What is Layer 0 Blockchain?

What is Layer 0?

Layer 0 (Layer Zero Blockchain) is a fundamental infrastructure built beneath Layer 1, serving as an even more foundational layer. Its goal is to enhance the scalability, interoperability, and specialization of different blockchains.

Currently, various multi-chain applications are experimenting with different architectures to achieve this Layer 0 goal. This article will explore three real-world examples of Layer 0, along with two projects built on Layer 0 and benefit from the advantages of the Layer 0 ecosystem.

Recap of Layer 1 - Layer 3

Layer 1: Layer 1 is the base blockchain for interaction and data distribution. Examples include Bitcoin, Ethereum, BNB Chain, etc.

Layer 2: Layer 2 is a protocol built on top of Layer 1, aiming to enhance the performance and throughput of the blockchain. Transactions on Layer 1 can be processed by an additional Layer 2, with the finalized results sent back to the underlying Layer 1 for permanent record-keeping. Layer 2 scaling solutions aim to reduce the burden on the base layer blockchain, increase processing speed, and address scalability issues. By interacting with Layer 1, blockchains can achieve scalability without compromising security. You can find more information about Layer 2 in a previous Gate Learn article.

Layer 3: Layer 3 builds on top of Layer 2, offering even greater scalability and customization. It’s commonly used by projects requiring frequent on-chain interaction, allowing developers to deploy game chains on Layer 3 based on their needs. This caters to specific DApp game projects requiring high-frequency on-chain interaction or improved user wallet experiences. You can find more information about Layer 3 in a previous Gate Learn article.

Applications of Layer 0: Taking Polkadot as an Example

Let’s use Polkadot to examine how Layer 0 infrastructure works and its advantages.

Polkadot’s Layer 0 works like this:

A relay chain is the main chain that ensures security for the parachains. These parachains, functioning as Layer 1 sidechains, are dedicated to specific applications. Additionally, there’s a network layer protocol for transmitting cross-consensus messages (XCM). This enhances communication between consensus systems, thereby providing stronger interoperability.

Source: Polkadot Blog

Advantages of Polkadot’s Parachain (Parallel Chain) Design

According to the Polkadot official document, the main advantages of the parachain design are:

• Scalability: The relay chain focuses on messaging and security, allowing parachains to be scalable solutions without handling smart contract execution. This structure also provides greater flexibility and scalability for parachains as they can be customized and optimized for specific applications or use cases without being limited by smart contracts.
• Specialization: Polkadot itself only focuses on its basic work as Layer 0. While other L1 blockchains must balance their security and use DApps for expansion, Polkadot and its dedicated blockchains (parachains) can work together.
• Interoperability: Since all parachains are built on a framework called Substrate and connected to Polkadot’s architecture, they can natively communicate, exchange assets, and form rich cross-chain interactions and connections. The Polkadot above XCM message format allows parachains to interact with each other without going through the relay chain, such as sharing assets.

Layer 1 Projects on Polkadot Ecosystem

The most representative Layer 1 parachain projects in the Polkadot ecosystem are those that won the first round of slot auctions. They have been developing for a longer time and have a stronger consensus in the community. Here are three Layer 1 projects in order of their current TVL size.

Astar
Astar Network (formerly Plasm) is the most popular smart contract platform in Japan. As a Layer 0, Polkadot’s relay chain does not support developing and deploying smart contracts. Astar fills this gap perfectly, supporting Wasm (WebAssembly) and EVM smart contract solutions. This makes Astar the first parachain in the Polkadot ecosystem that supports the Ethereum ecosystem, including Layer 2 scaling solutions like OVM (Optimistic Virtual Machine).

To attract developers to its ecosystem, Astar Network has implemented a dApp staking program. Within the Astar network, a portion of the inflationary tokens created with each new block are allocated to dApp staking. The rewards from this staking process are then distributed to dApp developers and stakers.

Astar is constructed on Polkadot as follows: it uses Polkadot’s relay chain to handle cross-chain interoperability, data storage, and transaction verification, whereas the EVM layer is responsible for executing smart contracts and is compatible with Ethereum, allowing developers to build and deploy dApps.

Moonbeam
Moonbeam is an Ethereum bridge primarily used to integrate smart contracts written in Solidity on Ethereum with minor modifications to the Moonbeam chain. This allows cross-chain interoperability with the relay chain and the entire Polkadot ecosystem. In 2020, the well-known DeFi service, SushiSwap, launched a branch on Moonbeam. In 2022, native Polkadot USDT was launched on Moonbeam.

