The issues behind the LayerZero airdrop frenzy: security is repeatedly questioned, and Stargate becomes the "cross-chain assassin."

Author: Grapefruit, ChainCatcher

Recently, the cross-chain infrastructure LayerZero raised $120 million in Series B funding at a valuation of $3 billion, making it a hot topic in the crypto community once again. According to the crypto data platform RootData, as of today, LayerZero has completed three rounds of financing, raising a total of $315 million, with the first two rounds being $6 million and $135 million, respectively.

In a recent interview regarding the latest funding round, LayerZero co-founder Bryan Pellegrino publicly stated that LayerZero would consider a governance token airdrop after the protocol's development is complete, although it is not expected to happen soon.

Initially, due to the lack of a token, LayerZero was highly anticipated for an airdrop by the crypto community. This funding round has further ignited enthusiasm for airdrop speculation. Research articles about LayerZero are abundant, various airdrop tutorials are circulating in major communities, and even exchanges have launched activities related to obtaining redemption vouchers for LayerZero's future tokens. For example, on April 25, Bitget launched the LZBG airdrop event, allowing users to use it to redeem LayerZero's official tokens in the future.

LayerZero's interaction data has also seen explosive growth. According to Dune Analytics, since April 4, the on-chain interaction volume of LayerZero has surged, with daily transaction counts exceeding 200,000 for nearly two weeks, comparable to the daily transaction counts on the Optimism and Avalanche mainnets (approximately 290,000 transactions). Among them, the official cross-chain product Stargate has seen daily transaction counts around 150,000 in the past two weeks, with a 24-hour trading volume of about $100 million and a TVL of $440 million.

However, setting aside the "traffic" brought by airdrop expectations and returning to the product itself, has LayerZero truly achieved innovation in cross-chain bridges and provided users with a better cross-chain experience?

Many users have reported issues with LayerZero's products, such as high fees and poor user experience. For instance, when using the [Stargate](https://www.rootdata.com/zh/Projects/detail/Stargate Finance?k=MTA2NA==) cross-chain service, some users found that the actual amount received was less than the displayed amount, and the final fees calculated were significantly higher than those of other common cross-chain bridges like MultiChain and Hop. Additionally, the cross-chain bridge Aptos Bridge developed by LayerZero makes it easy to deposit assets into Aptos but difficult to withdraw, requiring at least 2-3 days to withdraw from Aptos.

Users who do not understand the underlying technology do not care about LayerZero's innovative mechanisms but focus more on the real user experience. If products like Stargate do not update and improve their functionalities, a large number of users will likely leave once the airdrop expectations fade.

LayerZero Technology and Ecosystem Overview

Notable crypto capital firms such as a16z, Sequoia Capital, Coinbase Ventures, Binance Labs, and Multicoin Capital have all participated in LayerZero's funding. What magic does LayerZero possess to attract such capital support?

LayerZero itself is a cross-chain infrastructure, not just a cross-chain bridge, helping users or developers achieve information transfer between different blockchain networks. It can also facilitate information transfer between DApps on different blockchain networks, such as data and asset interaction information from DeFi applications on Chain A to DeFi applications on Chain B. With LayerZero, developers can deploy DApp applications across multiple blockchains and achieve interaction without using cross-chain bridges, which is known as a full-chain DApp.

Currently, LayerZero supports information transfer between EVM chains like Ethereum, BNB Chain, Polygon, Avalanche, Fantom, Arbitrum, Optimism, Metis, and non-EVM chains like Aptos.

The common methods of cross-chain information communication are mainly divided into two categories. One is the intermediary chain, which builds an intermediary chain between the target chain and the source chain, such as Multichain. Under this mechanism, one must trust that the intermediary chain is a complete and reliable signature mechanism, and additionally, the intermediary chain is vulnerable to hacking. The other is lightweight nodes, which deploy a lightweight node on each chain to facilitate message transmission, such as Cosmos IBC. Using lightweight nodes for information transmission is the safest but also the most expensive; currently, running an on-chain lightweight node on Ethereum can cost thousands of dollars daily for each opposing chain.

Both models have their pros and cons. LayerZero deploys "ultra-lightweight node" smart contracts on each chain, supplemented by on-chain oracles and off-chain relayers to complete communication and information transfer between different chains. The so-called "ultra-lightweight" only needs to store a small amount of data, such as block headers, which can be stored as needed without following a specific order.

For example, if Xiao Ming wants to send a message from Chain A to Chain B using LayerZero, he first needs to notify the oracle and relayer on Chain A to send the message. The oracle sends the relevant block header (a summary of the latest transactions on Chain A) to the ultra-lightweight node on Chain B. The relayer submits the transaction proof from Chain A to Chain B. If both the block header and transaction proof are deemed valid, the message can be sent to the recipient on Chain B. If the block header and transaction proof do not match, the message will be ignored.

LayerZero Node

The use of ultra-lightweight nodes along with oracles and relayers can reduce the computational costs of nodes and mitigate the risks associated with intermediary chains. Because of this innovative mechanism, LayerZero is considered to have opened a new era for cross-chain infrastructure.

