Author: @cryptocholy
LayerZero - A new era for Web3?
Hello dear @cryptocholy readers, I miss you! Even in my slumber I had heard about the LayerZero project and now it was my turn!
The goal of this article is to revisit the phenomenon of the LayerZero project, which has become one of the most discussed projects of the past few months.
Such precedents are important: it may seem like a lot has been said about this project, but not much has actually been said. By digging deeper, we can stumble upon some important findings that will provide a basis for analyzing other projects and complement the web3 picture.
Ill discuss one strategy for funds to obtain primary capital and present the argument that LayerZero is likely to pursue this strategy (and whether this strategy is available to us).
What is special about this project, what role are VCs giving it, and why are they betting that L0’s solution is an important part of the future of web3?
This article is for those who wish to:
Rethinking the long-term value of the $ZRO token, or life after the airdrop.
Be prepared for the active phase of the market. (Reference period 1-2 years)
Get new analytical ideas that can be applied to other projects.
It’s helpful to consider/adopt the investment thesis held by leading VCs.
We are now in a period of great possibility: the bear market may well be over, and strong projects that have experienced and survived the crisis may define future bull markets. The $BTC halving soon will be an important milestone leading to an active phase of the market.
Currently we have the opportunity to bring together the “fruits” of the bear market, similar to $SOL, $FLOW, $AVAX and $NEAR (all of whom experienced the last bear market and thrived in the recent bull market). There are people who are already actively involved through the Diversified Contribution project, and there is another method suitable for long-term investors, which I will describe below. lets start!
Disclaimer: This article may appear to be too positive about LayerZero, which is exactly the purpose of the article - to provide new insights into why it is highly regarded in the market and audience through examples of specific projects. After web3 has experienced various twists and turns, the project has withstood rigorous scrutiny and received strong support from industry leaders.
In this article, I intentionally relied on information from publicly available sources (as I cannot share information that is not publicly available).
This is not investment advice - please do your own research (DYOR).
The technical part is co-written by the creator of the myslepotok channel.
To save you time, Ive tried to divide the article into two parts:
1. General analytical information, ideas and insights about the project.
2. An in-depth discussion of the nature of the project, its technical aspects, competitive comparisons, and its ecosystem.
Don’t worry if the article looks long, most of it is for those who want to dig deeper.
Content is produced in a strategic partnership with @Lilgreencandle.
Level one, overview
Overview: A brief introduction: What makes LayerZero unique (VC Trends)
What’s unique about LayerZero and how does it fit in with VC trends?Technology and the problems it solves
What problems does LayerZero’s technology solve?
Technical explanation
Introduce LayerZeros technology in an easy-to-understand manner.Competitors and network effects, is LayerZero ahead?
Who are LayerZero’s competitors, and is it ahead in network effects?Why choose LayerZero?
Why do you need LayerZero when you have a cross-chain bridge?Sub-Product- Stargate
What is Stargate and is it a sub-product of LayerZero?Team and financing status
Who is the LayerZero team and how do they attract investment?
Token $ZRO
Details about the $ZRO token.Are airdrops an imposed strategy, or a clever marketing ploy?
Is AirDrop forced? Or a clever marketing strategy?
Is a $3 billion valuation high?
Is a $3 billion valuation too high?In summary, the impact of LayerZero on web3, why does it appear now?
Overall evaluation of LayerZero, what impact does it bring to the future of web3, and why is it appearing now?Cryptocholy Looking for like-minded people?
What type of partners does Cryptocholy look for?
Level 2, in-depth:
LayerZero’s technical architecture and 13 steps for delivering messages
Detailed architecture, features, advantages and disadvantages of LayerZero technology. 13 steps for delivering your message.
Technical and marketing comparison of LayerZero competitors
Compare LayerZeros competitors from a technical and marketing perspective.Ecosystem overview
A full view of the LayerZero ecosystem.A quick overview: What makes LayerZero unique
Currently, in the field of large-scale web3 venture capital, there is a successful investment proposition: invest a large amount of capital into late-stage projects (Series A, B, C), and in this way connect various resources to influence their impact on $10/30 /100 Value added on a million dollar investment, rather than spreading the funds across 100 projects of $500,000 each. .
A16Z, for example, allocated only a third of its latest $4.5 billion fund to seed-stage (early-stage) investments.
There is a fairly common pattern that final rounds of funding tend to be completed within a few months/quarters before going public, which is a very short wait by VC standards. The first project that made me notice this pattern was APTOS.
The project has raised over $350 million from the brightest minds in web3.
Of particular note are:
In March 2022, it completed $200 million in financing at a valuation of $800 million.
In July 2022, a $150 million financing was completed at a valuation of approximately $2 billion.
In September 2022, it received strategic investment from Binance Labs and Dragonfly, with a valuation reaching $4 billion.
In October 2022, APTOS was listed, with a global market value of approximately US$8 billion (US$19 billion at its peak), and contract execution began.
The project rapidly increased its valuation by 5 times before going public, and the last round of investment was made almost before the listing, which means that investors doubled their multi-million dollar investment in a very short period of time. .
