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Building Bridges

Multicoin capital
By Multicoin Capital
March 30, 2022 | 4 minute read

18 months ago, Ethereum was the only Layer 1 asset ledger that mattered. Today, there are over a dozen major asset ledgers across Layer 1— Ethereum, Solana, Luna, Polygon, Celo, Flow, Avalanche, Near, Fantom, BNB Chain—and Layer 2—Optimism, Arbitrum, StarkEx, StarkNet.

We live in a multi-polar world. We will never go back to a uni-polar world. And that means that bridging is going to be extremely important.

Today I’m excited to announce our investment in LayerZero, an omnichain interoperability protocol that unites dapps and liquidity across disparate blockchains. We led their prior round in September 2021, and invested again in the round that LayerZero announced today: a $135M Series A+ round that included a strong group of strategic investors, including a16z crypto, Sequoia, FTX, Paypal Ventures, Animoca, Rene Marcelo Claure (Softbank CEO), Blizzard (Avalanche’s ecosystem fund), Polygon’s ecosystem fund, Fantom’s ecosystem fund, Dapper Labs, Kronos Research, Ethernity, ImToken Ventures, Matrixport, Coinbase, Gemini and more. The round also includes noteworthy angels, such as Tom Brady, Justin Timberlake, and Maria Eitel, as well.

Bridges are one of the most technically complex sectors in crypto. Dmitriy Berenzon of 1kx wrote an outstanding overview of the design space for bridges.

We believe that bridges will exhibit extremely strong network effects per pair of asset ledgers. It is very confusing for users to deal with renBTC vs tBTC vs WBTC on Ethereum, or WormholeETH vs SolletETH on Solana. In the long run, we expect a single bridge will dominate liquidity for every pair of asset ledgers.

Given that most asset ledger teams are building their own bridges—Optimism bridge, Arbitrum bridge, Starknet bridge, Avalanche bridge, Polygon bridge, Near’s Rainbow bridge, etc.—we expect that these bridges will be dominant bridges for their respective ecosystems. Rather than compete directly with any of these bridges, LayerZero actually layers nicely on top of all of them.

LayerZero is the simplest, lightest way to relay messages between chains. LayerZero does not directly manage asset custody and the creation/burning of pegged tokens. Instead, LayerZero lets the specialized bridges above handle those activities.

In addition to the LayerZero protocol, the LayerZero team is launching a cross-chain bridge called Stargate that is built on the LayerZero protocol. A simple mental model of Stargate is cross-chain, stableswap DEX, similar to Curve or Saber. If a user wants to move USDC from Arbitrum to Optimism or from Polygon to Aurora (Near), now they can just use Stargate.

How does Stargate work?

When the Stargate contract on the sending-chain receives the USDC, the LayerZero protocol will relay the state of the sending-chain to the receiving-chain, and the Stargate contract on the receiving-chain will release USDC to the user.

The beauty of this approach is its flexibility and simplicity. Liquidity naturally congregates into pools on a pairwise basis (so there won’t be a situation in which multiple pools are competing for the same taker flow). Stargate offers instant guaranteed finality and is trust-minimized.

While Stargate is the flagship app built on the LayerZero protocol, we expect the LayerZero protocol to power all kinds of new workflows. Because LayerZero is a generalized message relaying service, it can be used for almost anything. Some examples:

  1. Vote for governance proposals on Chain A using assets that are on Chain B without moving the assets back to Chain A
  2. Use collateral on Chain A to take out a loan on Chain B
  3. Use collateral on Chain A to collateralize a derivatives position on Chain B
  4. Apply a mutation to an NFT on Chain A based on an on-chain action on Chain B

LayerZero is live today on most major EVM chains: Ethereum Layer 1, Optimism, Arbitrum, Polygon, Avalanche, Fantom, and BNB Chain. Additionally, LayerZero will be launching support for Celo, Aurora (Near), Solana, Cosmos, and Terra in the next few months.

You can access the LayerZero docs here. If you want to help realize a multi-chain world, the LayerZero team is aggressively hiring.

Disclosure: Unless otherwise indicated, the views expressed in this post are solely those of the author(s) in their individual capacity and are not the views of Multicoin Capital Management, LLC or its affiliates (together with its affiliates, “Multicoin”). Certain information contained herein may have been obtained from third-party sources, including from portfolio companies of funds managed by Multicoin. Multicoin believes that the information provided is reliable but has not independently verified the non-material information and makes no representations about the enduring accuracy of the information or its appropriateness for a given situation. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in this blog are subject to change without notice and may differ or be contrary to opinions expressed by others.

