Behind the LayerZero Airdrop Heat: Stargate is lashed out at its security and fee system
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But putting aside the expected “traffic” brought by the airdrop and returning to the product itself, has LayerZero really achieved the innovation of cross-chain bridge and really brought a better cross-chain experience for users?
Author: Sill, ChainCatcher
Recently, the cross-chain infrastructure LayerZero raised $120 million in Series B funding at a $3 billion valuation, making it again a hot-topic project in the crypto community. According to the crypto data platform RootData, as of April 26th, LayerZero has completed three funding rounds totaling $315 million, with the first two being $6 million and $135 million respectively.
In an interview for the most recent round of funding, LayerZero co-founder Bryan Pellegrino publicly stated that LayerZero would consider a governance token airdrop when the protocol is well developed, but it will not happen soon.
Originally, LayerZere airdrop was highly anticipated by the crypto community since it did not issue coins. This funding round has completely ignited the enthusiasm for airdrops. Research reports on LayerZero are flying around, various tutorials on how to use the airdrop are spreading in various communities, and some exchanges are even launching activities to receive vouchers to claim LayerZero’s future tokens. For example, on April 25, Bitget launched the LZBG airdrop activity, supporting users to exchange it for LayerZero’s official tokens in the future.
LayerZero interaction data has also seen an explosive rise. According to Dune data, since April 4, LayerZero on-chain interactions began to surge, and in the past 2 weeks, the number of transactions completed in a single day was above 200,000, comparable to the number of daily transactions on the mainnet of Optimism and Avalanche (about 290,000 transactions). Among them, the official cross-chain product Stargate had around 150,000 transactions in each of the last 2 weeks, with a 24-hour transaction volume of around $100 million and a TVL of $440 million.
But putting aside the expected “traffic” brought by the airdrop and returning to the product itself, has LayerZero really achieved the innovation of cross-chain bridge and really brought a better cross-chain experience for users?
Many users once complained about problems with LayerZero’s product such as expensive costs and poor user experience. For example, when using Stargate cross-chain, some users found that the real arrival amount was less than the displayed amount, and the final fee was much higher than other common cross-chain bridges such as MultiChain and Hop. In addition, when using the cross-chain bridge developed by LayerZero, the deposit is much easier than a withdrawal, with the latter may take users 2 to 3 days.
Users who do not understand the underlying technology value the real user experience more than LayerZero’s innovative mechanism. If features of products such as Stargate are not updated and improved, a flood of users leaves when the airdrop expectation fades away.
Overview of LayerZero Technology and Eco-system
Well-known crypto investment institutions such as a16z, Sequoia Capital, Coinbase Ventures, Binance Labs, and Multicoin Capital have basically participated in LayerZero’s financing. So what is the magic of LayerZero that attracts so much capital?
LayerZero itself is not a cross-chain bridge but a cross-chain infrastructure, which can help users or developers to transfer information between different blockchains and also realize information transfer between DApps in other blockchains. For example, data and asset interaction information of the DeFi application on chain A can be passed to the DeFi application on chain B. With LayerZero, developers can deploy DApps across multiple blockchains and achieve interaction without cross-chain bridges, also known as full-chain DApps.
LayerZero already supports messaging between EVM chains such as Ethereum, BNB Chain, Polygon, Avalanche, Fantom, Arbitrum and Optimism, Metis, and non-EVM chains such as Aptos.
There are two main types of common ways to communicate information across chains. One type is the intermediate chain solution, which builds an intermediate chain between the target chain and the source chain, such as Multichain. With this mechanism, the intermediate chain must be trusted to have a complete and reliable signature mechanism. In addition, the intermediate chain is vulnerable to hacking; the other type is the light node solution, which deploys a light node on each chain to achieve message transmission through the node, such as Cosmos IBC. Using light nodes to transmit information is the most secure but also the most expensive solution. Currently running an on-chain light node on Ethereum will cost thousands of dollars per day per opposing chain.
While both models have their own advantages and disadvantages, LayerZero completes the communication and information transfer between different chains by deploying “ultra-light nodes” smart contracts on each chain, supplemented by the use of on-chain Oracle and off-chain Relayer. The so-called “ultra-light” node only needs to store on demand a small amount of data information such as block headers without following the order.
For example, if a person wants to send a message from chain A to chain B using LayerZero, he first notifies the oracle and the relayer on chain A that he wants to send the message, and the oracle sends the relevant block header (a summary of the latest transaction on chain A) to the ultralight node on chain B. The relayer submits the proof of the transaction on chain A to chain B. If both the block header and the proof of the transaction are considered valid, the message can be sent to the recipient on chain B. If the block header and the transaction proof do not match, the message will be ignored.
