Forward the Original Title ‘Super Middleman or Business Genius? A Look Back at LayerZero’s Journey from V1 to V2 One Year On’

Introduction

Today, the importance of cross-chain bridges is still self-evident.

However, the hype around VC-backed infrastructure tokens has faded, especially after the boom of inscriptions, memes, and AI. In this quieter market phase, it’s a good time to take a more objective look at the evolution of history and uncover the enduring truths behind it.

In 2023, LayerZero quickly emerged with its unique “ultra-light node” architecture and became a star project in the cross-chain sector. At that time, its valuation was as high as US$3 billion. Its 2024 release of LayerZero V2 enabled 30 million cross-chain transactions on-chain, solidifying its position as an industry leader.

The vision of “omnichain” has attracted many developers and won the backing of top-tier investors such as Sequoia Capital, a16z, and Binance Labs. At the same time, however, it has faced criticism over issues like centralization and security, sparking widespread debate in the industry.

• Some have mocked it as “tech junk” or a “super intermediary,” arguing that the V1 version was all framework with no real substance—essentially just a 2-of-2 multisig model. Others claim that V2 avoids taking on the security responsibilities of the cross-chain verification network (DVN), calling it an empty-handed grab for value.
• On the other hand, many believe LayerZero’s approach to business over the past three years is nothing short of astonishing—a modern reenactment of strategic alliances and power plays.

What is right and what is wrong? Let us analyze its business model through the lens of its technical design to assess whether its foundation is truly solid—or just a castle built on sand.

1. Technical analysis: LayerZero’s Architecture Evolution and Its Security Assumptions

1.1 V1: Ultra-light nodes and security risks

LayerZero V1 (hereinafter referred to as V1) introduces the concept of “Ultra Light Node (ULN)”. Its core is to deploy a lightweight endpoint contract on each chain as a message sending and receiving point. The two off-chain entities, Oracle and Relayer, collaborate to complete cross-chain message verification.

[Image source: Official LayerZero V1 Whitepaper, illustrating the roles of the Relayer and Oracle]

Essentially, this design shifts the burden of block synchronization and verification off-chain to the Oracle and Relayer, keeping the on-chain contracts extremely lightweight.

V1 refers to this setup as “the ultimate separation of trust,” as it avoids deploying a full light node of the source chain on the destination chain, offering significantly lower costs compared to other cross-chain bridge architectures.

However, while this “2-of-2” trust model provides efficiency, it also introduces several notable security risks:

1. Collusion Risk: The model’s resistance to collusion relies solely on social trust and economic incentives, lacking cryptoeconomic enforcement mechanisms.
2. Unclear Responsibility Boundaries: Both the Oracle and Relayer operate off-chain, and V1 has no direct control over their performance. If either fails—such as an Oracle outage or a Relayer going offline—cross-chain messages can’t be delivered, reducing system availability. (For example, in 2023, the Stargate bridge faced criticism as a “cross-chain assassin” due to fee-related issues—at its core, a service availability problem.)
3. Chain-Level Risk: The system relies entirely on the security of the connected public chains, without an arbitration mechanism from LayerZero itself to mitigate risks in between.
4. Decentralization Doubts: Although V1 claims that anyone can run the Oracle and Relayer, making them permissionless roles, this hasn’t held true in practice. During a Uniswap cross-chain proposal vote in early 2023, some community members raised concerns over V1’s centralization, preferring Wormhole’s model with institutional validators.

For an in-depth breakdown of V1’s mechanism, the author had previously published a comprehensive analysis two years ago, so it won’t be repeated here: Cross-chain sector research report: Why is the LayerZero full-chain interoperability protocol valued at US$3 billion (Part 1)

1.2 V2: DVN mechanism and its security analysis

In early 2024, LayerZero launched V2 (hereafter referred to as V2), with its core innovation being the introduction of the Decentralized Verifier Network (DVN) at the verification layer—moving beyond the original model that relied solely on an Oracle and Relayer.

[Image source: Official LayerZero V2 Whitepaper, showing optional multi-party DVN voting]

With the help of a network composed of multiple verification nodes for signature confirmation of cross-chain messages, developers can independently select and combine multiple DVNs to verify messages according to application requirements, so that security strategies are no longer limited to a fixed 2-of-2 model.

