LayerZero

<h2 id="header-0">The Secret Sauce of LayerZero&#39;s Funding Success</h2><ol><li>Sequoia Capital</li></ol>As a lead in LayerZero&#39;s $135 million Series A (2022) and a participant in its $120 million Series B (2023), Sequoia provides a great comparison to the protocol outside the cryptocurrency landscape with services like DoorDash or Uber. Imagine these services exclusively catering to users of either iOS or Android devices. This would highly restrict the business as the users could only request rides from drivers with the same phone type, even if a driver with a different phone is just one minute away. Such fragmentation is currently present across various Layer-1 blockchains, creating obstacles for users and protocols. The most efficient networks thrive with a unified user base, shared data, and fluid liquidity.Interoperability poses a significant challenge, with existing solutions like bridgers often forcing users into bothersome compromises, such as wrapped assets or multi-step transactions, resulting in a more vulnerable crypto ecosystem. LayerZero took a distinctive user-centric approach to streamline data integration at the application level, promising to enhance the crypto space, albeit with substantial complexity.<ol><li>Ryze Labs (former Sino Global Capital)</li></ol>LayerZero convinced Ryze Labs by presenting the project as an alternative to:<ul><li>Centralized exchanges (CEXes) as &#34;asset bridges&#34; and the heavy load that comes with them: lack of privacy and anonymity, regulatory risks, and counterparty risks.</li><li>Non-decentralized bridges and their permissioned nature due to a small set of validators or a multi-sig wallet setup.</li><li>Synthetic intermediary tokens as a solution to fragmented liquidity and trustlessness.</li><li>Limited scope in having to build within the same ecosystem.</li><li>On-chain nodes, whose operation requires a lot of computational resources and money.</li><li>User-flow downfalls in the context of utilizing several chains.</li></ul><ol><li>a16z crypto</li></ol>&#34;The team is brilliant and stood out to us for their inventive solution to the interoperability problem that goes well beyond what is currently available in the market,&#34; shares a16z crypto investment team. This has been well-influenced by the founding team&#39;s extensive experience with startups, management and technical backgrounds within the Web3 world, and, interestingly, high familiarity with game theory. Additionally, the solutions for (1) guaranteeing the validity of a transaction and (2) solving the &#34;Bridging Trilemma&#34; by utilizing fast finality, shared liquidity across chains, and usage of native assets, as opposed to wrapped ones, ultimately swayed the venture firm away.<ol><li>Multicoin Capital</li></ol>As a lead in LayerZero&#39;s Seed (September 2021) and a follow-up participant in its $135 million Series A&#43; (March 2022), Multicoin Capital believes that &#34;bridges will exhibit extremely strong network effects per pair of asset ledgers.&#34; With the flexibility and simplicity of Stargate - the flagship app built on the LayerZero protocol, the venture firm saw the potential for versatility, namely, powering all kinds of new workflows and being used for almost anything. &#34;LayerZero paves the way for the first omnichain applications, opening the door for lending, AMMs, governance and much more to become truly chain agnostic,&#34; shared Kyle Samani, Managing Partner at Multicoin Capital.<ol><li>Binance Labs</li></ol>The venture arm of the biggest CEX focused on the shortcomings of existing interoperability solutions whilst making an investment decision. For example, Polkadot passes messages between chains by utilizing a middle chain, also called a hub-and-spoke model, which allows for cheap transactions but introduces a single point of failure. On the other hand, Cosmos runs paired on-chain light nodes, which heightens security with on-chain validation but is costly and resource-intensive.After conducting due diligence on LayerZero, the investment team was convinced with its Ultra Light Node and the &#34;best of both worlds&#34; resolution, achieving the security of a light node with the cost-effectiveness of middle chains. &#34;We view the future crypto space as a multi-chain universe, with a strong demand for lightweight and secure interoperability solutions. That is the future we see in LayerZero and why we fully support the team,&#34; shared Chase Guo, Investment Director at Binance Labs.<ol><li>OKX Ventures</li></ol>The Founder of OKX Ventures, Dora Yue, wishes for the messaging applications and blockchain technology of LayerZero to spread globally, especially in the Asia-Pacific (APAC) region. The VC relies on the vision of the protocol&#39;s Co-Founder and CTO, Ryan Zarick: &#34;Imagine a future where a single user-facing application can harness the speed of Solana, the security of Ethereum, and the cheap file storage of Arweave while also being fully abstracted to the user. The days of choosing one chain to build on are over; the future is omnichain applications.