*It is worth noting that investors have the potential to sell part of their allocations in the spot market or use short positions to reduce their risk by hedging FDV at valuation levels.
At this stage, investors take on less risk because the project has come a long way, validated hundreds of hypotheses, built a strong team, and attracted several years of continuous funding. Work results and achievements can be tracked (as opposed to seed investments, when it’s more about investing in the founders and their ideas rather than just the results).
Additionally, typically, the project is strongly backed by venture capital, and this recognition helps investors see patterns and opportunities for additional profit on $APT’s rise in the public markets.
I then decided to filter out similar projects to find common patterns. My selection criteria included:
Attracted more than $100 million in investment
Listed this year/last year
Quite comparable at investor level:
SUI - attracted more than $336 million in investment.
The last funding round in September 2022 reached $300 million, valuing it at about $2 billion.
At the time of listing in May 2023, the market capitalization peaked at approximately $14 billion and currently trades at over $6 billion.
OPTIMISM - Attracted more than $179 million in investment.
A funding round in March 2022 valued it at $1.5 billion.
Listed in July 2022, OPs average trading market capitalization will be around $700 million, with a peak of over $1.2 billion.
WORLDCOIN - Attracted over $125 million in investments.
A funding round in March 2022 valued it at $3 billion (the same valuation as LayerZero).
In May 2023, an additional $115 million in funding was raised (led by a16z).
Listed on Binance in July 2023, it currently has a circulating market capitalization of over $21 billion.
ARBITRUM - Attracted more than $124 million in investment.
The last Series B round in 2021 was valued at $1 billion, however, between Q4 2022 and Q1 2023, it can be purchased on the OTC market for $200 million to $500 million in FDV.
Current market capitalization is $12 billion (peak value was $17.5 billion).
In all of these projects, there is an opportunity to reinvest at (or close to) the last round valuation.
With such a vast network of funding and relationships, projects are able to secure optimal go-to-market, marketing, go-to-market manufacturing and partnerships.
In addition to ARBITRUM, these projects have a common investor, A16Z.
$OP, participated in 2/3 rounds of financing, and has 2 lead investment experiences.
$SUI, 2/2, 1 lead.
$WLD, 2/2, 2 leads.
$APT, 2/2, 1 lead.
Here, we transition smoothly to the topic of this article, LayerZero:
Attracting more than $290 million in investment.
In April 2023, a final round was conducted with a funding size of $120 million and a valuation of $3 billion.
A16Z has led the investment in the past two rounds of financing.
The token is expected to launch in Q3/Q4 2023.
*One of them is the official lead investor and the other is the unofficial lead investor.
**For more information about $ZRO, see the $ZRO section.
There is no point in enumerating the contributions of all investors in LayerZero, since they attract the top investors: A16Z, Sequoia, Binance Labs, CoinFund, Franklin Templeton, Tiger Global, Multicoin, Spartan, DeFiance, just to name a few .
It’s worth noting that the last round of funding was for “pure strategic alignment,” and LayerZero’s CEO said they didn’t actually need the funds.
We hope to make breakthroughs in the gaming industry and the Asia-Pacific market, and this funding will largely be used for the companys development there.
Its possible this is more about the fund taking the opportunity to invest in them again (considering that this funding raised the valuation 3x, the previous $13.5M round was valued at $100M, and the last round was valued at $100M 3 billion).
This is because they see that LayerZero’s projects are able to implement the same strategies as Optimism, Arbitrum, Aptos, Worldcoin, Sui.
In many ways, we can see how LayerZero fits into the strategy of investing in late rounds as revealed by my successful startups like $OP, $SUI, $ARB, $APT, $WLD, and more. And it is no accident that it was selected by the fund:
For a long time, this strategy was known locally as “Fat protocol”, i.e. investments in L1 blockchains (and now also L2), from which investors reaped huge gains (e.g. flow, solana, arbitrum, optimization, etc.). However, now the concept of Fat protocol is gradually disappearing, and the profitability and superiority of blockchain are being replaced by applications. Ex-Spartan GP says apps will surpass blockchain in profitability
LayerZero Labs had FTX and Alameda as investors, and this precedent increased confidence as they quickly redeemed those investments in November 2022.
“This will put us in a very strong position for the next few years. Even in our aggressive forecast, we have no less than 7 years of development time, we have abundant capital and the best in the entire crypto space One of the teams. - CEO of LayerZero
Revealing the nature of LayerZero’s technology, we understand it is a slow-exploding bomb, as the protocol’s goal is to “seamlessly connect” all blockchains and their applications. In other words, the protocol doesn’t just transcend the competitive struggle between blockchains and applications, but catalyzes it, opening the door to a new future for web3.
A reasonable question is, why has the project raised approximately $30 billion from the best backers in the world?
It is worth reminding that venture investors currently have a key influence in the web3 field, and sometimes can even shape the future. They already know what we might see in 2024 and beyond (as they support the early stages of these projects), which directly impacts their decision to invest heavily at such a valuation.