The ultra-light nodes supplemented with oracles and intermediaries can reduce the computing cost of nodes and the risk of intermediate chains. This new mechanism has made LayerZero a pioneer leading a new era of cross-chain facilities.
Through LayerZero, asset transfer, state sharing, lending, and governance can be achieved between chains. This is why it is called a full-path chain. Now Layerzero has already set plans and explored the fields of cross-chain DEX, multi-chain lending, and stablecoin.
Layerzero eco-products:
Official cross-chain bridge Stargate — supports native asset cross-chaining.
USDC Bridge — USDC native asset full-path cross-chain bridge developed by Layerzero and Circle.
Aptos Bridge — cross-chain bridge developed by Layerzero and Liquidswap DEX collaborate that supports cross-chain asset transfer between the Aptos ecosystem and networks such as BNB Chain and Polygon
BTC.b (Bitcoin Bridge) — a bridge built specifically for BTC assets, supporting seamless integration of BTC in networks supported by integrated LayerZero
Testnet Bridge — a public product launched by LayerZero for developers to use. Developers can exchange into ETH on Ethereum via the GETH bridge on the Ethereum Goerli test net.
Rage Trade — a derivatives exchange built on top of LayerZero, where users can trade futures or options.
Multi-chain lending RadiantCapital — Multi-chain lending project based on LayerZero deployed on Arbitrum.
Multi-chain NFT project gh0stlygh0sts — LayerZero-based full-chain NFT that supports transfers between different chains.
LayerZero Name Service — a domain name service built for multiple chains. After registering a domain name, users can display the identity of the domain name on Ethereum, BNB Chain, Polygon, and other chains.
In addition, Sushiswap and Pancakeswap, TradeJoe, and HashFlow are officially integrated with LayerZero using Stargate for cross-chain DEX development.
LayerZero security has been repeatedly questioned
Despite many advantages of LayerZero, many developers still questioned that although LayerZero is cleverly designed, there are still loopholes, such as the possibility of joint evil of the oracle and the relayer, or the delay of oracle information.
In fact, questions about LayerZero’s security have never come to an end. In January, L2Beat used an experiment to decipher LayerZero’s claim that “it was designed to eliminate the possibility of collusion between the oracle and the relayer”, in which L2Beat stated that there was no project to limit its own access to modify the oracle and the relayer, allowing hackers to attack at will. This makes LayerZero dependent on the two under-chain component relayers and oracles for messaging between different chains, and the user must trust that the relayers and oracles will not conspire to do evil and that the protocol itself will not cause harm to the relayer. However, according to experiments by L2BEAT and others, in LayerZero’s architecture, the relayer and oracle can be changed, and an attacker can extract the underlying assets by changing the relayer and oracle at any time.
Prior to this, in March 2022, Shenyu of Cobo blockchain security team posted that LayerZero had a vulnerability that could affect the assets of all cross-chain projects built on LayerZero. Although the vulnerability has since been fixed by the LayerZero project, the possibility of other vulnerabilities being attacked cannot be ruled out. It was also added that most of the key contracts of the LayerZero project are still controlled by EOA and do not use a multi-signature mechanism or TimeLock mechanism. If the private key of these privileged EOAs is leaked, it may also lead to the assets of all upper-layer protocols being affected. As of today, LayerZero has not made an official statement on this.
Regarding the mechanism of joint evil of oracles and relays, there are already projects exploring whether it can be avoided by zero-knowledge proofs, such as Way Network, a cross-chain infrastructure. However, due to the complexity of zero-knowledge proof computation nowadays, we have yet to see a product with real popular adoption.
However, some users also said that at present, the project technology is not the most important, as the underlying infrastructure is more of a test of the project side’s operational ability and its eco-system. In terms of the ecological development and market impact effect, LayerZero is undoubtedly a success.
Stargate becomes a “cross-chain assassin”: expensive and opaque pricing
For ordinary users, besides the security of the cross-chain bridge, the most intuitive evaluation of the product comes from the user experience. At present, there are more praises than criticisms of LayerZero in the market, but in fact, there are many flaws in the use of LayerZero-related eco-products.
For example, Stargate, the official product launched based on LayerZero, has naturally become the main battleground for important airdrop interactions, but it has also become a controversial product in the LayerZero ecosystem.
Launched in March 2022, Stargate is the first cross-chain application based on LayerZero and focuses primarily on the cross-chain transfer of native assets.
Stargate believes that the current cross-chain bridge also has an “impossible triangle”, i.e. “instantaneous arrival of assets across the chain”, “uniformity of liquidity pools across the chain”, and “nativity of assets after cross-chain transfer”. Stargate claims to be able to solve this “impossible triangle” and realize the timely arrival of native assets.