&#34;<ol><li>Zokyo</li></ol>Hartej Sawhney, the Founder and CEO of Zokyo, shared his exclusive insights about LayerZero with us:“Zokyo&#39;s journey with LayerZero began when we were introduced to the brilliant minds behind the project – Bryan and Ryan. Back then, LayerZero was known by a different name, and our initial role was to lend our expertise in security and token economics. However, it quickly became apparent that we were working with a team whose vision and capability were unparalleled in the interoperability space.The LayerZero protocol has emerged as a transformative solution in the realm of blockchain interoperability, tackling long-standing challenges and facilitating seamless cross-blockchain interactions. The team&#39;s unique approach and commitment to solving complex technical issues align with Zokyo’s values and vision for the future of decentralized technologies.Through meticulous technical diligence and a deep dive into LayerZero’s innovative strategy, we recognized their potential to significantly elevate the crypto landscape. Investing in LayerZero was not just a strategic decision but a forward-thinking move to support a protocol that stands out distinctly in the market and is poised to shape the future of interconnected digital experiences.&#34;<ol><li>CryptoViet Ventures</li></ol>By elaborating on the reasons for investment in LayerZero, the CryptoViet Ventures team shares:“Crypto bridge hack has become one of the most serious issues in the crypto space, only in 2022, a total of 2.6 billion USD was hacked. This situation disrupts the cash flow in the crypto space, instills fear in market participants, and directly impacts the financial health of all parties involved, thereby limiting the development of the crypto space. To unlock the full potential of Web3, we need a solution for smoothly and securely moving assets across different blockchain networks. Only with this, the cash flow remains uninterrupted, instills trust in investors, and attracts more funds into the cryptocurrency market.We have observed that LayerZero, with its omnichain interoperability protocol, has the capability to facilitate seamless interaction for decentralized applications across different blockchain networks. This will create a secure bridge to address all the issues we are currently facing.<img src="https://gaia.hiro.so/hub/1DeR7NULC7MtxA8as66ebWdfmp44vxnYgA/photos/e6hqE9bSRF-Pc55hercla/yP2Y_jgBDZ8_d6VN0QC_S-LayerZero%20onepager%20by%20CryptoViet%20Ventures_The%20VC%20Whisperer.jpg" /><h3 id="image-layerzero-onepager-source-a-href-https-cryptoviet-ventures-rel-noopener-noreferrer-nofollow-cryptoviet-ventures-a">Image: LayerZero Onepager. Source: <a href="https://cryptoviet.ventures/" rel="noopener noreferrer nofollow">CryptoViet Ventures</a>.</h3><ol><li>Christie&#39;s Ventures</li></ol>LayerZero caught Christie&#39;s Ventures&#39; attention for its &#34;strong vision and business model within a broad addressable market.&#34; The reasons for investment were the following:<ul><li>Solving real business challenges,</li><li>Improving client experiences,</li><li>Expanding growth opportunities, both &#34;across the art market directly and for interactions with it.&#34;</li></ul><ol><li>Samsung Ventures</li></ol>Samsung Next invested in LayerZero to build a cutting-edge omnichain interoperability protocol that facilitates cross-chain applications through efficient low-level communication. &#34;LayerZero&#39;s cross-chain architecture will be at the center of the multi-chain, multi-layer web3 world,&#34; shared the investment team. Additionally, the VC was persuaded with a proven track record of multiple startups and team dynamics within the founding group that prioritized security, audits, and reviews.<h2 id="header-1">Key Takeaways for Fundraising Protocols and Aspiring Entrepreneurs</h2><ul><li>A knowledgeable, experienced and open-to-feedback founding team goes a long way.</li><li>Innovative solutions for main ecosystem downfalls and evident user challenges are attractive, especially those going beyond what is currently available in the market.</li><li>Simplified comparisons with familiar landscapes and competitive services can accelerate learning, demonstrate your understanding of the space, and draw people in.</li><li>A clear business model and a broad addressable market are promising factors for early-stage Product Market Fit (PMF) and revenue scope speculations.</li><li>The potential for interconnectedness and collaboration with other protocols sets up positive expectations.