“There is no longer any doubt that the future of cryptocurrency and web3 is multi-chain, and LayerZero has created a vital infrastructure that makes this possible.” - Ali Yahya, GP of A16Z
Multicoin - One of the main lead investors in the early rounds of LayerZero in 2021. They introduced Solana to the world (as a lead investor in the seed round), and have backed Arweave, Dune Analytics, and CyberConnect and Sei, both of which launched on Binance Launchpad during their seed rounds.
LayerZero paves the way for the first full-chain applications, providing opportunities for credit, AMM, management, etc., making it truly independent of the network. ” – Kyle Samani, Partner at Multicoin Capital. “Dapp developers no longer need to write chain-specific code; instead, they can simply use LayerZero to develop a unified interface that sends messages to all chains . LayerZero should be used by everyone who wants to share or consolidate state across multiple chains. Almost every application today
A16Z is, in my opinion, the most noteworthy venture investor in web3 currently, so I will introduce them as soon as possible:
Founded in 2009, it has become a global leader in:
Supported for Facebook, Pinterest, GitHub, Instagram, Skype, Coinbase and more.
Chris Dixon, GP and CEO of A16Z Crypto, topped Forbes’ 2022 Millennial List and was named one of the world’s best venture capitalists for his Coinbase deal.
Supported crypto projects include: Ripple (angel round), Solana, Flow (Dapper Labs in 2018), played a key role in the creation of Coinbase, Near, Uniswap (first round lead in 2020), Aptos, Avalanche, dYdX, Compound, MakerDAO, Arweave, etc., the list goes on.
In a 2022 article on bear market research, we mentioned that Andreessen Horowitz raised a $4.5 billion crypto fund to take advantage of favorable trades in the bear market. This makes it the richest fund in web3.
It was A16Z who set an unofficial goal - to achieve 1 billion cryptocurrency users by 2031.
Increasing presence of Web2 investors:
Samsung Next - This is the venture capital arm of Samsung, which actively invests in blockchain startups. Early investors include Axie Infinity, Sui, Aleo, Sandbox.
BOND - Web2 agency that powers Airbnb, DocuSign, Facebook, LinkedIn, Spotify and Square.
Franklin Templeton - Institutional fund with over $1.5 trillion in assets under management, broad portfolio, most recently invested in cryptocurrencies, portfolio also includes Sui and Aptos.
I think this is an entry into a new level: is the project already attracting attention outside of the web3 messaging world? For new users, this seems like a good starting point to enter the market.
Christies (the largest auction house) has only a few investments, one of which is in L0, and two investment rounds (other investments are related to NFTs and art-related products).
I consider this a strategic investment, the company is actively exploring web3 and has been selling NFT art through its auction house for a long time (with a reputation in the 1/1 art space).
This suggests that LayerZero is poised to be the next leader in mass adoption, including in the NFT space, as they solve the problem of transferring NFTs between networks.
Web3 is entering a critical product level and may even have a strategic impact on Web2/traditional business offerings, which attracts institutional investors. Projects like LayerZero solve important problems and help attract users and businesses to Web3.
technology
LayerZero - is a full-chain interoperability protocol.
“Our mission is to connect every smart contract on every network” - CEO of LayerZero.
Full-chain protocols like LayerZero allow users and developers to interact with different blockchains as if they were a unified network.
Simply put, if two different systems are interoperable, it means they can talk to each other and understand each other, even if they were developed by different teams and use different technologies or standards.
The core concept of Omnichain is very simple: there are many networks, users/applications/capital in web3 are widely distributed, moving tokens is dangerous, there are many attacks/lack of trust on centralized exchanges, and it is difficult for users to understand . The goal of Omnichain is to enable users/applications to fully enjoy all the benefits of web3 without getting into the technical details: how does it all work? In other words, to transform the entire cryptocurrency ecosystem into one network.
The goal of LayerZero technology is to solve the isolation problem of products and user capital being dispersed across different networks. The protocol will allow the “exchange of information” between blockchains, enabling:
Securely transfer tokens/NFTs between different networks
Allows Ethereum applications to access liquidity from Solana, Aptos, and more
Make incompatible (and compatible) blocks
Yes, you can support specific blockchains, and your interactive experience may be seamless for you by accessing solutions for other blockchains without having to do additional work.
In the context of web3, which is dedicated to creating networks for specific tasks, it may be difficult to imagine the future without such technology: for example, Zora created a Layer 2 solution for NFTs, and without LayerZero it would be difficult to imagine how to use it elsewhere Transfer NFTs on the network.
In addition, web3 strives to adapt to the arrival of new users. Currently, for newbies to feel comfortable in DeFi, they need at least a basic understanding of the mechanisms of multiple major blockchains, dozens of projects, and more complexly, these blocks. How the chains interact.
This is not a simple task, since registering on an exchange allows you to trade almost any coin without having to worry about network and other complexities. But can we rely on trust in the operation of centralized structures?
"Not your keys - not your tokens."
Imagine an exchange that will consolidate liquidity from all blockchains, providing users with access to the most outstanding protocols for lending, yield farming, trading, and leveraged trading of any token on any network, all in one Decentralized in-application implementation.