With LayerZero, not only can assets be transferred across chains, but after achieving cross-chain message passing, cross-chain state sharing, lending, governance, etc., can also be realized, which is referred to as a full-chain. Currently, LayerZero has made layouts and explorations in areas such as cross-chain DEXs, multi-chain lending, and stablecoins.

LayerZero Ecosystem Products:

Official Cross-Chain Bridge Stargate --- Supports native asset cross-chain transfers.

USDC Bridge ------ A full-chain bridge for USDC native assets developed in collaboration with Circle.

Aptos Bridge ------ A cross-chain bridge customized in collaboration with Liquidswap DEX, supporting asset transfers between the Aptos ecosystem and networks like BNB Chain and Polygon.

BTC.b (Bitcoin Bridge) ------ A bridge specifically designed for BTC assets, supporting seamless integration of BTC within LayerZero-supported networks.

Testnet Bridge ------ A public product launched by LayerZero for developers. Developers can bridge and exchange on the Ethereum Goerli testnet to obtain ETH on Ethereum.

Rage Trade ------ A derivatives exchange built on LayerZero, allowing users to trade futures or options on the platform.

Multi-Chain Lending RadiantCapital --- A multi-chain lending project deployed on Arbitrum based on LayerZero.

Multi-Chain NFT Project gh0stlygh0sts ------ A full-chain NFT based on LayerZero, supporting transfers between different chains.

LayerZero Name Service ------ A domain name service designed for multi-chain, allowing users to display their domain identity across Ethereum, BNB Chain, Polygon, and other chains after registration.

Additionally, Sushiswap, Pancakeswap, TradeJoe, and HashFlow have all integrated LayerZero for cross-chain DEX development using Stargate.

LayerZero Security Faces Multiple Doubts

Despite the numerous advantages of LayerZero, some developers have raised concerns. Although LayerZero's design is clever, it still has vulnerabilities, such as the potential for collusion between oracles and relayers or delays in oracle information.

In fact, doubts about LayerZero's security have never ceased. In January of this year, L2Beat conducted an experiment that undermined LayerZero's claim of "eliminating the possibility of collusion between oracles and relayers." In this experiment, L2Beat stated that no project restricts its own modification rights over oracles and relayers, allowing hackers to exploit these permissions for attacks. This means that LayerZero relies on two off-chain components, relayers and oracles, to transmit messages between different chains, and users must trust that the relayers and oracles will not collude and that the protocol itself will not harm the Relayer. However, according to experiments by L2BEAT and others, in LayerZero's architecture, relayers and oracles can be modified, allowing attackers to extract underlying assets at any time by changing the relayers and oracles.

Previously, in March 2022, the Cobo blockchain security team from Shenyu published an article stating that LayerZero had vulnerabilities that could affect the assets of all cross-chain projects built on LayerZero. Although the LayerZero team later fixed this vulnerability, the possibility of other exploitable vulnerabilities cannot be ruled out. Additionally, it was noted that the key contracts of the LayerZero project are mostly still controlled by EOA and do not employ multi-signature or time-lock mechanisms. If the private keys of these privileged EOAs are leaked, it could also affect the assets of all upper-layer protocols. As of today, LayerZero has not provided any explanation on this matter.

Regarding the mechanism of collusion between oracles and relayers, some projects are exploring whether zero-knowledge proofs can be used to avoid this, such as the cross-chain infrastructure Way Network. However, due to the complexity of zero-knowledge proof computations, no truly widely adopted products have emerged yet.

However, some users have expressed that the current technology of the project is not the most important aspect; as a foundational infrastructure, what matters more is the operational capability of the project team and its ecosystem. From the current development of the ecosystem and market impact, LayerZero is undoubtedly successful.

Stargate Becomes the "Cross-Chain Assassin": High Fees and Lack of Transparency

For ordinary users, aside from the security of the cross-chain bridge, the most intuitive evaluation of the product comes from the user experience. Currently, the market praises LayerZero far more than it criticizes it, but in reality, there are many complaints about the ecosystem products related to LayerZero during use.

For example, Stargate, as the official product launched based on LayerZero, has naturally become an important battleground for airdrop interactions but has also become the most debated product within the LayerZero ecosystem.

Stargate was launched in March 2022 and is the first cross-chain application based on LayerZero, primarily focusing on native asset cross-chain transfers.

Stargate believes that current cross-chain bridges also face an "impossible triangle," namely the three elements of "immediacy of asset cross-chain arrival," "unity of cross-chain liquidity pools," and "native nature of assets after cross-chain transfer." In current cross-chain infrastructures, only one or two of these can be satisfied. Stargate claims to solve this "impossible triangle" and can achieve timely arrival of native assets.

Currently, Stargate has launched on Ethereum, Avalanche, Polygon, BNB Chain, Fantom, Arbitrum, Optimism, and Metis, supporting the transfer of native assets such as USDT, USDC, ETH, FRAX, DAI, and BUSD across different blockchain networks.