Currently, Stargate is live on Ethereum, Avalanche, Polygon, BNB Chain, Fantom, Arbitrum and Optimism, Metis, and supports native assets such as USDT, USDC, ETH, FRAX, DAI, BUSD to transfer between different blockchain networks.
The biggest dissatisfaction of users with Stargate is mainly about the cost. Is it possible that Stargate intends to hide the real cross-chain fees to attract users?
This is mainly because Stargate charges a 0.06% fee for non-STG token transfers and the fee mechanism is shown to be rather unusual.
For example, if you use Multichain cross-chain bridge to transfer 100USDC from Fantom to Ethereum, the amount shown is 60U, which is the final amount after deducting the 0.1% handling fee of the platform and the GAS fee of the Ethereum.
However, in Stargate, the arrival amount shown is the highest, because only the handling fee charged by the platform is deducted, while the on-chain GAS fee is not deducted. The target chain GAS fee is paid by the source chain tokens when Stargate makes cross-chain transfers.
In the Stargate fee breakdown, there are mainly “Gas on destination”, “Platform fees”, and “Gas Cost”. The GAS cost includes the payment of both the GAS fee of the target chain and the GAS fee of the source chain. The estimated fee is used to pay the GAS fee of the target chain, and the final payment amount depends on the specific chain fee at the time of the transaction. Therefore, when a user makes a cross-chain transaction, the actual cross-chain fee charged by Stargate is the sum of “Gas cost” and “Platform Fee” after deducting the source chain’s Gas fee.
For example, if you transfer USDC from Fantom to Ethereum, the Stargate page shows that you received 99.94 USDC, but you will see that you need to pay another 79.61 FTM as the on-chain GAS fee if you click on the fee details page, which is still an estimated fee, and the amount paid in the actual cross-chain may be higher. If the final gas fee is 79.8FTM, after deducting the source chain GAS fee (0.15FTM), you also need to pay the target chain Gas (79.77FTM), and in fact, the final amount to be paid is (99.94USDC-79.61FTM), and the actual arrival amount is about 67USDC.
In addition, Stargate’s fee details are usually not clearly displayed, and in the early days there were no details at all, and users had to click on the small triangle symbol below the amount to see the charge details, which led many users to think that the amount displayed was the final amount, and then they found out that it cost a considerable amount when they paid the GAS fee, feeling like being cheated. This is why Stargate is called the hidden “cross-chain assassin” by users.
NANA, a player on the chain, said in a community statement, “When I used Stargate to transfer ETH from Arbitrum to Ethereum, I didn’t notice the high fees they are displayed in ETH, but when I make a transfer from Fantom, the GAS fee to pay for the token was different, and I paid dozens of FTM at once, so I was shocked and never used Stargate again.”
In addition to the Gas fee, Stargate cross-chain processing fee is also a big trap, it indicates that the cross-chain processing fee is 0.06%, but according to different coins and different chain charges are different, some are 0.1%, and some may be higher. If the cross-chain assets are different and the amount is larger, the final exchange amount will be affected by the fee and slippage.
Aptos Bridge cross-chain bridge developed by LayerZero and Liquidswap DEX also faces criticism. It is easier to deposit than withdraw Aptos. It takes only a few minutes for users to top up assets to Aptos, but withdrawing from Aptos to other chains requires at least 500,000 block confirmations before completion, with a wait of roughly 2–3 day, and in the early days even 1 million block confirmations. The withdrawal time for Wormhole and Celer, which also support the Aptos ecosystem across chains, is instant. Although the official claims such a mechanism is based on security considerations, in this efficiency-worshiping era, long wait time is the biggest fatal problem.
As a result, more and more users are saying on social media that if not for the airdrop, they will definitely prefer the cross-chain bridge with low cost and fast arrival time, and will not use Stargate or Aptos Bridge at all, and the reason why they use it now and put up with its high cost is for its airdrop.
Most users don’t care whether the assets are native or not, but are more concerned about the cross-chain fees and arrival time, but in these two aspects, compared to other third-party cross-chain bridges, Stargate does not have an obvious advantage. From the current data, we can also see that LayerZero users do not use it very frequently, and the number of transactions below 5 times accounts for 61.9% of the total transactions, among which the amount of Stargate cross-chain funds is mainly concentrated below 500USD, accounting for 69.5% of the user group.
Stargate has been alive for 1 year, but there is no improvement in its fee mechanism yet. However, in the proposal of Stargate V2 upgrade version on March 15, one of the proposals was to optimize the on-chain GAS fee, which gained a lot of support from community users.
Once the expectation on airdrop is realized, the current bubble of LayerZero and its eco-products may burst, and the final solution to maintain the prosperity may always be improving user experience and innovating fee mechanisms.