</li></ul><h2 id="header-2">LayerZero: Everything You Need to Know</h2>LayerZero is an interoperability protocol that facilitates communication and data transfer between different blockchain networks. It operates through on-chain endpoints with two essential entities, the Oracle and the Relayer, to facilitate the exchange of messages between blockchains.An oracle is a third-party service that allows a blockchain to communicate with off-chain data. The LayerZero team selected Chainlink and Band Protocol as their official oracles. A relayer is an off-chain service that works similarly to an oracle, but its job is to fetch the proof for a specified transaction. The Relayer and Oracle must be independent of each other to ensure the validity of the message delivery.Consider this scenario as an example: if you wish to transmit a message from chain A to chain B through LayerZero, you start by notifying an oracle and relayer on chain A that you want to send a message. Subsequently, the oracle sends the relevant block header (a summary of the recent transactions on chain A) to chain B&#39;s Ultra Light Node. The relayer on chain A would then submit proof of this transaction to chain B. Upon successfully validating this proof on chain B, the message is forwarded to its intended recipient on chain B.The protocol’s parent company, LayerZero Labs, has raised almost $300 million in funds from nearly 40 investors in three years. The list includes many blue-chip VCs, such as a16z crypto, Binance Labs, The Spartan Group, Ryze Labs (former Sino Global Capital), Coinbase Ventures, CoinFund, and others. The latest published valuation of LayerZero reaches an astounding $3 billion (April 2023 data) for such an early-stage protocol.<img src="https://academy-public.coinmarketcap.com/optimized-uploads/ed1fd397ffeb4311801ccd2d421b8266.png" /><h3 id="image-layerzero-ecosystem-source-a-href-https-twitter-com-layerzerospace-status-1651893720680402944-rel-noopener-noreferrer-nofollow-layerzero-space-a">Image: LayerZero Ecosystem. Source: <a href="https://twitter.com/LayerZeroSpace/status/1651893720680402944" rel="noopener noreferrer nofollow">LayerZero Space</a>.</h3><h2 id="header-3">Pros &amp; Cons</h2>Key advantages of LayerZero<ul><li>High Security: LayerZero utilizes a combination of Oracle and Relayer, which adds an extra layer of security. Compromising both the Oracle and Relayer is necessary for malicious actions to occur.</li><li>Cost-Effectiveness: It efficiently uses on-chain light nodes and decentralized oracles to stream block headers on demand, reducing the need to store all block headers consecutively.</li><li>General Interoperability: LayerZero aims to provide a comprehensive interoperability solution for the entire blockchain ecosystem, allowing various chains to connect through a single interface and code.</li><li>Multi-Chain Convenience: Unlike traditional bridging solutions that require separate bridges for each pair of chains, LayerZero simplifies multi-chain decentralized applications (dApps) by enabling all chains to connect via a single interface, enhancing activities like swaps, liquidity mining, lending, and borrowing.</li><li>Promising Future: With significant investment and backing from prominent venture firms, LayerZero shows promise in addressing blockchain interoperability challenges and advancing the blockchain ecosystem.</li></ul>Potential downsides<ul><li>Competition: Platforms like Chainlink are entering the market with newly built messaging and interoperability products. Additionally, we have solutions like Polkadot that hit the market earlier, offering similar interoperability features as LayerZero.</li><li>Risk of bugs: As with any blockchain technology, there is always a risk of bugs or vulnerabilities that could compromise the system&#39;s security.</li><li>Learning curve &amp; Limited adoption: As a relatively new technology, LayerZero does not yet have widespread adoption or support from the broader blockchain community. A learning curve for users to familiarize themselves with the protocol is an influential factor.</li></ul><h2 id="header-4">Conclusion</h2>LayerZero&#39;s funding success emphasizes important lessons for blockchain entrepreneurs. The protocol&#39;s highly experienced founding team and their innovative solution to real crypto challenges proved compelling to investors. LayerZero&#39;s user-centric approach, commitment to interoperability, security, cost-effectiveness, and omnichain vision resonated with multiple investment theses, emphasizing the growing significance of cross-chain functionality. These factors played a pivotal role in securing investments. However, the blockchain landscape&#39;s competitive nature and ongoing challenges in adoption should always be regarded.Curious to explore more research articles and crypto news? Visit <a href="https://www.thevcwhisperer.io/" rel="noopener noreferrer nofollow">The VC Whisperer</a> to ensure you receive relevant and insightful Venture Capital overviews like this!

LayerZero: Was It Just Hype?

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