Obviously, there are still advantages:

1. DVNs can come from diverse sources. According to LayerZero’s Head of Strategy, Irene, teams can run their own DVNs or integrate existing cross-chain bridges/networks as DVNs. Even small or independent teams can participate, bringing more independent stakeholders into the system. The more contributors, the bigger the pie.
2. Multiple cross-chain verification models can coexist. Whether it’s validators from Arbitrum’s official bridge, Wormhole’s 19 guardians, Axelar’s PoS validators, or MPC-based multisigs—they can all serve as part of the DVN layer.
3. User-defined verification strategies. For example, one might combine “Chainlink Oracle Network + LayerZero Labs DVN + Community DVN” to tailor security preferences.

Is this enough?

No, user security depends in disguise on the quality and combination strategy of DVN itself, or on the shortest board of the barrel:

1. Fragmented security strategies. The strength of different DVNs can vary greatly—some may be backed by professional nodes with staked tokens, others might just be multisigs with a few members. There’s no unified security standard, leading to a network of isolated security silos.
2. While V2 encourages using multiple DVNs in combination, the final decision lies with the application developer. If a developer opts for a weak DVN alone, it introduces risk. In reality, if a single DVN is strong enough, others may be seen as unnecessary—especially when considering cost or convenience. For DVNs to be effective, penalties for failure must outweigh potential attack rewards, possibly supported by legal or reputational deterrents.
3. Greater complexity introduces new attack surfaces. Multi-DVN setups can open the door to technical exploits rather than purely economic ones. Take the Nomad bridge as an example: though designed with optimistic verification, an implementation bug led to a $190M hack.

1.3 How to evaluate the shift from V1 to V2 technically?

• First of all, from a compatibility perspective

Today’s V2 is the well-deserved king of compatibility. It can be easily accessed by EVM, SVM and even the Move system. Its supporting documents, use cases, developer community, and developer relations (hackathons, etc.) are all industry-leading benchmarks. These make it easier to access and eventually become one of the preferred solutions for a large number of new public blockchains.

• Secondly, from a security perspective

Although V2 provides a stronger upper limit of security, the lower limit has also been lowered. After all, in the past, it was at least a reputable oracle organization.

It becomes more like a market platform, allowing various verification networks to compete to provide security services.

However, from the user’s perspective, liability disputes will arise sooner or later. Now the official claims that they only provide a neutral agreement, and the specific security is determined by the DVN selection of the application. Once something goes wrong, there will be mutual blame-shifting in the definition of responsibility.

And just looking at the current “decentralization” banner of V2 is still quite watery. DVN seems to have eliminated single points, but most applications still tend to use a few officially recommended DVN combinations, and the actual control of the system is still in the hands of LayerZero and its partner organizations.

Unless the DVN network can develop hundreds or thousands of independent verifiers and ensure honesty through strong economic game mechanisms (such as staking + punishment), LayerZero will still not be able to escape the shadow of the fragility of the trust model. But at that time, there will be economic gain issues that will in turn affect the motivations of DVNs.

Next, let’s go to the business perspective and continue to study

2. Subtle Shifts in the Cross-Chain Landscape

2.1 Macro trends that capital focuses on

Let’s look directly at the data. The following is the financing situation of each track in the Web3 field from 2022 to 2024:

Since the track divisions may not be completely consistent, different statistical amounts may vary. The statistics in this article only reflect trends. It is recommended that the original text prevail. For data sources, see the reference link at the end of the article:

Overall:

What has fallen sharply is Cefi facilities. My understanding here is that Cefi will still need financing in 2022, while those that can generate blood by themselves in 23/24 have survived to occupy the market, and it is unlikely that they will be able to compete around the Red Sea, so the overall rate has declined. \

Web3 gaming saw a spike in 2024, driven by the Telegram (TG) boom, but from a personal standpoint, as the TG hype fades, both GameFi and on-chain gaming are becoming increasingly discredited by the market—revealing themselves as hype-driven sectors with little real demand, now leaving behind little more than wreckage.

I won’t dive into all sectors here, but no matter how you look at it, infrastructure continues to be the most reliable area amid market uncertainty.

