainly attributed to efforts to prevent Sybil mining before the token generation event (TGE), indicating a more legitimate use of the network.
Despite the decrease in the total value of transferred assets, the average value per message increased by 78.2%, reaching over $400 per transaction. This indicates that genuine users are utilizing the LayerZero protocol to ensure higher-value transactions compared to industrial Sybil miners.
In the second quarter of 2024, Arbitrum ($12 billion), Ethereum ($9.13 billion), and Optimism ($8.93 billion) were the top three source networks for LayerZero bridging transaction volume. The transfer volume of Ethereum increased by 26% quarter-on-quarter, from $7.25 billion in the first quarter of 2024 to $9.13 billion in the second quarter of 2024. Several key factors incentivized users to use the Ethereum ecosystem, including the reduction of gas fees due to the introduction of EIP-4844 and the introduction of full-chain native re-mortgaging, thus encouraging users to use LayerZero.
Protocol Overview The number of messages (data packets) sent is a key metric of total usage on LayerZero, as they are initiated by users and used for all use cases, such as bridging (e.g., Stargate), token issuance (e.g., PancakeSwap and ether.fi), cross-chain liquidity (e.g., Orderly Network), governance (e.g., Angle), gaming (e.g., Nine Chronicles), cross-chain identity (e.g., Clusters), and fee/reward distribution (e.g., Pendle). By excluding Sybil holders from token issuance, LayerZero adjusted on-chain usage metrics to reflect persistent users, rather than inflated numbers from entities using multiple wallets. The second quarter of 2024 accurately represents the real protocol usage.
In the second quarter of 2024, the number of messages sent on LayerZero exceeded 12.3 million, a 58% decrease from the previous quarter. The data from the first quarter of 2024 may have been influenced by community expectations for native token issuance.
Application Deployment Applications that send and receive messages through LayerZero are called full-chain applications (OApps). These applications consist of smart contracts deployed on the source or target networks. OApps connect to LayerZero through endpoint contracts on their respective networks. These applications can have various functions, including asset/token transfers, governance voting, fee/reward distribution, and gaming items. In the second quarter of 2024, the LayerZero protocol surpassed the 50,000 milestone, ultimately deploying nearly 55,000 OApps. As part of the ZRO TGE, the team was invited to submit proposals and deploy OApps for the token. The team includes: GMX, Solidly Labs, DeFi Kingdoms, and Merkly.
Qualitative Analysis Major Developments Token Issuance In June 2024, the LayerZero Foundation launched its native token ZRO, with a total supply of 1 billion tokens. Of this, 23.8% was allocated to the community and builders, excluding foundation and growth allocations, with the latter receiving 14.5% separately. On the first day, 8.5% of the token supply was allocated: 5% to core contributors, 3% through request for proposal (RFP) allocations, and 0.5% to an independent community pool for content creators, artists, and researchers, separate from the main community pool. Over 1.28 million wallets were eligible for this initial airdrop. The remaining tokens will be distributed over the next 36 months, with additional retrospective allocations every 12 months and further RFPs for future builders. The allocation details are as follows: 38.3% allocated to the LayerZero community (383 million ZRO) 32.2% allocated to strategic partners (322 million ZRO) 25.5% allocated to core contributors (255 million ZRO) 4.0% token buyback (40 million ZRO)
To incentivize LayerZero development, a request for proposal (RFP) was conducted before the token issuance in May 2024. Developers had to launch OApps on the LayerZero protocol to be considered for allocation. As of May 31, 2024, over 200 development teams submitted ZRO allocation requests and deployed their own OApps. The number of developers in the RFP alone exceeded some major blockchains.
The launch of LayerZero's ZRO token had a significant impact on the Arbitrum network as the coordinating chain for token claims. This event led to a significant increase in daily revenue, reaching $3.4 million. The token launch may have led to a surge in transaction fees on Arbitrum, with average fees increasing from less than 1 cent to 87 cents.
Protocol Fee Switching The primary function of the ZRO token is to allow holders to control protocol fee switching through governance. Every six months, ZRO holders can activate or deactivate protocol fee switching through an immutable full-chain vote, which can be voted on any chain where ZRO is deployed. If activated, the fees collected will be used by the treasury contract to burn ZRO. This mechanism ensures that ZRO holders have a direct impact on the fee structure of the protocol.
Donation Proof To promote ecosystem development during the ZRO distribution, LayerZero developed a new mechanism called Donation Proof. This method allows participants to claim ZRO tokens by donating to the Protocol Guild, a funding mechanism for Ethereum Layer 1 development. The donation amount is a stablecoin or ETH worth $0.10. The LayerZero Foundation matches all donations to the Protocol Guild, up to a maximum of $10 million.
Sybil Detection To ensure fair token distribution, LayerZero implemented a three-step process to exclude Sybil users who exploit the system using multiple addresses. Sybil activity was targeted. Sybil users had the opportunity to self-report and receive 15% of their expected allocation. Those who did not report were publicly listed, and others could report them to receive a bounty. The Sybil detection process was completed in collaboration with LayerZero, Nansen, and Chaos Labs. This initiative successfully filtered out Sybil farming, revealing the true usage of the protocol, as shown in this report.
