THIS PROTOCOL IS CONNECTING BLOCKCHAINS

Published in

Coinmonks

6 min readApr 5, 2022

Yes, you read right. The protocol we are going to introduce in this article is making blockchains interact among each other.

LAYER ZERO

You’ve probably heard of this protocol recently, because of its media “explosion”, on twitter for example. Many big investors such as Binance Labs.

So, this project is taking part to what is the “NEXT PHASE” of DeFi and crypto; the Inter-Chain Communication

Now what is Layer Zero and what differs it from other protocols?

-Firstly we are going to introduce its project and mission, by defining what a layer zero is too

-Secondly we will move to its solutions

-Then we will talk about its security

-and finally some of its use-cases

So, let’s start by analyzing what a layer zero is

A layer zero is a base infrastructure, which acts as a framework for the creation of structures built above it (see Cosmos with cosmos-SDK).

The infrastructure has two main principles: Security and Inter-operability

SECURITY → It needs to be spread to all the ecosystem created. See it as a castle (layer zero) in which ,inside it, all resources ( layer 1 and 2) are protected.
INTER-OPERABILITY → Communication and interaction among chains needs to be simple, effective and efficient.

Ok, once understood the definition of a layer zero, let’s move to the project itself

Layer Zero is a generic message passing protocol, this means swapping tokens it’s not the only potential use of it. So,Layer Zero wants to maximize the efficiency of a transfer from a chain to another, with NO middle-chains as intermediary (like Anyswap)

The aim is connecting every cross-chain contract, and so applications.

Let’s continue by explaining the context we are currently in

The crypto world is now multi-coin since Ethereum dominance is decreasing, so now the ecosystem is being distributed among other valuable coin other than Ethereum. With more chains in use, there’s an increasing need in bridging among chains, and bridges use Wrapped Tokens (non-native) for swaps and furthermore many bridges got hacked (like Wormhole), this is where Layer Zero comes out, with its first use case

SOLUTIONS

Let’s see what problems Layer Zero solves

-LIGHTNODE: Since running a LightNode is usually expensive (above all for small projects), Layer ZERO solution provides an UltraLight Node(ULN), an entity called “Relayer”. The protocol also uses Oracles (like Chainlink or Band protocol) to take data and send messages throughout the network.

So, as we will see later, there are a Relayer and an a Oracle in Layer Zero system, those, because of their independent way of working between each other, act a sort of “non tangible” collaboration, which makes Layer Zero even more secure than ChainLink or Band.

In fact, Layer Zero will use the combination of the Relayer (ULN) and the oracle to be effective and efficient.

-NO BRIDGING NEEDED

-IMPROVED USER EXPERIENCE: This protocol and layer zero in general are the solution needed to scale the adoption of DeFi.

Layer Zero allows non-technical users to have a better experience, flow and usability, making the environment easier and cheaper.

After having talked about its solutions, let’s move on to HOW DOES THIS PROTOCOL WORK?

All works with 3 main components:

An ORACLE: Oracles are basically tools which work with off-chain data (like ChainLink or Band protocol)

A RELAYER (ULN): An entity who deals with on-chain data or, for example, communicates transactions

A LAYER ZERO ENDPOINT: A contract potentially present on every chain ,which allows Later Zero to be compatible with all those chains

Let’s focus on the Oracle and the Relayer

The Oracle and the Relayer are independent entities.

This, is for security reasons, in fact they don’t communicate between each other.

WHAT HAPPENS IN CASE OF SOME MALEVOLENT ATTACKS?

The protocol works when both the Relayer and the Oracle are doing their tasks.

Now, 1) if this remains so,then everything is working correctly

2) If the Relayer is malevolent, the second network understand its intention and acts as a consequence, not allowing the message to be sent. Same thing if the oracle is malevolent(and the Relayer not)

3) If both the Relayer and the Oracle are malevolent, the message will be stopped anyway

4) If there’s collaboration between the Relayer and the Oracle in order to do a malevolent attack, then the message will be valid, but different. The positive thing about this is that, even if they do an exploit, what will be damaged is part of those applications that have used that Oracle and that Relayer

Finally we are arrived to USE CASES

These are just examples of use-cases that would be possible with Layer Zero

Cross-Chain DEX: recently SushiSwap has created a proposal right for this scope. It aims to make the DEX cross-chain, so you could swap tokens from different chains easier.

Multi-Chain Yield Aggregator: cross-chain based strategies.

Multi-Chain Arbitrage: imagine doing an arbitrage between two different DEX on two different chains, in a both secure and cheap way. Cool right?

CONCLUSION

Given the decentralized nature of both blockchains and financial markets, interoperability has been something of an issue.

Ethereum took the lead and branded itself as the bridge to all other chains.

It has not gone so well and many other solutions have been developed since then.

Layer Zero took the best of each solution and rolled them into one, seamlessly integrated package.

So, to truly get the benefits of blockchain technology, we need to consider layer zero solutions

Layer zero allows for more efficient and cheaper inter-chain transactions. It can be used for side-chains, inter-chain atomic swaps, inter-chain messaging and smart contract compatibility.

Layer Zero, therefore is the foundation for an interoperable DeFi ecosystem which will bring about the next wave of innovation for crypto currencies.

HOPE YOU LIKED THIS ARTICLE AND LEARNED SOMETHING NEW