2.2 Is cross-chain infrastructure still a hot area for investment?

Within infrastructure—aside from Layer 1s—the most prominent example is cross-chain bridges. The advantages of this sector are clear:

• As the multi-chain ecosystem expands, cross-chain functionality becomes essential. Whoever controls cross-chain flow has the opportunity to become the toll collector on the “highways” of the multi-chain world.
• Pain points and opportunities coexist: Cross-chain bridges are seen as critical enablers of Web3 innovation—unlocking new use cases like cross-chain DeFi, NFTs, and inter-chain identity. But they’re also frequent targets of hacks, accounting for nearly 70% of all stolen funds in the space.
• Platform network effects and moat potential: From a capital perspective, the biggest appeal lies in monopoly or oligopoly potential. If one cross-chain protocol becomes the de facto standard—similar to TCP/IP in the early Internet—the early investors stand to gain massively. This explains why firms like a16z and Jump went head-to-head over Uniswap’s cross-chain bridge decision.
• Cross-chain bridges aren’t just for asset transfer: While commonly seen as tools for moving tokens, the real capital interest lies in “arbitrary message bridges” (AMBs)—which enable generalized communication between chains. Projects like LayerZero and Hyperlane have positioned themselves as full-chain communication protocols.

In short, the surge of capital interest in the cross-chain sector is driven by a combination of factors: the immediate demand and unresolved challenges creating real-world urgency, and the strategic race to set standards in an increasingly interconnected multi-chain future.

That said, while there have been very few new funding rounds for cross-chain bridges in 2024, this doesn’t mean the sector has lost its appeal—it’s simply become too mature and competitive for new players to enter easily, and the very nature of bridge products has evolved in the current market.

2.3 The evolving role of cross-chain bridges A and B under the multi-chain trend

In the early days of blockchain, cross-chain bridges typically operated as independent service providers. But as the multi-chain application ecosystem has matured, their role is shifting toward that of underlying infrastructure providers (B-side players)—increasingly embedded into application and wallet experiences:

• Cross-chain functionality is becoming backend-oriented, service-based, and nearly API-like. For instance, wallets like MetaMask and OKX have integrated bridge aggregators. As a result, bridges no longer interact directly with end-users (C-side); instead, they acquire traffic through B-side platforms such as DApps and wallets. This shift means cross-chain solutions must be easy to integrate, modular, and adaptable to app needs. Otherwise, applications will simply choose a different provider—bridges are now operating in a B2B model.
• A growing polarization in decision-making power: In the early “bridge controls the user” model, the bridge dictated which chains it supported and what fees it charged. Projects had to adapt to the bridge’s terms—something that still holds true for newer chains. However, in major ecosystem projects, the dynamic is reversed. For example, when Uniswap deployed on BSC, it chose its cross-chain solution through governance voting—forcing bridges to compete for integration.

Another role reversal has taken place. In LayerZero’s initial V1 model, it relied on trusted oracles—putting the bridge in a secondary role and the oracle in control (A-side).

With the release of V2, however, the emergence of multiple competing DVNs has shifted the power structure: LayerZero has become the A-side, while DVNs—who now perform the actual cross-chain validation—act as B-side providers. Naturally, to secure better placement or visibility, these DVNs will adjust their revenue-sharing terms with LayerZero.

It’s always more attractive to own the platform than just a storefront—close to the transaction flow, but untouched by the mess. Without a doubt, LayerZero’s repositioning as a platform has directly contributed to its current influence in the market.

2.4 LayerZero’s strategy of alliance and integration

LayerZero’s role is unique: it positions itself as a public infrastructure for cross-chain communication, yet it doesn’t assume end-to-end business responsibility.

As someone who’s witnessed a decade of platform dominance in mobile internet, it’s hard not to recognize this familiar playbook: subsidize early to gain market share, then optimize for profit during consolidation.

After platformized, security responsibility is offloaded.

As previously mentioned, LayerZero gives application developers full control over their own security choices via DVNs—essentially letting each app “own its own security model.” From a legal standpoint, in the event of a cross-chain exploit, LayerZero Labs can claim it wasn’t involved in asset custody. Responsibility would then fall on the DVNs or the application itself.

Profit-sharing replaces subsidies: Unlike many infrastructure projects that lure users with incentives and grants, LayerZero prefers alignment of interests—such as investing in partner projects or inviting them to invest in LayerZero.

Some chains even allocate ecosystem funds to encourage protocols to integrate with LayerZero. On the financing and partnership front, LayerZero Labs has brought in major players across the board (Coinbase and Binance are shareholders, not to mention a16z, Circle, and many others), forming a powerful VC and institutional backing network—which, in effect, signals widespread endorsement from key players across blockchain ecosystems.

2.5 Why is LayerZero’s Series C so hard to find?

Let’s look at it from another angle: LayerZero already completed a Series B round (at a $3 billion valuation), and it’s been two years since then. So what kind of scale would a Series C need to meet market expectations?

