Intern Notes #3/ Layer Zero Whitepaper

Author(s): Ryan Zarick, Bryan Pellegrino, Caleb Banister
Submitted on: 26-05-2021
Written on: 16-03-2022
URL: https://layerzero.network/pdf/LayerZero_Whitepaper_Release.pdf

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This post is a little technical because it is a summary of the LayerZero whitepaper, not a podcast/space

You can view the web version here for a more complex sort and filtering Zettelkasten system with a bonus graph view. My notes were originally written for the Zettelkasten, and then copied over here, so there might be formatting issues below.

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This is a summary of the whitepaper in the URL above.

TLDR

Layer Zero - a Trustless Omnichain interoperability protocol

• Allows 2 separate blockchains to communicate using 2 independent components

  • Basically, you get these two independent components to make sure the transactions are valid from the sender before the receiver gets to do anything

• general communication layer, NOT a blockchain

• Touts benefits of being less complex, less overheads, and being able to extend to any blockchain without being hindered by its native SDK.

Introduction

Core pillars of blockchain - Decentralization, Transparency, Immutability

Problem

Liquidity/developers/users are walled within an blockchain

Bandaid measures:

1. use of centralized services (such as Binance)

   • Does not align with Trustlessness of blockchain

2. use of Cross Chain Bridges such as AnySwap or THORChain

   • Relies on protocol specific intermediate tokens or intermediate consensus layers

Solution

Layer Zero, a communication primitive, allows transactions between multiple blockchain using

• allows transactions between multiple Layer 1 or Layer 2 chains.

• Intuition: if two independent entities can corroborate the validity of a transaction, then Chain B can be sure the transaction from Chain A is valid

Related Work

1. Ethereum - original Ethereum Virtual Machine chain, but low 15-45tps makes it hard to scale

2. Polygon - Layer 2 Sidechain

3. PolkaDot - Parachains are interlinked via a common relay chain. However there is additional cost when using this relay chain

4. THORChain - Uses pairwise liquidity pools to bind 3rd party currency to $RUNE. While authors acknowledge it solves the scalability problem, it is cumbersome to use as a simple transaction can be quite complicated

5. AnySwap - Decentralized Exchange which relies on intermediate token $ANY , similar to THORChain. Similar issues too

6. Cosmos - Inter-Blockchain Communication built on Tendermint BFT which allows messaging between chains built on the hub

   • Inter-Blockchain Communication requires a full on chain Light node of each chain

   • Only provides direct communication between fast finality chains

   • Gravity Bridge - AnySwap and Cosmos equivalent

7. Chainlink - Framework for building

How does LayerZero Work?

Communication protocol which provides trustless Valid Delivery

Components

Endpoints

Smart Contracts which implement 4 modules which basically share information with each other:

1. Communicator

2. Validator

3. Network

4. Libraries - each new chain is an added library 1 Endpoint for each chain.

Oracle

Can be any oracle to read a block from one chain and send to another
Expected to be Chainlink as industry leader

Relayer

Off-chain service that fetches proof for a specific transaction

• similar to oracle but for proof of transaction)

Steps

Simplified Version with less jargon

1. Person A on Chain A wants to send a message to Chain B using an application. Application tells the Communicator A relevant details about where the message wants to go

2. Communicator A tells Validator A that there is a message to be validated

3. (step 3 and 4 happen concurrently) Validator A tells Network A that the block header H needs to be sent to Chain B

4. (step 3 and 4 happen concurrently) Validator A tells Relayer A that he needs the proof that the message on Chain A has been sent.

5. Network A tells Oracle to send current block header H of Chain A to Chain B

6. (step 6 and 7 happen asynchronously) Oracle gets current block header H from Chain A

7. (step 6 and 7 happen asynchronously) Relayer gets the message transaction proof of the message from Chain A, and stores it off-chain

8. Oracle confirms that the block referred to by block header H is finalized, then sends H to Chain B

9. Network B receives the block header hash, and gives it to Validator B

10. Validator B sends the hash to Relayer B

11. Relayer B sends the message and message transaction proof to Validator B

12. Validator B gets both the message and message transaction proof, and checks if the proof and the block header H it received in step 9 matches. If yes, send message to communicator.

13. Communicator will send message to App B.

Application

1. Cross Chain Bridge (https://stargate.finance/)

2. Multi-Chain Yield Aggregator

3. Multi-Chain Lending

Example transactions

Refer to this tweet here.
The Ethereum message was sent at Mar-15-2022 05:46:00 PM +UTC

1. Ethereum received message 5 min later at 05:55:16 PM +UTC

2. Fantom received message 8 min later at 06:03:19 PM +UTC

3. Polygon received message 2 hours later at 07:51:29 PM +UTC

4. Optimistic received message 2.5 hours later at 08:27:13 PM +UTC

5. Avalanche received message 2.5 hours later at 08:27:19 PM +UTC

6. Arbitum received message 2.5 hours later at 08:26:25 PM +UTC

7. BNB Chain received message 2.5 hours later at 08:27:19 PM +UTC

Seems like interchain communication still takes some time (up to 2.5 hours). Personally not sure if i would wait 2.5 hours to bridge when there are much faster alternatives. Let me know if I interpreted this wrongly.

Update: Stargate finance used Layer Zero as to create a cross chain bridge. Seems like there is some time required to get from one token to another. Since it depends on transaction finality, I wonder if it would be faster to go from avax to other chains, since avax has almost instant finality. Let me know!