Is Full-Chain Layer0 the Future? 'Web3 New Holy Grail' zkOmnichain Deserves Attention

In 2022, the emergence of the interoperability protocol LayerZero has made the concept of Omnichain hot. From the appearance of individual public chains to the emergence of cross-chain bridges, and then from multiple chains to the birth of full chains, it is inevitable that blockchain applications in the encryption field and Web3 will continue to expand and interconnect. Lower communication costs and faster communication speeds, while ensuring security, are the current and ongoing needs of the blockchain field. In this article, the veDAO Research Institute will start with an analysis of zkOmnichain to gain a deeper understanding of Omnichain.

With the development of the L1 and L2 ecological chains, the public has begun to accept the coexistence of multiple chains, as opposed to the previous dominance of Ethereum. However, each blockchain is essentially an independent custom ledger, and data between different chains is difficult to communicate, creating isolated data islands. In order to fully utilize an application, developers and users must allocate resources and time between different chains, which is a step back compared to Web2. Therefore, cross-chain interoperability is becoming an important proposition for Web3.

There are currently three main methods for achieving full-chain coverage of cross-chain communication: 1. Interoperating between the originating chain, target chain, and intermediate chain through an intermediate consensus protocol, verifying and forwarding messages between different chains; 2. Using the Optimistic mechanism to achieve interoperability with other chains; 3. Interoperating with other chains through the full-chain interoperability protocol zkOmnichain based on zero-knowledge proofs.

The innovation of Omnichain lies in the use of ultra-light nodes, which do not transmit information themselves but only serve as interfaces, while the verification and transmission of information is completed by external oracles and relayers. Therefore, only one ultra-light node containing minimal information needs to be deployed on each chain to communicate with any other chain that also has nodes, including L1, L2, non-EVM, and EVM chains, forming a Layer0 network above the chains.

As a message transmission layer, LayerZero aims to enable smart contracts to communicate easily between many blockchains, or more precisely, any blockchain. At the same time, Omnichain may indeed prove to be a key catalyst for bringing NFTs and related projects to other chains in a more widespread manner.

What is zkOmnichain

The technical principle of zkOmnichain is developed based on the LayerZero technology stack, using a series of technical means to achieve efficient privacy protection and scalability. Specifically, zkOmnichain uses zk-SNARK proof technology to achieve privacy protection, MPC technology for multi-party computation, and optimized smart contracts for efficient computation. zk-SNARK is a zero-knowledge proof technology that can prove the correctness of certain facts without revealing any information, and it is widely used in the fields of privacy protection and data verification due to its efficiency and verifiability. The comprehensive application of these technical means allows zkOmnichain to provide a high-performance solution without compromising privacy and scalability, providing strong support for different blockchains and applications.

By combining the low cost of third-party verification networks with the high security of light nodes, LayerZero's ultra-light nodes provide high security at a low cost. This high cost-effective solution will save developers a lot of learning and operating costs, significantly reduce user usage costs, and provide a strong cost advantage for cross-chain applications built on LayerZero.

The diagram above shows the architectural differences between centralized exchanges, decentralized exchanges, and cross-chain bridges built using LayerZero as their underlying communication primitive. In the traditional cross-chain bridge models on the left and in the middle, cross-chain communication is achieved through off-chain monitoring of the two chains, rather than actual information transfer between the two chains; LayerZero directly deploys its own nodes within the two chains, enabling communication between multiple chains.

Asset cross-chain bridges cannot simultaneously meet the three conditions of "ensuring immediate settlement," "asset nativeness," and "unified liquidity." However, the asset cross-chain bridge Stargate based on Layerzero breaks the impossible triangle using the Delta Algorithm and soft partition mechanism. Liquidity providers enjoy better capital efficiency and scalability, allowing the same funds to be called more efficiently, resulting in higher returns. Users can pay lower costs for secure and zero-slippage asset cross-chain transactions.

How does zkOmnichain achieve full-chain interoperability?

Layerzero's architecture

Layerzero consists of three core components: Endpoint, Oracle, and Relayer. They are:

Endpoint: Presented to users as the User Application, responsible for direct interaction with users or applications. The Endpoint can be understood as a series of smart contracts deployed on each chain. The Endpoint specifically includes three modules—Communicator, Validator, and Network.

Oracle: A third-party oracle service, independent of the Layerzero protocol. Layerzero currently uses Chainlink. The role of the oracle is to send block header information to the target chain, and then combine it with the Relayer's Proof information to verify the validity of the transaction.

Relayer: Acts as a relay to obtain and transmit Proof information for specified transactions. Currently, Layerzero provides the Relayer service, but in the future, specific business entities may take on the role of Relayer. Relayers can earn most of the cross-chain transaction fees.

In short, Layerzero transmits information between Layerzero Endpoints on different chains through Oracles and Relayers, using Oracles to transmit block headers (which contain transaction information, messages, etc.) and Relayers to transmit transaction proofs (Proof information), mutually verifying to ensure security.