Sound impossible? But this is a prime example of what LayerZero technology strives to achieve.
"By providing opportunities for inter-chain synthesis, LayerZero enables developers to create decentralized applications that were nearly impossible before"- Ali Yahya, Partner at A16Z.
At the same time, all the inter-network communication process will occur behind the scenes and will be imperceptible to the end user.
"For regular users, their protocol will run in the background as easily as a standard railroad track"- CEO of LayerZero.
Summarize the essence of LayerZero’s solution in simple words
What problem is to be solved?
The solution, LayerZero, in simple terms is that it makes interactions between different blockchains imperceptible to ordinary users, just like the international flight system. Different countries have their own airlines and airports, and they all operate according to their own rules and standards. However, due to international standards and protocols, passengers can fly from one country to another and connect with different airlines. This is possible because all these systems are interoperable - they can talk to each other to ensure a smooth and efficient journey for passengers.
Likewise, LayerZero enables different blockchains to “communicate” and exchange transactions, even if they are developed by different teams and use different technologies. This could make the use of cryptocurrency and blockchain technology easier and more convenient, just like international flights have made travel easier and more convenient for passengers.
Sequoia Capital also used a simple analogy to describe the technology:
In the context of current cryptography, compare this to DoorDash or Uber operating only among iOS or Android users. Imagine if you could only book a ride from a driver with the same phone number as you, even if the driver with a different phone number was only a minutes drive away. Or, as another analogy, imagine if Gmail users could only send email to other Gmail users, Yahoo users could only send email to other Yahoo users, and so on. The current fragmentation of layer 1 blockchains creates barriers for users and protocols. Networks are most efficient with unified users, data and liquidity.
competitors and"network effect
Having just one team to tackle a problem of this scale may be overconfident. Ill list a list of projects working on similar problems:
When discussing the competitors of the L0 project, it is worth noting that the evaluation and final round of financing for the project took into account the competitive situation. However, L0 not only focuses on technology, but also on efficient management and marketing. Together, these three components create a unique advantage for L0 compared to other projects.
Compared to competitors such as Avalanche (AVAX), Cosmos (ATOM), Polkadot (DOT), and Near (NEAR), L0 focuses more on modern technological approaches, so comparisons between these competitors are not relevant. A more detailed competitive analysis can be found in the additional material (Chainlink and Axelar competitors are also analyzed in detail).
Chainlink’s Cross-Chain Interoperability Protocol (CCIP):
Launching in July 2023.
LayerZero technology inherently actively leverages ChainLink’s services, including “considerations of competitor dominance risk.”
CCIP has good connections and reputation but has a small user base and they want to provide services to central banks and companies rather than users. L0 is also constantly working hard to attract a user base.
Chainlink and L0 provide similar functionality such as message exchange and endpoints within each network. However, there are key differences in terms of degree of decentralization and security.
For example, Chainlink is highly decentralized due to having multiple validating nodes. However, unlike L0, Chainlink lacks oracles and relays, which may reduce the level of security. In L0, oracles and relayers interact to validate transactions, preventing the possibility of transaction tampering if Chainlink or a node is attacked.
Initially, L0’s white paper stated that they planned to connect Chainlink’s oracles. However, since Chainlink is their competitor, L0 developed its own oracles and relays, which authenticate each other, providing an additional layer of security.
Axelar is currently ahead of L0 in terms of decentralization (will be fixed when ZkLightClient is implemented), but it entered the market at the height of the 3ac, terra, and celsius crashes, causing the price of its token to take a serious hit, thereby damaging its reputation. Therefore, the technology is not widely in demand.
Zero-layer network effects as a competitive advantage
School-Cryptostartup (2020) from A16Z explains the importance of network effects in the development of crypto startups.
https://youtu.be/VgL1 MBKh 9 rA
For easier understanding, it is worth watching the video (at least starting at 35:15)
In simple language, the LayerZero project is characterized by its ability to gain the trust of customers and users quickly and at scale. This characteristic is particularly important when a competitor needs a huge advantage (10 times that of the leader) to have any chance of competing.
To emphasize this point, I would like to remind everyone that this lecture is hosted by Ali Yahya - General Partner of A16Z. It was he who participated in investments in LayerZero, Matter Labs (ZkSync), Solana and Alchemy. There is no doubt that L0 has this competitive strategy in mind.
An example of a good leader is Ethereum. It was first to market, gained influence and trust, and is now almost, if not completely, impossible to unseat from its leadership position. With modern L1 competitors, we clearly see that they can only integrate with Ethereum in an attempt to attract its user base.
A similar situation occurs at LayerZero, where competing solutions have either not yet been successful or have just been launched. Additionally, in addition to huge marketing efforts among users and projects, LayerZero actively hires employees for sales and promotion. Notably, according to the CEOs statement, they are specifically focusing on the gaming sector.
It is also worth noting that LayerZero obviously has a richer resource reserve, both in terms of attracting funds and the potential of the relationship network (including web2, etc.). There is also a financial incentive for the fund to directly develop and support projects.
