LayerZero, a communication method that facilitates cross-chain applications, has been gaining traction in the decentralized finance (DeFi) space due to its low-level messaging capabilities. This technology enables the development of omni-chain functionalities, such as decentralized exchanges, money market protocols, and other DeFi applications that can benefit from cross-chain liquidity provisions.
The LayerZero platform was launched in September 2021, with Stargate Finance being the first application built on it. Stargate is a cross-chain bridge that enables transfers between Ethereum, Binance Chain, Polygon, Arbitrum, and Optimism with optimum liquidity and security. The total value locked (TVL) in Stargate pools is $419 million, according to DefiLlama data, which is only second to the Multichain protocol.
The LayerZero protocol has also been used to bridge isolated ecosystems like Aptos with Ethereum, demonstrating the messaging protocol’s ability to bridge incompatible systems. Additionally, the messaging protocol also finds application in decentralized exchanges and lending protocols. Radiant Capital is the leading lending platform built using LayerZero’s technology, and its TVL has increased to $200 million from less than $30 million in the beginning of 2023.
InterSwap and Hashflow are building a cross-chain decentralized exchange like Uniswap on top of LayerZero. Pontem Network, a DeFi hub on Aptos, is also leveraging LayerZero’s technology to build its suite of DeFi applications like DEX, lending portal, and an NFT marketplace.
The LayerZero ecosystem growth appears to be developing a significant moat in cross-chain applications as the airdrop frenzy brings liquidity and usage to the applications built on it. The LayerZero team has included a mention of the ZRO token in their source code on Github, which makes an airdrop toward early users likely. This speculation around the ZRO token airdrop is the primary motivation for the increasing adoption of LayerZero.
Data analytics firm Nansen reported that decentralized applications (DApps) built on LayerZero are some of the top-used entities across blockchain platforms like Aribtrum, Optimism, Ethereum, Binance Chain, and Polygon. In the first week of April, LayerZero-powered applications such as Stargate and Radiant Finance were the most used on Arbitrum and Optimism, while on Polygon, Binance Chain, and Ethereum, LayerZero and its applications ranked between 7th and 30th concerning user activity.
LayerZero has also been enjoying a first-mover advantage in cross-chain interoperability. Although other interoperable platforms are currently in the works, LayerZero’s working design has allowed it to gain a foothold in the market. The project raised $261 million in three funding rounds, doubling its valuation from $1 billion to $2 billion from March 2022 to March 2023.
In conclusion, LayerZero’s low-level messaging capabilities facilitate cross-chain applications and enable the development of omni-chain functionalities. The LayerZero ecosystem growth provides significant moat in cross-chain applications as the airdrop frenzy brings liquidity and usage to the applications built on it. As LayerZero gains traction in the DeFi space, it has the potential to play a significant role in cross-chain interoperability.
