LayerZero Explained: Tokenomics of the ZRO Token

LayerZero, also known by the market ticker ZRO, is an interoperability-focused omnichain protocol designed for lightweight message passing across multiple blockchains.

LayerZero has been designed to be the optimal blockchain interoperability solution by providing seamless, trustless, and instant cross-blockchain transactions.

But what exactly does that mean? What is LayerZero and how does it enable interoperability across blockchains?

Today, we find out.

What is LayerZero?

LayerZero was founded by Bryan Pellegrino, Caleb Banister, and Ryan Zarick in 2021.

At its core, LayerZero is an interoperability protocol that transfers messages from user applications on one blockchain network to another.

This means LayerZero isn’t a blockchain itself but rather is a protocol that allows different blockchain networks to communicate with each other, share data, and transfer assets as if they were all one blockchain.

To help illustrate the point, the name LayerZero refers to its place in a blockchain network’s infrastructure.

Typically, the blockchain you use for sending transactions or accessing applications is known as a Layer-1 platform. So platforms like Bitcoin, Ethereum, Polkadot, etc, are all Layer-1 platforms.

Anything built on top of these Layer-1s are known as Layer-2 applications. This could be something like Optimism which was built on top of the Ethereum blockchain to help Ethereum with processing transaction data on its network.

As you might have guessed, Layer-0 would be a layer below this base, Layer-1 blockchain.

So, a better way to think of this may be as a building, with Layer-1 as the ground floor where you enter the building, and Layer-0 being the basement where all the wiring and plumbing that is required for its functioning is kept.

But, how does all this actually work?

How does LayerZero work?

LayerZero can be broken down into three core components: Ultra Light Nodes, decentralised Oracles, and Relayers.

To make sure we’re all on the same page, Ultra Light Nodes, or ULNs, are smart contracts that run on each blockchain and act as endpoints for cross-chain communication.

Functionally speaking, Ultra Light Nodes act as mini validators and verify the validity of transactions and messages from other blockchains using block headers and transaction proofs which ultimately ensures both network security and efficiency.

Next, Oracles can be best described as data providers.

Natively, most blockchains do not communicate with other blockchain networks, nor do they receive any data from outside, off-chain sources.

Oracles exist to fill a gap in smart contract functionality, where blockchains require external data but are unable to get it.

An Oracle is either an entity that provides data itself or is an aggregator of other data vendors to give the blockchain a reliable result when they query off-chain data.

For example, if you have a bet through a blockchain smart contract on who will win a sports game. The blockchain isn’t linked to the sports game directly, so it relies on trusted data vendors to provide it with accurate data to determine the outcome and reward the winner.

Finally, there are Relayers.

Relayers are necessary to complete the messaging cycle between communicating networks by sending proof of the transaction to the end destination.

With the proof provided, the destination blockchain can integrate the data or message from the source blockchain into its own network and also execute any possible commands from the message.

Between these three elements, LayerZero aims to make all smart contract enabled blockchains capable of interacting and sending data and messages to each other.

What makes LayerZero unique?

However, being an interoperability protocol alone isn’t particularly new or unique, so LayerZero also looks to distinguish itself from its competitors through innovations.

These include the Ultra Light Nodes we mentioned earlier, but also through Generic Messaging, State Sharing, and Instant Finality.

To briefly explain, Generic Messaging is a feature created by LayerZero that enables any type of cross-chain communication, not just asset transfers.

This means LayerZero can support any payload, be it data exchange, governance votes, function calls, or NFT transfers.

This ultimately allows developers to create omnichain applications that can leverage the features and advantages of multiple blockchains simultaneously.

Next, there is State Sharing, which allows applications to share states across blockchains. This means they can synchronise their data and logic without relying on centralised servers or databases.

This enables applications to operate as a single entity across multiple blockchains, creating a more convenient and seamless user experience.

Finally, there is Instant Finality which guarantees instant finality for cross-chain transactions, meaning they are confirmed as soon as they are included in a block on the source chain.

This removes any inconvenient or extended waiting periods for confirmations on the destination chain, ultimately improving speed, usability, and the end-user experience.

ZRO Tokenomics

In total, there will only ever be 1 billion ZRO tokens.

The ZRO token itself facilitates payments for cross-chain transaction fees and other services within the LayerZero ecosystem such as governance.

After all the tokens have been distributed, the initial token distribution will look as follows:

Strategic Partners will have received 32.2%, followed by Core Contributors getting 25.5%, the Community will have received 38.3%, before Tokens Repurchased make up the final 4%

The 38.3%, that makes up the Community portion has no vesting period and has been immediately available to those eligible. The remaining 61.7% will be distributed starting July 2025 and will have ended by July 2027.

Is LayerZero worth the hype?

LayerZero has spotted a flaw in how blockchains operate, which is they are often siloed into their own ecosystems and unable to communicate or interact with other blockchains.

From a user experience perspective, this is both time-consuming and inconvenient and is often cited as one of the reasons delaying crypto’s mass adoption.

Platforms like LayerZero allow users to interact through many blockchains as if they were only using one, removing time consumption and inconvenience from the end user.

So, while guaranteeing anything for certain in crypto is next to impossible, it seems likely that anything which can successfully save the end user time, money, and inconvenience is likely going to see success for a while to come.

Presuming there are no major mishaps in judgement from management, of course.

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