Furthermore, it is important to consider that the project has processed over 50 million transactions, with the most active days reaching over 1 million transactions.
Although there are active discussions about airdrops, which may involve the entire transaction volume, it is important to understand that the project did not experience serious technical glitches during this period! This entire stress test provided the team with a valuable data set. Its hard to imagine a competitor going through a similar situation, which is an important advantage.
This is valuable experience gained in pursuing the ambition of “connecting blockchains and supporting truly large-scale applications”. L0 already supports over 30 networks.
100+ apps (existing or in development) that deserve your attention.
It should also be noted that Stargate, a product specifically designed to showcase LayerZero technology (created by the same team), surpasses Axelar in its total market capitalization (± $6 billion vs. ± $4 billion).
Finally, to build on its strengths, LayerZero is hiring marketing leaders for successful products, such as Polygon. The latter can obviously proudly showcase its ecosystem of DApps.
Since there is a bridge, why do we need LayerZero?
Today, most cross-chain transactions occur on so-called bridges, which solve interoperability issues by locking assets on one chain and issuing tokens of equal value on another chain, and in the process act as intermediary.
According to data aggregation by DeFi Llama (2022), approximately $33 billion in cryptocurrencies are currently locked in bridge protocols.
However, these bridges introduce additional centralization and security vulnerabilities into the system because they act as intermediaries.
Approximately $2.6 billion in crypto assets were stolen from bridges by hackers.
I described this obstacle and even vulnerability in an analysis article half a year ago.
Most likely, LayerZero could be the “solution to the bridging problem” in the future.
Investors believe LayerZero will not fall victim to a similar theft. “We have always had faith in future cross-chain interoperability, but until we met LayerZero, the technology to achieve this was not sufficient,” said Michelle Bell, a partner at Sequoia.
In order to move, say, $1,000 worth of cryptocurrency from blockchain A to blockchain B, an individual must send a message through an intermediary chain that confirms the transaction, and that intermediary chain then notifies B that A has transferred the funds. But these intermediate chains become tempting targets for hackers.
Simply put, LayerZero eliminates the need to use an “intermediary chain” with its solution, allowing tokens to move from point A to point B smoothly.
My daughter’s product is Stargate
It’s impossible to ignore Stargate, created by the LayerZero team to represent their main product technology.
Stargate is a liquidity transfer protocol, simply a bridge based on LayerZero technology.
Remarkable achievements—more than $18 billion in asset value has been transferred through the protocol since launch.
Even the argument referring to the airdrop campaign doesn’t hold up, as in the first month of launch, trading volume exceeded $1.4 billion.
The protocol has maintained its No. 1 spot on the bridge transaction volume rankings for the past few months, almost doubling its lead.
It cannot be ignored that this transaction volume may include the share of airdrop activists:
But equally important, we’ve seen significant deal volume prior to the Series B announcement. What cannot be ignored is the market effect, which clearly attracts active users, and the public market has already valued one of LayerZero Labs products, representing a value of up to $600 million for the technology alone.
Introduce the team and how investment is raised:
LayerZero command when running Stargate in Sequoia Cap footage
Interestingly, the core members of the team met at the InterOperability Lab at the University of New Hampshire.
Brian Pellegrino, CEO of LayerZero:
One of the top poker players in the world in 2015.
In 2016, he sold an artificial intelligence for baseball analytics to some of baseballs largest companies.
In 2018, we worked with A16Z engineers to create a token launch platform, which we later sold and returned to the field of artificial intelligence.
In 2020, along with Caleb Bannister (Lead Engineer and Co-Founder of LayerZero) and Ryan Zarick (CTO of LayerZero), we created the best poker AI in the world.
With the launch of Binance Smart Chain (2020), he became interested in the technology and decided to create a game with his current co-founders. There, he faced the problem of unreliable bridges.
In May 2021, LayerZero officially released the official document of LayerZero: Trustless Full-Chain Interoperability Protocol.
The document details how their free, open-source protocol will be the first to enable direct transactions on all blockchains, while remaining decentralized, transparent, and durable.
At the time, the protocol was being built in “stealth” mode and not attracting much attention, but around that time, SushiSwap co-founder 0x Maki joined LayerZero. 0x Maki could have easily joined any team in web3, but he chose this little-known startup with next to nothing.
0x Maxi What has someone so well known in the web3 world decided to offer? Of course its a relationship. 0x Maxi is responsible for business development, which involves building partnerships and opening “necessary” doors. Although within the core team of L0, even without him, the work is going smoothly:
In October 2021, feeling encouraged by the hiring of 0x Maki, Pellegrino wrote on Twitter: “We are building the strongest team in crypto on a legal basis and no one knows it yet.
Michelle Bell, a partner at Sequoia, saw the news and sent a private message. “I didn’t know him before,” Bell said, “but his contributions to crypto Twitter are upbeat and entertaining. When we met with him and Sean, Brian’s intellectual prowess and understanding of some of the most complex problems in cryptography were clear. Clarity of thought is irresistible.”
There’s a great article on Sequoia’s website about meeting LayerZero.
