Analysis of the Technical Evolution and Business Model of the Cross-chain Bridges LayerZero

LayerZero, as a leader in the cross-chain field, has completed its journey from 0 to 1 and from following to leading in just three years. This article will analyze LayerZero's development process and its unique positioning in the cross-chain track from both technical and commercial dimensions.

1. The Evolution of Technical Architecture

1.1 V1 Version: Ultra-light Nodes and Their Security Risks

LayerZero V1 introduces the concept of "ultra-light nodes", which collaboratively complete cross-chain message verification through oracles and relayers. Although this design greatly improves efficiency, it also presents significant security risks:

• Collusion risk: lack of mandatory constraints in cryptoeconomics
• Unclear responsibility boundaries: Oracles and relayers are both off-chain roles.
• Chain-level risk: fully reliant on the security of each connected public chain.
• Centralization issues: The degree of decentralization of oracles and relays is insufficient in practice.

1.2 V2 Version: DVN Mechanism and Its Security Analysis

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

• Diversified sources of DVN, introducing more independent stakeholders
• Different cross-chain verification solutions can coexist
• User choice autonomy

However, the V2 version still has some potential issues:

• Security policy fragmentation
• DVN options are in the hands of the application side, which may lead to weak verification.
• Increased system complexity

2. The Evolution of Business Models

2.1 Capital Attention in the Cross-Chain Track

In recent years, the infrastructure sector has shown the best certainty in an uncertain market. Cross-chain, as an important part of the infrastructure, has attracted capital interest, mainly for the following reasons:

• The urgent need brought about by multi-chain explosion
• Pain points and opportunities coexist
• Platform network effects and moat potential
• Cross-chain is not just about asset transfer, but also involves communication across the entire chain.

2.2 The Role Transition of Cross-Chain Bridges

With the development of the multi-chain ecosystem, cross-chain bridges are transitioning from independent service providers to underlying services:

• Cross-chain is gradually being backend-oriented and service-oriented.
• The polarization of discourse power: New cross-chain bridges remain strong, while mid-chain projects in large chains need to bid.

2.3 LayerZero's business strategy

LayerZero has adopted a unique business positioning:

• Platform strategy: Transition from cross-chain service provider to cross-chain communication platform
• Responsibility decentralization: transferring the choice of verification security to user applications
• Win-win cooperation: Attracting partners through interest binding.

2.4 LayerZero's Valuation and Growth Challenges

Despite the significant progress LayerZero has made in both technology and business model, there remains a huge gap between its valuation and actual revenue:

• The annual new transaction volume growth rate has slowed to 26.3%.
• Estimated annual income between 3-6 million USD
• Based on a valuation of 3 billion USD, the PE ratio is as high as 500 times.

This huge gap makes it difficult to carry out a new round of financing in the short term.

Conclusion

LayerZero stands out in the cross-chain space through technological innovation and clever design of its business model. Its "framework as a protocol" platform strategy and "risk sinking" design philosophy make it the cross-chain protocol that currently supports the most types of chains in the market.

However, LayerZero still faces the challenge of mismatched valuation and actual revenue. In the future, whether it can achieve profitability breakthroughs through new business models ( such as asset management fees ) will be the focus of market attention.

In any case, against the backdrop of a multi-chain world, the development history of LayerZero provides us with an excellent case study for researching the evolution of cross-chain technology and innovation in business models.