What is LayerZero
LayerZero is a cross-chain communication protocol that allows applications deployed on different chains to communicate with each other. LayerZero does not require intermediate nodes or consensus mechanisms like cross-chain bridges require. Instead, it allows applications to complete seamless cross-chain communication. The first DEX on LayerZero is Stargate Finance, a project that enables cross-chain swaps of Omni-chain assets - more on that later.
LayerZero may seem blurry at first - but once you notice it’s these lovely ghosts that you are seeing, you may begin to see things more clearly: Gh0stly Gh0sts is the first NFT project on LayerZero, and is also a so-called "Omni-chain" NFT project. Omni is defined as "all; of all the things", here referring to the ability to operate across multiple networks. For example, Gh0stly Gh0sts is deployed on seven chains, namely Ethereum, Binance, Avalanche, Arbitrum, Polygon, Fantom, and Optimism.
LayerZero, the Omni-chain Interoperability Protocol can be understood as a cross-chain protocol or tool. It is a convenient protocol that allows users to complete cross-chain processes with a low gas fee and fast transaction processing. The LayerZero protocol functions similarly to the “layer 0” IBC (Inter-Blockchain Communication) protocol of the Cosmos ecosystem. What stands out about LayerZero is its use of Ultra-Light Nodes (ULNs), which propose a new model for securely transferring information between chains on the premise of being cost-effective. They are implemented by performing the same authentication as light nodes on the chain. Omni-chain NFT does not require the holder to use the cross-chain bridge tool to achieve transfer. Omni-chain NFTs can be minted by calling the appropriate contract on the respective chain that the contract has been deployed on.
LayerZero and the underlying technology have two notable uses:
- Interoperability between chains: different blockchain architectures are no longer an obstacle to cross-chain communication. Both EVM-compatible chains and UTXO-based chains are compatible with LayerZero.
- Give birth to a new type of NFT: Omni-chain NFTs. These can be deployed across multiple chains simultaneously. For example, they can be born on Ethereum, put up for sale on Binance Smart Chain through LayerZero, and pledged on Solana.
Gh0stly Gh0sts is an Omni-chain NFT that shows off these strengths.
Will Omni-chain be the main choice for the application layer in the future?
I believe that Omni-chain will become a trend and transform the current application layer as we know it. LayerZero demonstrates the first implementation of Omni-chain technology and therefore may be able to capitalize on its first-mover advantage to drive projects to its protocol.
Is it necessary for Omni-chain NFT to exist?
In essence, the concept behind cross-chain is to allow tokens or arbitrary data to be transferred from one network to another. They provide a compatible way for both parties to interoperate securely and provide key components for developing multi-blockchain networks. For NFT art collectibles, the opportunities may be limited. However, for practical NFTs, untapped usage scenarios and markets are likely to emerge.
Other issues with the current state of NFTs:
- Most NFTs are on Ethereum, which is plagued with high gas fees. Gas fees can vary heavily and span from $10 to $100 in a short period of time, depending on how congested the network is.
- Using certain blockchains means users must have the right currency to process transactions (e.g., ETH for Ethereum, BNB for Binance Smart Chain, etc.)
- Smart contracts are not available on all blockchains. For contracts that exist between multiple chains, their functionality may vary from blockchain to blockchain.
More applications are deployed across multiple chains
Ethereum is facing challenges in continually scaling its NFT ecosystem as a result of its high gas fees. At present, the main solutions to this problem are to reduce network congestion through Layer 2 networks and to grow a multi-chain ecosystem model, pioneered by cross-chain protocols, such as Anyswap and Multichain amongst others, to redistribute the network load. With the development of multi-chain ecosystems, NFT assets on different public chains have also begun to grow across networks such as Polkadot, Solana, Heco, and Binance Smart Chain. While many projects have been deployed on cross-chain protocols such as Anyswap and Multichain, the emergence of the LayerZero ecosystem supported by the Omni-chain NFT appears to be ushering in a new turning point for cross-chain projects.
Omni-chain NFTs expand on the current foundations
At present, NFT projects are relatively fragmented across chains, and Omni-chain technology may become a beacon for new use cases.
Looking at the current state of the market, we can identify two types of NFTs:
- Art NFTs: encompass NFTs based on aesthetic value and emotional value, such as artworks and collectibles. Usually, the properties of these NFTs are static.
- Utility NFTs: include NFTs which provide utility or functional value. These NFTs have dynamic properties that can be changed according to specific criteria.
On the other side of the equation we have NFT communities, whose purpose is to establish, reach and aggregate consensus internally and externally:
- The internal is how the social utility of community members is satisfied.
- External is how market prices behave in the past, present, and future.
Do artistic NFTs need to be Omni-chain?