Coincidentally, Maguire (a partner at Sequoia) had been an angel investor in OpenToken, and Chen, Pellegrino’s co-founder at OpenToken, soon became an invited employee at Sequoia.
Sequoia representatives realized that, in part, LayerZero solved a major problem that would define the future of the Internet. On the other hand, its like inventing water pipes.
Todays Internet is built on similarly dull breakthroughs. Before the creation of the Transmission Control Protocol/Internet Protocol (TCP/IP), the various subnetworks connecting universities and government agencies around the world were unable to pass data to each other.
This led to co-leading a Series A+ round in 2022, raising $135 million. “LayerZero’s technology is the glue of cryptography,” Maguire said. It ties all other cryptocurrencies together. The collective value is far greater than the sum of its parts. Brian wants cryptocurrencies as a whole to succeed and for every sector of cryptocurrencies to become more valuable.
Token $ZRO
Although LayerZero’s official token has yet to be officially confirmed, offers can already be found on Binance. Details about the latest round of deals have leaked to the public media, with news articles mentioning LayerZero’s"token warrants". A recent deal on Infopool that caught the market’s attention involves marketplace maker Wintermute.
Through public surveys, we learned that there may be some exchanges that have shown significant interest in LayerZero.
$LZO has at least three applications:
1. Payment as a validator (autonomy and decentralization);
2. Voting support in network governance (decentralization);
3. Pay fees instead of using native tokens.
Pay validator fees, i.e. Project Essence: This will allow launching your own Oracle Relayer to process transactions, this solution will lead to a more autonomous and decentralized network as currently the only Oracle is Chainlink and the Relayer is LayerZero It itself cooperates with Polygon and Sequoia Capital.
Governance: This is classic DAO voting.
Pay fees with $LZO: This possibility was confirmed via a mention of the feature on Github, as well as the fact that it was mentioned repeatedly with other updates and mentions in other repositories, more details on this It can be read here. (Additional material is provided by the author of the channel Мыслил. Удивился. Пишу. He is very talented and an intellectual partner of this article, I strongly recommend following his analysis of the project, the channel belongs to a small number of fans about 2, 000 channels in the treasure category.)
Stargate: Investors in LayerZero Labs are said to own $STG (Stargate) tokens in addition to $LZO.
We still haven’t seen an official token economy.
Most likely, we will see a similar solution as teams like Aptos, Optimism, Arbitrum, etc.: announce the token economics a week or two before the token launch and possible user reward announcements.
Was the airdrop imposed? Or a marketing genius?
Of particular note is the way users are attracted into the ecosystem. Arbitrum Listing + The largest ever airdrop took place on March 23rd. On April 2, huge news was revealed regarding a new funding round of over $12 billion. As a rule of thumb, such rounds are typically not closed within a month or two, especially given the complexities of the last quarter of 2022.
All these events are likely related. Additionally, articles have begun to appear in the news media about a possible airdrop, inevitably citing similarities to $ARB.
Does this look like a vampire attack designed to excite users? Ultimately, what could be more attractive to users than a potential airdrop? Meanwhile, the LayerZero team had little to do but guide the entire process.
At this stage, almost everyone believes that some form of airdrop will happen, which shows that there is already a large user base aware of the LayerZero project:
Is $3 million a high valuation?
We’ve had a tough 2022.
Across the industry, startup valuations fell sharply by 50% from the first half of 2022 and continued into the second half. Since then, crypto startup valuations have continued to decline by around 15% compared to the first half of 2023, to levels close to 70%. This data was provided by Ava Labs’ Vice President of Business Development.
Overall, investors are concerned about falling valuations, so theyre offering smaller checks.
In the first six months of 2023, startups in the Web3 space attracted approximately $5 billion, which is 6 times less than the $3 billion in the same period in 2022.
Q1 2023 was also recorded as the lowest quarter for capital invested in this vertical since Q4 2020.
Q1 2023: LayerZero closes $120 million Series B at a $3 billion valuation.
This is the largest round of financing in the Web3 field in 2023.
LayerZero attracted a record funding round in an era of record-breaking fundraising environment and low valuations. Ill leave the thinking part to you, lets move on:
The launch of LayerZero is planned for Q3/Q4.
Bitcoin’s Half event will occur in April 2024.
After the 12-month lock-in period, unlocking will take place approximately half a year after the Harv incident.
The Half event occurred in late 2012 -> Bitcoins all-time high price (ATH) was achieved in late 2013/early 2014.
Harf event in 2016 -> ATH for Bitcoin was achieved in 2017.
Half event in 2020 -> ATH for Bitcoin achieved in 2021.
In other words, the distribution of $ZRO tokens is likely to occur during a period when the market is in one of its best conditions.
It is worth noting that there are also a series of global projects waiting for the right time to launch, and it is very likely that we will witness the most active bull run in cryptocurrency history. For more details see: link.
If the current valuation looks high ($3 billion), I remind you to look back at the market cap levels of projects during past bull markets (e.g. $SOL):
$XRP
$AVAX
Depending on the trends, we are likely to witness new records:
How does this article relate to LayerZero? A year ago, the project was seen as a cornerstone of the future of web3, and the recent massive funding round has further solidified that view.