Ecosystem Network Integration In the second quarter of 2024, LayerZero added support for 12 new networks, bringing the total number of supported networks to 83, including Solana, TRON, Sanko GameCorp, ebi.xyz, Sei Network, Taiko, Skale Network, Humanity Protocol, Merlin Chain, Camp, and Oasys. The support for Solana and TRON expanded the number of non-Ethereum Virtual Machine (EVM) networks supported. The integration with Solana initially supported eight networks but expanded to the full network grid supported by LayerZero.
Application Integration In the second quarter, the deployment of LayerZero's OApps exceeded 50,000, with the number of applications in gaming, DeFi, AI, token issuance, and other areas utilizing its full-chain communication all experiencing growth. Notable deployments include Woo Ecosystem, Soul Protocol, Phuture Finance, Anzen Finance, Myso Finance, Iskara, ether.fi, SatoshiSync, Ra1l, and Morpheus. Ether.fi is a dynamic Ethereum re-mortgaging platform that supports full-chain re-mortgaging on multiple L2s, including Blast, Base, and Linea. Ether.fi supports re-mortgaging over $500 million worth of ETH on L2. With tools like BCW Group's LZ Genie, deploying OApps has become more streamlined, with features for project creation, deployment, and DVN configuration settings.
On May 28, 2024, Stargate Finance launched Stargate V2, featuring batch processing of transactions to reduce costs, an Artificial Intelligence Planning Module (AIPM) for optimizing liquidity allocation, and Hydra Bridging as a Service for bridging assets to newer chains.
Stargate V2 supports 16 chains, including Ethereum, BNB Chain, Avalanche, Polygon, Arbitrum, and Optimism. The release introduces Kaia as the first Hydra chain, enabling high-speed, low-cost asset transfers between Klaytn and other chains. After obtaining governance approval and audits, V2 pools and incentives went live on May 27, with full bridging functionality enabled on May 28. Notably, Stargate was the first bridge launched on LayerZero and secured over $500 million in assets on July 1, 2024.
Enterprise Integration In May 2024, LayerZero Labs collaborated with IntellectEU to facilitate the first Delivery versus Payment (DvP) transaction using the LayerZero protocol. This transaction involved sending Swift MT messages between the Hyperledger Besu (private) and Polygon (public) blockchains. The development of DvP transactions aims to seamlessly integrate existing financial institution infrastructure with blockchain technology. This collaboration expanded LayerZero's existing partnerships with major financial institutions, including Onyx Digital Assets of JPMorgan and Apollo, as well as Avalanche's Evergreen Subnet and Spruce.
Gaming developer Ubisoft partnered with Oasys and used LayerZero as an interoperability provider to develop its first blockchain-based game, Champion Tactics Grimoria. This collaboration leveraged LayerZero's full-chain interoperability protocol to enhance cross-chain functionality, allowing players to securely own and trade unique digital assets across different blockchain networks.
DVN Integration There are over 35 DVNs available for application builders on LayerZero, including a diverse set of validator solutions such as zk-tech-based Polyhedra and Lagrange, validator-operated teams like Nethermind, multi-party computation (MPC) like Zenrock, enterprise validators like Google Cloud, and application-owned DVNs like Abracadabra and Tapioca. Symbiotic recently announced a DVN to facilitate L2 staking for Ethena Labs. Additionally, teams can build DVN adapters in V2, allowing applications built on LayerZero to utilize third-party validators (e.g., bridges, oracles, and intermediate chains), Chainlink, and Axelar as DVNs. LayerZero Labs provided initial DVN adapters for CCIP and Axelar, and multiple bridge solution Hashi built its own DVN adapter. Integrating external validators in the LayerZero ecosystem provides an expanded approach.
Upcoming Events Expanding to the Cosmos Ecosystem Solana, Tron, and Aptos are among the first non-EVM Layer-1 networks supported by the LayerZero protocol. LayerZero Labs has partnered with Initia Labs to explore extending full-chain support to the Cosmos chain. These expansions demonstrate LayerZero's commitment to standardizing interoperability between different blockchain ecosystems.
Summary In the second quarter of 2024, LayerZero made significant progress, with the launch of its native token ZRO standing out. This had a significant impact on the Arbitrum network, with daily revenue surging to $3.4 million and transaction fees increasing from below $0.01 to $0.87. To prevent Sybil mining, the total value of transferred assets decreased by 26% quarter-on-quarter, but the average value per message increased by 78.2% to over $400. LayerZero expanded its ecosystem, adding support for 12 new networks, with over 54,000 OApp (full-chain application) deployments, representing a 10% increase. These advancements in cross-chain interoperability, strategic partnerships, and innovative solutions continue to position LayerZero as a key player in the full-chain messaging space.
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