Comparing Web3 Interoperability Solutions

Written by TJ

On April 23, 2022

Among the many sectors of Web3 that have the potential to push the blockchain space to new levels of mainstream adoption, cross-chain interoperability remains the most critical and highly contested.

The importance of interoperability is evidenced in the massive influx of funding that has been poured into creating new solutions to unite the various blockchains and reduce the frictions of onboarding and moving capital throughout the crypto ecosystem. 

Composability, which is the ability to clone and integrate smart contracts (including Dapps, tokens, and DAOs) into different networks, sits at the top of the list of most sought-after qualities for blockchain developers. 

Whichever project can tackle the many technical challenges to build a truly secure and trustless cross-chain protocol will become the gateway for all economic activity in the web3 space.  

Given the stakes at hand, It is no surprise that LayerZero, a new omni chain interoperability protocol recently raised $100m to fund its mission to build a “messaging transport layer for smart contracts to communicate between chains.”

Accumulate has a similar mission to establish a communication and audit layer for individuals, entities, and blockchains to transact with each other using Accumulate Digital Identifiers or ADIs.

Below, we compare how LayerZero and Accumulate are tackling cross-chain interoperability and how Accumulate differentiates in its use of ADIs as the core instruments for bridging blockchain networks together. 

What is LayerZero?

LayerZero is a messaging transport layer for smart contracts to communicate between chains.

The project has developed a protocol for standardizing communication between different blockchains.

A cross-chain transaction between two chains (chain A and B) on LayerZero involve 3 components:

  1. A transaction initiated on chain A (tA)
  2. A communication protocol between A and B
  3. The message (M)

In order for there to be valid delivery of a message, the protocol states that M is delivered if and only if tA is committed and valid.

According to LayerZero’s whitepaper:

The key idea underpinning LayerZero is that if two independent entities corroborate the validity of a transaction (in this case, tA) then chain B can be sure that tA is valid.

Given two entities that do not collude, if (1) one entity can produce a block header for the block containing tA on chain A, (2) the other entity can independently produce the proof for tA on that block (transaction proof), and (3) the header and transaction proof in fact agree, then the communication protocol can deliver m to the client on chain B with the guarantee that tA is stably committed on chain A.

The two independent entities referred to are an Oracle and a Relayer. By leveraging an Oracle, which provides the block header for the transaction and a Relayer, which provides the proof associated with the transaction, LayerZero claims it can guarantee valid transaction processing between chains.  

What are the benefits of LayerZero?

The biggest benefit is reducing the friction of moving funds from one chain to another in a relatively trustless way. LayerZero sees itself as a version of the Inter-Blockchain Communication protocol (IBC) for the entire blockchain ecosystem, which makes the potential for this project quite significant if new and legacy chains can adopt it. 

What are the limitations? 

The biggest concern with LayerZero is the lack of certainty around the security measures that are meant to ensure the validity of cross-chain transactions. 

Stating that all the protocol needs are two non-colluding entities to provide a block header and proof opens to doors to several scenarios where backdoor collusion could potentially occur.

For one, the relayer and Oracle could both be represented by the same entity off-chain, or one entity could be engaged in a different transaction with another that influences the objectivity with which cross-chain transactions are verified. Additionally, central points of failure within the bridging process could create attack vectors that render wrapped assets worthless, just like in the case of the recent Wormhole attack where wrapped ETH on Solana became worthless once all the locked ETH was stolen.  

By contrast, Accumulate uses ADI’s as the core feature to create cross-chain interoperability. 

Rather than using the standard smart contract bridging model to transmit messages between sender and receiver from one chain to the next, Accumulate actually onboards both the sender and receiver unto its own network and allows each entity to represent itself as an ADI. 

These entities can then exchange messages directly on one chain without relying solely on cross-chain bridges. This method can be compared to creating a communication channel where entities can connect, transact native Accumulate assets with each other, or communicate their intentions to transact assets on other chains, all in a manner that is decentralized and trustless. 

Accumulate’s design enhances the value of cross-chain bridging solutions by establishing a credibly neutral communication layer for counterparties on different chains to more directly exchange messages and also keep an audit trail of the activities and entities behind the Oracles and Relayers transmitting data between chains on the LayerZero protocol. 