Future full-size applications will simplify the new user experience of web3, and AAA+ games will strive to attract not only new users but also unite loyal users of existing networks. It is likely that these applications will be built using LayerZero (without such technology, it is difficult to imagine any truly large-scale applications).
In other words, there is a good chance of seeing this project become the next stage of blockchain technology development."blood system"。
in conclusion
Currently, LayerZero is showing eye-popping results. We clearly see the drop hunting narrative, which provides interesting insights. Airdrop hunters are also chasing Fat-protocol projects, and according to their analysis, generous airdrops are good investments, but metrics, teams (almost venture capital-like analysis) are also important. Interestingly, all of these are preceded by technology/experience/team etc.
Currently, the market is preparing for launch/actively developing projects such as: ZkSync, ZkEVM, Base, Linea, Scroll, and modular blockchains are not sitting idly by: Mantle has been integrated, we are still waiting for Celestia, etc.
The important point is: the above-mentioned projects are very important technical solutions, and they will obviously affect the future of web3. They are now being evaluated by the market and are receiving huge demand (users/investors) and attention. We have investment interest in some of these projects.
Whats the most interesting thing? LayerZero (Stargate/L0 based products) solutions are/will be the nexus of these projects: these are the new network/blockchain/layerX solutions, the fully connected omnichain.
In other words, with the launch of LayerZero, everything is just getting started, and regardless of the metrics of airdrop hunters, they will continue to transfer value through LayerZero-based bridges and the technology will be adopted and promoted. When all these projects fully enter the open market, L0 can undoubtedly become part of the bloodline system of web3.
The airdrop hunter indicator is an ingenious means of analysis with limited resources. The goal is to select the highest quality projects so that the tokens obtained have value and demand, which is also an investment in a sense.
We have seen the future direction of web3, and blockchain technology has gained new applications and performances. One day I will go into more detail about the above series of projects, but looking at all the data, some things become hard to argue:
Find like-minded people
Assuming you are interested in the above thoughts and analytical insights: I would be happy to work with empaths. I became a partner at web3-VC not too long ago (more on this in private conversations) and our goal is to build a robust portfolio from the foundational projects we saw at the peak of the market: LayerZero, ZkSync, StarkNet , Lens Protocol, Celestia, *** and more.
We think this is an excellent way to diversify your portfolio with a strategic index of leading “fat protocol” crypto projects selected from the bear market, with rigorous due diligence by the venture capital firm ensuring that the token unlocks for these projects will be The predicted peak of the bull market occurs.
We invested in LayerZero, signed a direct SAFT (Simple Agreement for Future Tokens) with the project team, and at the time of this article our allocation remains small at $15-200,000.
We are in the final stages of negotiations with some of the projects mentioned above. Our portfolio currently includes projects such as Sui, Aptos, Sei, ZkSync and Celestia.
We are interested in mutually beneficial cooperation in trading, social networking and analytics to jointly discover new opportunities. We will be happy to work with those:
Someone who recognizes the value of this proposition, shares the vision stated above, and has investment experience;
Those with investment amounts above $25, 000.
We also welcome communication with representatives from the venture capital sector (syndicates, community VCs, individual investors) interested in transactions, analysis and presentations.
You can contact me via private message, leaving a little introduction about yourself: Telegram link or via the feedback form.
Please do not consider this an advertisement as <0.1% of people will respond, only those who are truly interested and find value in it.
Also, based on this, I will start building a free closed community based on interest, so if you provide value in other directions, I will be happy to communicate, above is a form link.
Thank you for taking the time to read, it’s a pleasure sharing my work! Please subscribe, this is just the beginning! We will stay in touch and it will always be yours: @cryptocholy.
This article was written in a strategic partnership with @Bullmart .
If you need more information, please continue reading:
For this set of chapters, I would like to sincerely thank Channel: Thought. Surprise. writing. The authors of this channel have spent months in-depth analyzing every aspect of LayerZero, so we have the opportunity"go deep"Learn about this project.
LayerZero Technology:
LayerZero - "message protocol", to more intuitively understand how the message is delivered, we have broken down how it is delivered. The process involves 13 steps, which you can view at this link: click here (thanks to the journal zero channel).
The main idea of L0 is to introduce a cross-chain messaging mechanism between blockchains. In order for this to work properly, there need to be smart contracts in the A and B networks that interact with UltraLightNode (ULN) and Endpoint. They in turn communicate with Oracles and Relayers, components that exist off-chain.
The process of sending messages is divided into three stages:
Users make requests to smart contracts in the A network, which interact with ULN. ULN makes requests to Oracle and passes transaction data. Oracle verifies the authenticity of user requests and transmitted tokens.
The Relayer verifies that the data from the A network contract matches the data from the Oracle. If the data matches, the sending phase will be entered. Otherwise, the transaction will be rejected.
The final stage is the sending of the contract confirmation message through ULN to the contract in the B network. Oracle receives confirmation that the transaction is complete and completes the cycle.