Difference between zkOmnichain and zkRollup

As Ethereum is about to undergo the Shanghai upgrade, we can see the market's enthusiasm for Ethereum and the significant market share that Ethereum maintains due to its active updates in the Web3 market. However, the trend of coexistence and simultaneous development of multiple chains cannot be ignored. The veDAO Research Institute starts by discussing the differences between zkOmnichain and zkRollup to understand why the full-chain represented by zkOmnichain is important and has market prospects.

zkOmnichain and zkRollup are both privacy protection solutions based on zero-knowledge proof technology, and their commonality lies in their ability to achieve efficient, scalable, and privacy-secure blockchain applications. However, they differ in some key technologies and application scenarios, mainly in the following aspects:

Different data structures: zkRollup belongs to Layer2, packaging transaction data into blocks and then submitting them to the mainnet of the blockchain for verification and recording. zkOmnichain uses a multi-layer structure, which can achieve more complex application scenarios.

Different application scenarios: zkRollup is suitable for simple transaction scenarios, such as token transfers, decentralized exchanges, etc. zkOmnichain can be applied to more complex scenarios, such as cross-chain transactions, financial derivatives, etc.

Different verification methods: zkRollup uses batch verification to package multiple transactions together for verification, thereby increasing transaction processing speed. zkOmnichain uses multi-party computation technology, which can achieve more complex verification and computation.

Different compatibility: zkRollup is based on Ethereum's EVM, so it can be compatible with smart contracts on Ethereum. zkOmnichain is an independent blockchain solution and requires the construction of its own smart contracts.

In short, zkOmnichain has greater scalability, providing core support for multi-chain interaction at the underlying logic level, connecting Web3 from isolated islands of various chains into a unified network.

Advantages and Disadvantages of zkOmnichain

Overall, the advantages and disadvantages of zkOmnichain are as follows:

Advantages:

(1) High privacy and security: zkOmnichain uses zero-knowledge proof technology to achieve transaction privacy protection, preventing information leakage and data tampering.

(2) Good scalability: zkOmnichain uses a multi-layer structure, which can achieve more complex application scenarios, and uses optimized smart contracts and multi-party computation technology to improve transaction processing speed.

(3) Wide applicability: zkOmnichain is suitable for different blockchains and application scenarios, providing reliable solutions for enterprise supply chain management, cross-chain transactions, financial derivatives, etc.

Disadvantages:

(1) High technical threshold: zkOmnichain uses zero-knowledge proof technology and multi-party computation technology, which require a high level of technical expertise and the construction of independent smart contracts.

(2) Weak network effect: zkOmnichain, as an independent blockchain solution, is still in its early stages and, although actively building its ecosystem, needs to attract enough users and applications to form a good network effect.

In terms of ecological development, during the test network period, over 700 smart contracts were deployed on LayerZero. Representative projects in the current Layerzero ecosystem include: Stargate, a cross-chain bridge; Liquidswap, Radiant Capital, Avault, and Hashflow, which are full-chain lending protocols, yield aggregators, and DEXs; and SushiSwap, as well as the full-chain NFT project Gh0stly Gh0sts. The most popular projects are the full-chain cross-chain bridge Stargate and the full-chain NFT Gh0stly Gh0sts.

Stargate

Stargate is a full-chain cross-chain bridge based on LayerZero, focusing mainly on the cross-chain transfer of USDC, USDT, and ETH assets, with unified liquidity and fast transaction finality. It is a demonstration ecological project created by the LayerZero founding team based on the LayerZero full-chain interoperability protocol.

Stargate's function is to achieve asset transfers between multiple chains using a pool-based cross-chain method. This cross-chain method is more secure compared to asset mapping: you receive USDC, not sETH or cETH-like asset mappings. However, this cross-chain transaction method is highly dependent on pool liquidity. If everyone wants to transfer assets to a single chain, it will cause the pool to become unanchored. To address this issue, Stargate raises funds through initial issuance to provide transaction liquidity and uses high APR to attract funds. In addition, to avoid high slippage, Stargate charges additional fees for large transactions to compensate for pool liquidity, making it relatively user-friendly for retail investors.

Gh0stly Gh0sts

Launched on April 4, 2022, Gh0stly Gh0sts is the first full-chain NFT collection based on LayerZero and has quickly attracted widespread market attention due to its Free mint and Omnichain features. Gh0stly Gh0sts can be minted and transferred on any of 7 chains, and the original chain (i.e., the minting chain) and the current chain will respectively affect the background color and border color of the NFT, making it easy to distinguish the NFT's past and present.

Like many other NFTs, part of the value of Gh0stly Gh0sts comes from their potential integration into future games/applications. However, the unique advantage of Gh0stly Gh0sts is that its future integration potential is no longer limited to a specific blockchain domain. Overall, Gh0stly Gh0sts is undoubtedly an interesting attempt in the field of NFT cross-chain, opening a new window for NFT gameplay. On the other hand, Gh0stly Gh0sts' multi-chain issuance is a new attempt to solve the "gas war": when gas fees on the Ethereum mainnet are too high, users can choose other chains, and when gas fees decrease, they can choose to transfer back to Ethereum.

Following the successful launch of Gh0stly Gh0sts based on LayerZero, other Omnichain NFTs such as Holograph, Tiny donos, and Yakuza Pandas have been launched based on LayerZero.

zkOmnichain is currently in the early stages of development and has not yet received large-scale application and commercial validation. However, with the development of Web3 technology and the continuous expansion of application scenarios, zkOmnichain's technology and solutions have broad development prospects. In the foreseeable future, full-chain deployment is expected to gradually replace the current multi-chain application deployment model and become the mainstream; at the same time, NFTs, DeFi, and other applications based on full-chain are expected to become new hot projects in 2023, and are worth looking forward to.

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