For art NFTs or profile picture (PFP) NFTs, one of the reasons why cross-chain compatibility is not implemented is because those projects are more suitable to stay on their native chains. Looking at Ethereum, for example: one problem is the barrier to entry created by the gas fees. The gas costs are relatively high, which excludes many users from participating in NFT communities built on Ethereum. Another issue is that of the NFT communities themselves: the atmosphere and feelings of belonging to the community occupy an important part in a PFP project, which is further solidified by the chain that the project is deployed on. Each chain has its own communities and demographics. Users on Ethereum that are of a certain demographic seldom turn to Solana or Binance Smart Chain for investment. By splitting this community across multiple chains, project owners may alienate and displace their own audience.
Looking at the underlying data of Stargate in Dune or at the data of cross-chain transactions in the Gh0stly Gh0sts project on Etherscan, we find that the transfer of NFTs from Ethereum to other chains is quite rare. The vast majority of Gh0stly Gh0sts minted on other chains mostly flow back to Ethereum. Looking at tokens transferred through Stargate we observe a similar trend; more tokens are moved from other chains to Ethereum than vice versa. This may be a result of smart contract interactions on Ethereum requiring far more gas fees than on other chains, incentivizing users to trade tokens on chains with lower gas fees and later move them to Ethereum.
Omni-chain NFTs are equipped to unleash untapped potential in the NFT ecosystem
Projects that tap into GameFi or the Metaverse can benefit from cross-chain technology, bringing us closer to a true “Meta” -verse - i.e., an interconnected landscape of blockchains between which assets and dApps can interoperate seamlessly.
Game NFTs exist to enrich the gaming experience. Some of these NFTs are valueless by design as required by the game, while others can be developed or expanded to grow in value in the game. This value can be purely aesthetic or through the creation of new abilities that help unlock or pass content. The ability to create truly unique NFTs that exist and function within a game world not only can provide users with increased extrinsic value but can also intrinsically grow on the individual as a personally customized NFT.
Music NFTs allow fans to buy songs, albums, and event tickets. They also provide artists with more on the profitability of their names, likenesses, images and artwork.
DAO governance class NFT
DAOs use various forms of NFTs. For example, DAO members can make governance contributions to the development of the DAO through their NFT holdings. Members who have made outstanding contributions and have the necessary commemorative NFTs to prove it (such as POAPs), can also receive airdrops of DAO Tokens.
These Function-enabling NFT projects would be a good choice for the cross-chain protocols. Webb is a popular project on Ethereum, and many avatar NFTs are also connected to Webb, but will the STEPN shoes on the Solana chain be connected to Webb in the future? For some virtual-land-based projects such as Sandbox, the way to solve the high gas fee of Ethereum is to connect itself to Polygon, but I personally think that the two chains are still too simple. NFT worlds, which bypass the chain for NFT interaction and go directly to retrieve data from servers on Minecraft, use “Gasless” to attract everyone's attention.
Can LayerZero uphold cross-chain security?
LayerZero adopts double verification, which is a two-dimensional verification method. The first is based on the Merkle Tree hash number algorithm. The Block ID is provided by the Oracle, and the Proof of Transaction transaction proof is provided by the Relayer. At the same time, multi-signature verification is performed. The message needs to be verified by the contract. The verification process relies on two parts: Block ID and Proof of Transaction, and each message will be signed by multiple parties. When both are verified as correct, cross-chain operations can be performed. In this case, the on-chain contract fully trusts the signed message, and the authenticity of the message is guaranteed by the signer.
- UserApplication - Calling LayerZero for cross-chain communication
- LayerZero EndPoint - LayerZero's on-chain contract
- Oracle - Sends the Block ID of Chain B transaction to Chain B Chain
- Relayer - Sends the Proof of Transaction on Chain B to Chain B
here are already many DeFi and NFT projects being deployed on multiple chains. Since the users and token holders of the protocol are scattered across different chains, governance can be cumbersome, while at the same time there can still be security issues arising across chains. LayerZero distributes the rights to the projects in each chain to maintain their security themselves. The biggest risk for any application is that fraudulent cross-chain messages can deplete all their liquidity, such as Wormhole hack. These prevent many protocols from achieving any cross-chain integration. LayerZero solves these problems by simplifying integration without the need to change existing protocols and without risking the protocol's own liquidity pool. All risk is borne entirely by the project itself, as all the relayers are from their own chains. In fact, this is no different than any other project in terms of maintaining security issues. We know that exposure is the beginning of danger, and cross-chain bridges are safe until they have been attacked. In any project we need to submit a certain amount of security risk to the appropriate protocols, so LayerZero's security is not "fully centralized" in the sense that it is unbeatable, nor is it fully trustworthy.