The important components of the system are: user applications, UltraLightNode and Endpoint, Oracle and Relayer. To better understand the technical details, we discuss each component individually.
User application: This is an application developed based on L0 that runs within the network (on-chain). For example, this could be a Stargate contract for receiving or sending funds in Polygon or other supported networks.
UltraLightNode Endpoint: This is a smart contract created by L0. User applications interact with them to pass instructions on required actions. First, the Endpoint receives the operation in the sending network and then passes the information to the ULN. This provides a secure method of accessing Oracles and Relayers and minimizes transaction costs.
Oracle Relayer: They are located off-chain and run independently to ensure security and reduce costs. Oracle receives the transaction ID from the ULN, processes the data and passes it to the Relayer for validation. After completing the transaction, the Relayer reports that the transaction was successful. The Relayer verifies the authenticity of the data coming from the Oracle and if the data is authentic, sends the message instructions via ULN to the user application in the B network.
The advantages of LayerZero (L0) technology over other cross-chain services include:
Reliable verification of transactions thanks to the mutual authentication mechanism of Oracle and Relayer.
Due to the data transfer system, where only headers are transferred and the required data is extracted off-chain, handling fees in the sending network are reduced.
Use OFT and ONFT standards to transfer tokens for different purposes.
Independence between Oracle and Relayer to ensure security if one is compromised.
Use third-party Oracles and Relayers for more secure and autonomous delivery of message data.
From a technical perspective, L0 takes into account the shortcomings of competitors listed in the white paper, including: Polkadot, Thorchain, Anyswap, Cosmos, Chainlink, but without considering marketing and reputation factors and competing with Wormhole , the real competitor may be Axelar.
Disadvantages of LayerZero technology include:
There is a lack of decentralization due to the use of third-party services belonging to Polygon and Sequoia’s Chainlink and Industry TSS Oracle.
Lack of node count (~5) compared to Axelar which has ~70 nodes
Single relayer ownership: L0 has a single relayer owned by the project itself, which also results in less decentralization.
To address the limited number of nodes, a transition to a Zklight client is underway, which is being tested by a friendly project called Polyhedra.
Looking at competition from a marketing and technology perspective
The effectiveness of the project is determined by"working together"Marketing, technology infrastructure and management work together to decide. In some projects, one of these components may be missing or dominate the others.
Some projects thrive because they rely on one or more of these aspects, because people dont always want a perfect product, but something they want to like.
Dogecoin and Shiba Inu occupy top 20 positions in the rankings of all cryptocurrencies. Dogecoin’s success can be attributed to luck, Shiba Inu can be attributed to a combination of luck, management, and marketing.
Polygon was"Reorganization", and deals with the best companies in the world, actively participating in L2 trends, which shows the effectiveness of its marketing department.
Bitcoin brings us cryptography, anonymity, and decentralization principles, while Ethereum embodies the ecosystem and DeFi/NFT/DAO space.
As competitors of L0, there are Chainlink’s CCIP, Axelar, Wormhole, as well as Avalanche, Polkadot, Cosmos, and Near mentioned by some analysts.
Axelar, while superior to L0 in terms of decentralization, did not gain much popularity as the collapse of 3ac, Terra, and Celsius negatively impacted the price of its token.
Wormhole is a 2017 product that has survived the FTX crash, the bear market, and the theft of hundreds of millions of dollars in 2022, but still maintains its presence in the market.
What brings Axelar and Wormhole together? Uniswap chose them over LayerZero, Celer, DeBridge and Multichain. Many people may not have heard of Wormhole, but remember Axelar. Their common features are technology and efficient management.
LayerZero, widely recognized in the cryptocurrency space in 2023, despite not being selected by Uniswap, surpassed all other projects in its metrics after the announcement round and the launch of Arbitrum. They make no secret that this is part of their marketing plan.
To many, marketing is just banner advertising, but it permeates human consciousness and behavior, opening up opportunities for projects. Without management, projects will collapse and without marketing, they will fail to gain traction.
We can see differences in approach and strategy. For example, AVAX is another L1 blockchain launched before L2 solutions emerged. Their decision to divide the network into C, X, and P now seems outdated.
On the other hand, it could be argued that DOT is philosophically outdated, despite the initial enthusiasm surrounding the project. The idea of creating multiple L1 blockchains on top of DOT did not materialize. As an alternative, one can mention Optimism, which managed to develop a working SDK on which projects such as Base and OpBnB were launched.
Cosmos and NEAR encountered management issues. We haven’t seen them make significant progress since they were funded. Although Cosmos has conducted some hackathons, neither project has shown significant growth.
Polygon, on the other hand, demonstrates an example of effective management and marketing. They don’t focus on technology, but on hard work"keep up"L2 trends. Their approach to business deserves respect.
In general, the choice of investors may be based on the enthusiasm of the team and their professional experience, the underlying trends (success of Optimism, the push of Arbitrum, the existence of multiple EVM blockchains) and their technology, although not revolutionary Yes, but capable"keep up with trends"based on understanding. Technically, real competitors could include Axelar, CCIP, IBC and Nomad, although their technical success has been rather limited.
lets see
