Summary: LayerZero facilitates secure cross-chain communication using decentralized verifier networks (DVNs) and Executors. Its Endpoint contracts on each blockchain act as entry and exit points, enabling high-throughput, censorship-resistant message transfer. This allows developers to build secure omnichain applications for both EVM and non-EVM chains.

However, the ZRO token, used as collateral for transfers and governance, lacks a unique use case and can be substituted with tokens like USDC. Despite raising at a $3 billion valuation, our analysis suggests that ZRO is overvalued due to its limited utility within the network.

What is LayerZero?

LayerZero, founded by former poker player Bryan Pellegrino, is a messaging protocol designed to enable seamless data transfer across blockchains. It uses decentralized verifier networks (DVNs) and Executors to ensure security and flexibility, supporting censorship-resistant messages and permissionless development through immutable smart contracts.

The protocol's Endpoint contracts, deployed on each supported blockchain, act as entry and exit points for cross-chain messages. LayerZero's design allows for custom security configurations, high message throughput, and compatibility with EVM and non-EVM chains, providing a reliable framework for omnichain communication.

What is LayerZero?

How Does LayerZero Work?

LayerZero operates by leveraging a combination of decentralized verifier networks (DVNs) and Executors to manage the secure and efficient transfer of messages across blockchains. Here's a technical breakdown of its operation:

  1. Endpoint Contracts: Deployed on each blockchain, these contracts act as entry and exit points for messages.
  2. Message Lifecycle: Messages are sent from the source blockchain's Endpoint contract, verified by the Security Stack composed of DVNs chosen by the application, and then executed by Executors on the destination blockchain.
  3. Custom Security Stacks: Applications can configure their security stacks by selecting specific DVNs to verify messages, ensuring tailored security.
  4. Unordered Message Delivery: Allows high message throughput by executing verified messages out of order while maintaining censorship resistance.
  5. Programmability: Enhanced by path-specific libraries and simplified protocol contract interfaces, making it easier for developers to create omnichain applications.
  6. Gas Efficiency: Optimized base contracts and improved compiler efficiency reduce gas costs.
  7. Chain Compatibility: Supports both EVM and non-EVM chains, ensuring broad compatibility across different blockchain environments.
How Does LayerZero Work?

LayerZero ZRO Tokenomics

LayerZero's ZRO tokenomics are designed to support its transformation into a publicly owned, immutable infrastructure with a fixed supply of 1 billion tokens. Here is how ZRO tokens have been distributed:

  • Community and Ecosystem Allocation: 38.3% of the total supply is allocated to the community, developers, and users. On the first day of the airdrop, 8.5% will be available for eligible participants. The rest will support future distribution programs and ecosystem growth.
  • Strategic Partners: 32.2% of the tokens are allocated to strategic partners, with a three-year vesting period, including a one-year lock and a monthly unlock over the following two years.
  • Core Contributors: 25.5% of the tokens are allocated to core contributors, following the same vesting schedule as strategic partners.
  • Future Distributions: 15.3% is reserved for future distributions to users, protocols, infrastructure builders, and community members through programs like Requests for Proposals (RFPs).
  • Repurchase and Community Bucket: LayerZero has repurchased 40 million ZRO tokens and pledged them to the community bucket to ensure fair and sustainable distribution.

LayerZero's tokenomics strategy emphasizes fair distribution, community involvement, and long-term ecosystem growth. It also includes measures to prevent Sybil attacks and ensure genuine user participation.

ZRO Tokenomics

ZRO Token Utility

The ZRO token can be used for cross-chain message fees, governance, and network incentives within the LayerZero ecosystem. However, it can be used alongside other tokens like USDC or WETH, suggesting it lacks a unique use case. 

Our analysis indicates that ZRO is overvalued, despite raising over $120 million at a $3 billion valuation.

ZRO Airdrop

LayerZero's ZRO airdrop is a significant step towards distributing the ZRO token to the community, developers, and users, enhancing the protocol's decentralization and engagement.

  • Eligibility: The eligibility checker, released on June 19, allows users to verify their airdrop status. According to Bryan Pellegrino, CEO of LayerZero Labs, 1.28 million wallets qualify for the airdrop.
  • Airdrop Allocation: On the first day of the airdrop, 8.5% of the total supply, or 85 million ZRO tokens, will be distributed to eligible participants. The remaining community-allocated tokens will support future distribution programs and ecosystem growth.
  • Anti-Sybil Measures: To ensure fair distribution, LayerZero has implemented measures to filter out Sybil attackers—users who create multiple fake accounts to claim more tokens. These measures include self-reporting, bounty-hunting, and collaboration with on-chain security firms.
  • Distribution Adjustments: As the airdrop approaches, LayerZero continues refining its Sybil hunter tagging process. Eligible wallets might see adjustments in their allocations based on these refinements.
  • Security Precautions: Users are advised to use the eligibility checker without connecting their wallets to protect against online scams before the actual claim begins.

The ZRO airdrop aims to reward genuine users and foster a strong, engaged community while ensuring fair distribution and security throughout the process.

ZRO Airdrop

Bottom Line

In sum, LayerZero is a protocol for seamless data transfer across blockchains using decentralized verifier networks and Executors for security. The ZRO token, meant for cross-chain fees, governance, and incentives, lacks a unique use case and can be used alongside other tokens like ETH or USDT.

Our analysis suggests ZRO is overvalued, raising at a $3 billion valuation, despite lacklustre tokenomics. The recent ZRO airdrop aimed to decentralize and engage the community, but the token's limited utility raises concerns about its long-term value.