Technical Evolution and Business Strategy Analysis of Cross-Chain Bridge LayerZero

Introduction

Cross-chain bridges still play a key role in the current cryptocurrency ecosystem. Although the hype around infrastructure tokens has subsided, it is a good time to objectively examine the historical evolution and explore deeper patterns during this relatively calm period in the market.

LayerZero has rapidly risen to become a star project in the cross-chain field in 2023 with its unique "ultra-light node" architecture, reaching a valuation of up to $3 billion. Its V2 version launched in 2024 brought about 30 million on-chain cross-chain transactions, solidifying its leading position in the industry.

However, LayerZero has also been controversial due to centralization and security issues. Some have referred to it as "technical garbage" and "super intermediaries", believing that its V1 version is essentially just a simple multi-signature model, while the V2 version has also failed to fully resolve security liability issues.

This article will delve into the development history of LayerZero from both technical and commercial perspectives, assessing whether its foundation is solid or merely an air castle built on sand.

1. Technical Analysis: The Evolution of LayerZero's Architecture and Security Assumptions

1.1 V1: Ultra-light Nodes and Security Risks

LayerZero V1 introduces the concept of "ultra-light nodes", deploying lightweight endpoint contracts on various chains as message sending and receiving points, with oracles and relayers collaboratively completing cross-chain message verification. This design offloads heavy computational work to off-chain, keeping on-chain contracts extremely simple.

The 2-of-2 trust model of V1, while improving efficiency, also has significant security risks:

• Oracles and relayers may collude to act maliciously.
• The boundaries of responsibility are unclear.
• Over-reliance on the inherent security of each public chain
• The degree of centralization in actual operation is higher than the theoretical design.

1.2 V2: DVN Mechanism and Its Security Analysis

V2 introduces the concept of "decentralized verification network (DVN)", allowing developers to independently select and combine multiple DVN verification messages. This improvement brings the following advantages:

• The sources of DVN are diverse and can include existing cross-chain bridges, individual teams, etc.
• Support for different cross-chain verification solutions coexisting
• Users can independently choose verification combination strategies

However, V2 still has some potential issues:

• The security strength of different DVNs may vary greatly.
• The application party may choose to use a single DVN for cost considerations.
• The introduction of multiple DVNs has increased system complexity.

1.3 Technical Review

V2 is undoubtedly a benchmark in the industry in terms of compatibility, supporting various systems such as EVM, SVM, and Move, with a complete ecosystem.

In terms of security, while V2 provides a stronger upper limit, it also lowers the lower limit. It is more like a market platform that allows various validation networks to compete in providing services. This may lead to unclear delineation of responsibility, and the current level of "decentralization" still needs to be improved.

2. The Implicit Transformation of the Cross-Chain Track

2.1 Macroeconomic Trends of Capital Concern

In recent years, the infrastructure sector has shown strong certainty in an uncertain market environment.

2.2 The investment logic of the cross-chain track

The capital's enthusiasm for the cross-chain track is mainly based on the following factors:

• Rigid demand in a multi-chain ecosystem
• Pain points and innovative opportunities coexist.
• Platform effects and moat potential
• The broad prospects of the full-chain communication protocol

The Role Shift of Cross-Chain Bridges in the Multi-Chain Trend 2.3

Cross-chain bridges are transitioning from independent service providers to underlying services:

• The cross-chain functionality is gradually becoming backend and service-oriented.
• The discourse power presents polarization in different scenarios.

2.4 LayerZero's collaborative strategy

LayerZero has adopted the following strategies:

• Platform-based operation, decentralizing security responsibilities.
• Replace subsidies with interest binding
• Actively absorb resources from all parties and gain recognition from ecological entities.

LayerZero's financing dilemma

Despite the growth in LayerZero's trading volume, there is a huge gap between its current valuation and revenue. By the most optimistic estimates, its PE ratio is as high as 500 times, making it difficult to secure a new round of financing in the short term.

Conclusion

LayerZero has achieved a leap from following to leading in just three years. Its V1 version innovatively captured the market with "ultra-light nodes," while the V2 version strategically bound the multi-chain ecosystem through a platform approach.

Despite the controversy, LayerZero's business logic is clear: focus on a universal and stable underlying standard, leaving the specific implementation to market choice. This approach aligns with the needs of a multi-chain world and follows the trend of the changing role of cross-chain bridges.

From a technical perspective, LayerZero's evolution demonstrates the industry's exploration of the balance between security and decentralization. From a business perspective, its platform strategy is noteworthy, as it reduces risks through standardization while expanding the ecological landscape.

Although there is a significant gap between the current valuation and revenue, considering LayerZero's advantages in traffic, there is still a possibility of achieving a breakthrough in value through business model innovation in the future.