Users' biggest dissatisfaction with Stargate mainly revolves around fees. When using Stargate for cross-chain transfers, the actual amount received is less than the displayed amount, and the final fees calculated are significantly higher than those of other common cross-chain bridges like MultiChain and Hop. Is Stargate intentionally hiding the real cross-chain fees to attract users?

This is primarily because Stargate charges a fee of 0.06% for transferring non-STG tokens, and the fee mechanism is displayed quite uniquely.

Generally, cross-chain bridges deduct handling fees and on-chain GAS fees from the cross-chain amount, and the displayed amount received is also the amount after deducting on-chain GAS fees and handling fees. For example, using the Multichain cross-chain bridge to transfer 100 USDC from Fantom to Ethereum, the displayed amount received is 60 USDC, which is the final amount after deducting the platform's 0.1% fee and Ethereum's on-chain GAS fees.

Multichain Cross-Chain Fees

However, in Stargate, the displayed amount received is the highest, only deducting the platform's handling fee without deducting the on-chain GAS paid. The GAS fee for the target chain in Stargate is paid using the source chain token.

In Stargate's fee breakdown, it mainly consists of "Gas on destination (target chain GAS fee)," "Fee (platform handling fee)," and "Gas Cost." The target chain GAS fee displayed as 0 is not truly zero; it is actually paid by the source chain token, while "Gas cost" includes both the target chain GAS fee and the source chain GAS fee. The fee used to pay the target chain GAS is an estimated fee, and the final payment amount depends on the specific on-chain fee situation at the time of the transaction. Therefore, when users conduct cross-chain transactions, the actual cross-chain fee charged by Stargate is the sum of "Gas cost" and "Fee" after deducting the source chain GAS fees.

For instance, transferring USDC from Fantom to Ethereum, the Stargate page shows a receipt of 99.94 USDC, but when you click on the fee details page, you will see that an additional 79.61 FTM is needed as the on-chain GAS fee. This fee is still an estimated fee, and the actual amount paid during the cross-chain transfer may be higher. For example, the final GAS fee paid in this cross-chain transfer was 79.8 FTM, and after deducting the source chain GAS fee (0.15 FTM), an additional payment for the target chain GAS (79.77 FTM) is required. The actual final amount received is (99.94 USDC - 79.61 FTM), resulting in an approximate final amount of 67 USDC.

Stargate Cross-Chain Fees

Additionally, Stargate's fee breakdown is generally not proactively displayed. In the early stages, there were even no details at all, requiring users to click on the small triangle symbol below the amount to see the fee breakdown. This can lead many users to believe that the displayed amount received is the final amount, only to discover the need to pay exorbitant fees when paying GAS fees, resulting in a feeling of being deceived. Therefore, Stargate has been dubbed a hidden "cross-chain assassin" by users.

On-chain player NANA once stated in the community: "Previously, when I used Stargate to transfer ETH from Arbitrum to Ethereum, I didn't notice the fees because it was in ETH, but when transferring from Fantom, the GAS fee was paid in a different token, and I ended up paying dozens of FTM, which shocked me, so I never used Stargate again."

Aside from GAS fees, Stargate's cross-chain handling fees are also a major pitfall. Although it claims that the cross-chain handling fee is 0.06%, the fees vary depending on different tokens and different routes, with some being 0.1% and others potentially higher. If the cross-chain assets differ and the amounts are large, the final exchange amount will be affected by handling fees and slippage.

There is also the Aptos Bridge cross-chain bridge developed in collaboration with LayerZero and Liquidswap DEX, where entering assets into Aptos is easy, but withdrawing is difficult. Users can deposit assets into Aptos in just a few minutes, but withdrawing from Aptos to other chains requires at least 500,000 block confirmations, which can take about 2-3 days, and in the early stages, it even required 1 million block confirmations. In contrast, Wormhole and Celer, which also support cross-chain transfers for the Aptos ecosystem, have instant withdrawal times. Although the official explanation cites security considerations, in this era where efficiency is paramount, slow times are the biggest fatal flaw.

Aptos Bridge Cross-Chain Bridge

As a result, more and more users on social media have expressed that if it weren't for the airdrop, they would definitely prefer cross-chain bridges with lower fees and faster arrival times, and would not use Stargate or Aptos Bridge at all. The only reason they tolerate the high fees is for the airdrop.

Most users do not care whether the cross-chain assets are native assets; they are more concerned about cross-chain fees and arrival times. However, in these two aspects, compared to other third-party cross-chain bridges, Stargate does not have a significant advantage. Current data also shows that the usage frequency of LayerZero is not high, with 61.9% of transactions being below five times, and the amount of cross-chain assets on Stargate mainly concentrated below $500, accounting for 69.5% of the user base.

Stargate has been online for a year, but there has been no improvement in its fee mechanism. However, in the proposal for the Stargate V2 upgrade on March 15, one of the proposals to optimize on-chain GAS fees received considerable support from community users.

Once the airdrop expectations are fulfilled, the current "prosperity bubble" of LayerZero and its ecosystem products may be burst. Continuously optimizing user experience and innovating fee mechanisms may be the best solution.