Let’s start with transaction volume. According to official data—and comparing current numbers with figures from a year ago:

[Source: LayerZero official website]

The total number of messages has reached 144 million, up from around 114 million a year ago. That’s an annual increase of 30 million messages—just a 26.3% growth rate, which is noticeably slower compared to 2022–2023.

Clearly, the main reason is that the project’s token launch absorbed much of the airdrop-driven activity. While launching a token generates returns, it essentially pulls forward future revenue. But when it comes to project valuation, it ultimately has to align with actual income.

Now here’s where things get awkward—let’s do a rough revenue estimate based on transaction volume: 30 million × $0.10 = $3 million/year

$0.10 per transaction is a typical fee for small-scale transfers via cross-chain bridges. For larger transfers, revenue usually comes from staking-based fees. The average take rate in the market is around 0.05%. For Stargate, a bridge built on LayerZero, users pay about 0.06% per transaction.

Assuming $10 billion in total transfer volume over the past year (estimated by comparing message count to overall usage), a 0.06% fee would result in $6 million in revenue.

So by either estimation, a reasonable range for gross annual revenue is between $3 million and $6 million. But when factoring in operational costs, it’s very likely the project is still running at a loss.

Therefore, even if we ignore costs entirely and use the higher revenue figure, the $3 billion valuation gives a price-to-earnings (P/E) ratio of 500. For comparison, even heavily criticized “bubble” tech giants like Apple or Amazon typically trade at P/Es around 30.

So clearly, a strong Series C round is unlikely in the near term. No investor is eager to back a 500x P/E valuation under current market conditions.

Conclusion

After two years, revisiting LayerZero reveals not only its creative breakthroughs but also a glimpse into what the next generation of cross-chain bridges might look like. Here, I’ll offer some objective reflections as food for thought.

In just three years, LayerZero has gone from zero to one—from a follower to a frontrunner in the cross-chain space.

With V1, it introduced the innovative “Ultra Light Node” concept—pairing a lightweight 2-of-2 multisig model with oracles—to quickly capture market share with speed and simplicity.

With V2, it transitioned into a platform through a “framework-as-protocol” strategy, deeply integrating with the multi-chain ecosystem. Its clever approach to “risk offloading” ensured a stable foundation. Today, it supports the largest number and widest variety of chains in the market, firmly establishing itself as the industry leader.

While some critics argue that LayerZero avoids the “dirty work” (i.e., DVN verification) and merely acts as a middleman, this is, in fact, the essence of its successful business model: focus on building a universal, stable base-layer standard and leave implementation details to the market. As a platform, it capitalizes on the competitive dynamics of downstream players to capture value.

This approach aligns perfectly with the needs of a multi-chain world, where the rapid emergence of new chains demands robust cross-chain infrastructure—and it reflects the broader shift of bridges from dominant (A-side) roles to supportive (B-side) services.

From a technical perspective, the evolution from V1 to V2 reflects the industry’s ongoing attempt to balance decentralization with security. The Oracle + Relayer model and the DVN mechanism both prompt us to rethink the boundaries of trust minimization.

In the author’s view, while V2 may not yet achieve full decentralization in practice, it has the theoretical potential to do so. But in reality, neither the market nor users necessarily demand extreme decentralization at high frequency.

From a business perspective, LayerZero’s platform-oriented strategy is worth studying. By focusing on developer standards, it has achieved unmatched compatibility. Through modularity and standardization, it has become a torch that many can rally around, rather than a lone furnace burning its own fuel.

This model reduces LayerZero’s own risk. While it shares profits with DVNs, it has enabled the growth of a much larger ecosystem.

As for the earlier P/E estimate, in the absence of official cost disclosures, it remains a speculative analysis. It’s also possible that LayerZero could pivot from charging for cross-chain transactions to monetizing through asset management or other means—and that shift could rapidly unlock significant revenue. After all, in any era, traffic is king—and monopolies are always wildly profitable.

[Source: CoinMarketCap]

Finally, another way to measure value is by looking at the market cap of its token. If $7B reflected peak hype, then how should we interpret $2B today?

Disclaimer:

1. This article is reproduced from [Fourteenth Lord]. Forward the Original Title ‘Super Middleman or Business Genius? A Look Back at LayerZero’s Journey from V1 to V2 One Year On’. The copyright belongs to the original author [Fourteenth Lord], if you have any objections to the reprint, please contact the Gate Learn team, and the team will handle it as soon as possible according to relevant procedures.

2. Disclaimer: The views and opinions expressed in this article represent only the author’s personal views and do not constitute any investment advice.

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