Interoperability Startup LayerZero Comes Out of Stealth With $6M in Funding

The Series A round led by Multicoin Capital and Binance Labs should help the team build better bridges.

Sep 16, 2021 at 12:00 p.m. UTC
Updated Sep 16, 2021 at 3:59 p.m. UTC

LayerZero, a startup solving the problem of interoperability across a growing and highly valuable universe of blockchains, has emerged from stealth with $6 million in Series A funding led by Multicoin Capital and Binance Labs.

LayerZero’s “omnichain interoperability protocol” – which offers an alternative to unsecure blockchain bridges on the one hand, and on-chain validation methods that come at a high cost on the other – was also backed by Sino Global Capital, Defiance, Delphi Digital, Robot Ventures, Spartan, Hypersphere Ventures, Protocol Ventures and Gen Block Capital.

The project previously raised $2 million in seed funding in April, bringing its total financing to date to just over $8 million. LayerZero is currently under audit and is expected to launch early in the fourth quarter of this year, the company said.

Blockchain bridge boom

Solving the pressing commercial need to connect decentralized finance (DeFi) applications on different blockchains is currently done in a couple of ways. One way is by using a cross-chain network, which can create a weak and exploitable link, as was seen in the recent PolyNetwork hack. The alternative is using on-chain light nodes to validate block headers on each pairwise chain, which is more secure but becomes very expensive to do on Ethereum, for instance.

LayerZero has augmented the on-chain light node approach, which takes every block sequentially from one chain and takes its block header and writes it to the other chain and vice versa.

“Rather than needing to take every block, many of which you don’t care about, you stream a single block on-demand for the transactions that you do care about,” said LayerZero co-founder Bryan Pellegrino in an interview. “To do this you need the block header and your transaction proof, and then you can combine those and do the validation directly on the chain.”

LayerZero’s “ultralight node” takes one single block in isolation and validates it with the help of blockchain oracle networks like Chainlink and Band, which both work with the protocol. The oracles are responsible for moving the block header, while an open relayer network is responsible for moving transaction proofs, Pellegrino explained.

For an attack on the LayerZero system, there would have to be malicious collusion between the oracle and the relayer network, said Pellegrino, adding:

“In the worst case, the system is as secure as the Chainlink DON [decentralized oracle network], which is a pretty good worst case.”

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Ian Allison is a senior reporter at CoinDesk.