The Evolution of LayerZero Cross-Chain Bridges from V1 to V2: Technical and Business Model Analysis

Introduction

Cross-chain bridges still play an important role in the current market environment. Although the popularity of infrastructure coins has decreased, during this period of market calm, we can examine historical developments more objectively and uncover the insights contained within.

In 2023, LayerZero quickly rose to prominence with its "ultra-light node" architecture, becoming a star project in the cross-chain field, with a valuation of up to $3 billion. The V2 version launched in 2024 brought 30 million on-chain cross-chain transactions, solidifying its industry-leading position.

LayerZero's omnichain vision has attracted numerous developers and top institutional investors. However, on the other hand, its level of centralization and security have also been heavily questioned, sparking heated discussions in the industry.

Some criticize it as "technical garbage" and "super intermediaries", believing that the V1 version is merely a simple 2-of-2 multi-signature model, and that the V2 version has not taken on the actual security responsibility of the cross-chain verification network (DVN).

Some also believe that LayerZero's business strategy over the past three years has been innovative and stands out in the industry.

This article will analyze the development of LayerZero in depth from both technical and commercial perspectives, assessing whether its foundation is solid or merely a castle in the air.

1. Technical Analysis: The Architectural Evolution and Security Assumptions of LayerZero

1.1 V1: Ultra-light nodes and security risks

LayerZero V1 introduces the concept of "ultra-light nodes," deploying lightweight endpoint contracts across various chains as message transmission points, with oracles and relayers collaboratively completing cross-chain message verification. This design offloads the heavy burden of block synchronization and validation work to off-chain entities, keeping on-chain contracts extremely simple.

The "2-of-2" trust model of V1, while improving efficiency, also has obvious security risks:

• Collusion risk: Lack of mandatory constraints in crypto-economics
• Unclear responsibility boundaries: Unable to directly control the operation of off-chain roles.
• Chain-level risk: Completely reliant on the security of each connected public chain
• Centralization issue: Limited number of operational nodes

1.2 V2: DVN mechanism and its security analysis

The V2 version launched in 2024 introduces the concept of "decentralized verification network (DVN)", breaking away from the single oracle + relayer model. Developers can independently choose and combine multiple DVN verification messages, and security strategies are no longer limited to a fixed model.

The advantages of V2 include:

1. Diversification of DVN sources
2. Different cross-chain verification solutions coexist
3. Users choose autonomy

But V2 still has some issues:

1. Fragmentation of security policies, inconsistent DVN strength
2. The application party may tend to choose a single DVN
3. Multiple DVN combinations increase system complexity

1.3 Review of Technical Evolution

In terms of compatibility, V2 has become the industry benchmark, making it easy to connect with various public chains.

In terms of security, while V2 offers a stronger upper limit, the lower limit has also been lowered. There may be mutual shirking of responsibility. The degree of decentralization still needs to be improved, unless the DVN network develops a large number of independent validators and establishes a strong economic game mechanism.

2. The Subtle Transformation of the Cross-Chain Track

2.1 Macroeconomic Trends of Capital Concern

The financing trends of various tracks in Web3 from 2022 to 2024 show:

• Financing for CeFi-related facilities has significantly decreased.
• The gaming sector will see a brief rebound in 2024.
• The infrastructure still maintains strong certainty.

2.2 Investment Logic of the Cross-Chain Track

The advantages of the cross-chain bridges track are obvious:

• The multi-chain explosion brings essential demand
• Pain points and opportunities coexist
• Have platform network effects
• Not just asset transfers, the prospects for cross-chain communication are vast.

2.3 The Role Transition of Cross-Chain Bridges

Cross-chain bridges are transitioning from independent services to underlying services:

• Tending towards backend, service-oriented, and interface-oriented
• Polarization of discourse power: new chains vs. major chain projects

2.4 LayerZero's strategic layout

LayerZero adopts a platform strategy:

• Security responsibility delegation
• Interest binding replaces subsidies
• Actively absorb resources from all parties

2.5 LayerZero's financing dilemma

Estimated based on the current transaction scale and revenue model:

• Annual growth rate of approximately 26.3%
• Gross income is between 3-6 million USD.
• PE may be as high as 500 times

It is difficult to conduct a new round of financing in the short term.

Conclusion

LayerZero has achieved a leap from 0 to 1 and from following to leading in three years. The V1 version innovatively seizes the market with "ultra-light nodes," while the V2 version binds the multi-chain ecosystem through a platform strategy.

Its business model focuses on universal standard layers, leaving the specific implementation to market selection. This approach aligns with multi-chain needs and conforms to the role transformation of cross-chain bridges.

Technically, LayerZero demonstrates the industry's exploration of the balance between security and decentralization. The V2 version theoretically possesses the potential for complete decentralization, but practical application still requires market validation.

In business, LayerZero's platform strategy is worth noting. By standardizing to reduce risk, it achieves a larger ecological landscape.

Although there is controversy surrounding the current valuation, LayerZero still possesses great potential as a traffic entry point in the cross-chain field. It may explore new monetization models in the future, such as asset management.