Single Source of Truth for Cross-Chain Bridges

As a communication and audit Layer, Accumulate is able to track the state and validity of contracts stored on third-party chains like Solana, Tezos, Cardano or even multi-chain networks like Cosmos or Polkadot. This means that entities represented as ADIs can effectively process smart contracts on these chains. 

For example, an entity could manage the transfer of their assets from one chain to another using only the Accumulate network to communicate their actions between different ADIs. This method allows Accumulate to leverage other bridging solutions on the market while serving as a single source of truth for all cross chain bridge transactions. 

What’s more, through Accumulates data anchoring solution, this record of cross-chain transfers can be backed up on the most decentralized blockchains, Bitcoin and Ethereum, ensuring that the audit trail is truly tamper proof. 

Connecting the Cryptoverse and Traditional Economy

Another major advantage of Accumulate is its focus on bridging the blockchain ecosystem to the traditional economy. Even at a valuation of $2 trillion, the crypto markets are still very small in comparison to the multi trillion dollar economies of the equities, commodities, real estate and energy markets. The Accumulate network is designed from the ground up to enable entities in the traditional economy to make a seamless transition to web3 by adopting decentralized digital identifiers, which can be used to represent everything from people to documents, to physical and digital corporate assets (patents, materials, accounts receivables, etc). 

While achieving interoperability amongst today’s blockchain networks can help lower the barriers to adoption, the benefits that this creates cannot be fully realized without also developing solutions to onboard the traditional economy so that new entities and net new capital can take advantage of the frictionless experience of interacting with multiple networks. 

The vast majority of growth that the blockchain ecosystem will see in the coming years will be from external entities embracing more decentralized solutions for transacting, accounting and governance. 

Working in tandem to improve cross-chain interoperability  

While there are some key differences between Accumulate and LayerZero, it’s possible that by each project maximizing its strengths, their combined solutions could radically improve the efficiency and transparency of the cross chain bridging process. 

According to LayerZero’s whitepaper –

“The Relayer is an off-chain service that is similar in function to an Oracle, but instead of fetching block headers it fetches the proof for a specified transaction… The protocol itself does not require any specific implementation of a Relayer, and in theory the users of LayerZero could even implement their own Relayer service… In practice, LayerZero provides the Relayer service while the Oracle is handled by Chainlink’s decentralized oracle network and associated consensus mechanisms. “

Using this description, we can imagine a scenario where all Oracles and Relayers are represented as ADIs on Accumulate, creating an additional layer for these entities to communicate the data they are validating and also provide a decentralized audit trail that is completely independent and exists outside of the LayerZero network. 

This mechanism could be used to prevent possible collusion by linking all off-chain and on-chain participants within a Relayer or Oracle entity to an ADI through the use of sub-identities.  

ADI acc://relay1 acc://oracle1 
Description Off-chain Relayer – xyz LLCChainlink Oracle – #1234
Directory Relayers – rOracles – o
URL-1acc://relay1/r/accountsacc://oracle1/o/accounts
URL-2 acc://relay1/r/transactionsacc://oracle1/o/transactions
URL-3acc://relay1/r/walletsacc://oracle1/o/wallets

Conclusion

LayerZero and Accumulate are highly innovative projects taking different approaches to unify a fragmented blockchain ecosystem. 

LayerZero aims to connect all blockchains together through a universal cross-chain bridging protocol that leverages oracles and relayer working indepently to verify bridged transactions. 

Accumulate aims to connect all blockchains together and form a bridge to the traditional economy through the use of ADIs, which will represent individuals, entities and assets that exist and interact on top of a single communication and audit layer.

A hypothetical collaboration between these projects could serve to resolve their weaknesses while highlighting their strengths. For example, the risk of collusion between relayers and oracles on the LayerZero protocol could be mitigated by having both parties and their associated accounts all be represented at ADIs on Accumulate in order to build an independent and decentralized audit trail. 

At the same time, the lack of native smart contracts for cross-chain bridging on Accumulate could present an opportunity for LayerZero to serve as an execution layer for blockchain assets not represented on Accumulate, allowing Accumulate to focus on reconciling these cross-chain transactions through their ADI-represented counterparties in order to establish a single source of truth for the blockchain ecosystem.

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