The content is provided for informational purposes only, and should not be relied upon as the basis for an investment decision, and is not, and should not be assumed to be, complete.  The contents herein are not to be construed as legal, business, or tax advice. You should consult your own advisors for those matters. References to any securities or digital assets are for illustrative purposes only, and do not constitute an investment recommendation or offer to provide investment advisory services.  Any investments or portfolio companies mentioned, referred to, or described are not representative of all investments in vehicles managed by Multicoin, and there can be no assurance that the investments will be profitable or that other investments made in the future will have similar characteristics or results. A list of investments made by funds managed by Multicoin is available here: https://multicoin.capital/portfolio/.  Excluded from this list are investments that have not yet been announced (1) for strategic reasons (e.g., undisclosed positions in publicly traded digital assets) or (2) due to coordination with the development team or issuer on the timing and nature of public disclosure.

This blog does not constitute investment advice or an offer to sell or a solicitation of an offer to purchase any limited partner interests in any investment vehicle managed by Multicoin. An offer or solicitation of an investment in any Multicoin investment vehicle will only be made pursuant to an offering memorandum, limited partnership agreement and subscription documents, and only the information in such documents should be relied upon when making a decision to invest.

Past performance does not guarantee future results. There can be no guarantee that any Multicoin investment vehicle’s investment objectives will be achieved, and the investment results may vary substantially from year to year or even from month to month. As a result, an investor could lose all or a substantial amount of its investment. Investments or products referenced in this blog may not be suitable for you or any other party.

Multicoin has established, maintains and enforces written policies and procedures reasonably designed to identify and effectively manage conflicts of interest related to its investment activities. For more important disclosures, please see the Disclosures and Terms of Use available at https://multicoin.capital/disclosures and https://multicoin.capital/terms.

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Disclosure: Unless otherwise indicated, the views expressed in this post are solely those of the author(s) in their individual capacity and are not the views of Multicoin Capital Management, LLC or its affiliates (together with its affiliates, “Multicoin”). Certain information contained herein may have been obtained from third-party sources, including from portfolio companies of funds managed by Multicoin. Multicoin believes that the information provided is reliable but has not independently verified the non-material information and makes no representations about the enduring accuracy of the information or its appropriateness for a given situation. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in this blog are subject to change without notice and may differ or be contrary to opinions expressed by others.

The content is provided for informational purposes only, and should not be relied upon as the basis for an investment decision, and is not, and should not be assumed to be, complete.  The contents herein are not to be construed as legal, business, or tax advice. You should consult your own advisors for those matters. References to any securities or digital assets are for illustrative purposes only, and do not constitute an investment recommendation or offer to provide investment advisory services.  Any investments or portfolio companies mentioned, referred to, or described are not representative of all investments in vehicles managed by Multicoin, and there can be no assurance that the investments will be profitable or that other investments made in the future will have similar characteristics or results. A list of investments made by funds managed by Multicoin is available here: https://multicoin.capital/portfolio/.  Excluded from this list are investments that have not yet been announced (1) for strategic reasons (e.g., undisclosed positions in publicly traded digital assets) or (2) due to coordination with the development team or issuer on the timing and nature of public disclosure.

This blog does not constitute investment advice or an offer to sell or a solicitation of an offer to purchase any limited partner interests in any investment vehicle managed by Multicoin. An offer or solicitation of an investment in any Multicoin investment vehicle will only be made pursuant to an offering memorandum, limited partnership agreement and subscription documents, and only the information in such documents should be relied upon when making a decision to invest.

Past performance does not guarantee future results. There can be no guarantee that any Multicoin investment vehicle’s investment objectives will be achieved, and the investment results may vary substantially from year to year or even from month to month. As a result, an investor could lose all or a substantial amount of its investment. Investments or products referenced in this blog may not be suitable for you or any other party.

Multicoin has established, maintains and enforces written policies and procedures reasonably designed to identify and effectively manage conflicts of interest related to its investment activities. For more important disclosures, please see the Disclosures and Terms of Use available at https://multicoin.capital/disclosures and https://multicoin.capital/terms.