The test network for the Polkadot system is Kusama. The typical workflow for developers is to first use Moonriver on the Kusama test network (Moonriver’s functions are similar to Moonbeam’s. It’s a precursor project on Kusama) to test and verify smart contracts, then send the code to Moonbeam on Polkadot. Moonbeam can execute EVM instances on the Polkadot chain and supports the ERC-20 standard and DOT protocol.

Acala
Acala is a financial services platform built on the Polkadot network, offering three main services: AcalaSwap (an Automated Market Maker for coin exchange, where Liquidity Providers can open pools to inject liquidity and receive transaction fees), Honzon (a stablecoin protocol), and Homa (a liquid staking protocol). Acala is considered the DeFi hub of Polkadot and is compatible with Ethereum, allowing developers to easily migrate their DeFi projects from Ethereum to the Acala network. It has a dual token system, including the native decentralized stablecoin (aUSD) and ACA (the governance token of the Acala network). The aforementioned three main services can meet the needs of parachain collateral, cross-chain liquidity creation, multi-chain asset collateral, and issuance of the algorithmic stablecoin aUSD.

Polkadot’s Delivery Progress and Limitations

With the final version of Polkadot 1.0 scheduled for release in July 2023, this signifies that the functionalities of the Polkadot relay chain have been delivered. In the long term, Polkadot aims to be a more general ecosystem, generating, utilizing, and selling block space (i.e., Polkadot’s Coretime).

Below are some current data for the Polkadot ecosystem: 1. There are over 580 ecosystem projects, including 90+ parachains, 300+ Dapps, and 190+ blockchains based on Substrate. 2. The most crucial projects in the current parachain are related to the launch and deployment of centralized stablecoins Tether (USDT) and Circle (USDC), with as much as 250 million USDC in Polkadot’s Asset Hub. 3. The entire ecosystem has nearly 2,000 active developers monthly and 83,000 active users monthly.

Additionally, regarding interoperability and cross-chain bridge applications, the Bridge Hub and Identity chain, Asset Hub, and Collectives chain are noteworthy infrastructures in the Polkadot ecosystem. In December 2023, the trustless bridge Snowbridge was deployed to the production environment of the Asset Hub and Bridge Hub after a security audit, and is expected to be activated in early 2024. The underlying encryption method of the trustless cross-chain bridge is a special-purpose encryption protocol developed internally by the Web3 Foundation research team. They are integrated with XCM and allow any contract interaction, which can be used for future solutions with Ethereum and the Moonbeam network. Trustless feature provides better scalability and efficiency, but the limitation is weaker underlying network security.

Layer 0 Project With Similar Goals: Cosmos

Like Polkadot, Cosmos is one of the earliest projects proposing to build a cross-chain ecosystem with a similar Layer 0 vision. According to the Cosmos whitepaper, the Cosmos ecosystem can realize interoperability between blockchains, with assets that can be issued and controlled by different validators but can move and exchange seamlessly between blockchains without relying on trusted third parties.

Advantages of the Cosmos Ecosystem

Tendermint Core: There are many regions (zones) on Cosmos, all of which are supported by Tendermint Core, a high-performance and secure consensus engine that can suppress malicious behavior. Tendermint Core’s BFT consensus algorithm is suitable for expanding public Proof of Stake (PoS) blockchains. Blockchains with other consensus models, including Ethereum and Bitcoin’s Proof of Work, can connect to the Cosmos network using adapter zones. Due to philosophical differences with founder Jae Kwon, Tendermint was later renamed Ignite. This resulted in a split into two entities, with Kwon serving as CEO of the other entity, NewTendermint.

Cosmos Hub: The first zone on Cosmos is called Cosmos Hub. Cosmos Hub is a multi-asset Proof of Stake (PoS) blockchain network governed by a simple mechanism that allows it to adapt and upgrade. Moreover, Cosmos Hub can expand by connecting other zones. Cosmos Hub is responsible for all token transfers between zones and keeps track of the total supply of tokens. Each Hub isolates the risks of each zone. Anyone can connect new zones to the Cosmos Hub. Therefore, zones allow for future compatibility with new blockchain technology solutions.

IBC Cross-Chain Protocol: The Hubs and zones in the Cosmos network communicate via the IBC protocol. The IBC protocol is a virtual protocol used to transmit blockchain data, similar to the UDP or TCP protocols in the Web2 network.

In addition to the consensus engine, Tendermint Core, the initial zone on Cosmos, namely Cosmos Hub, and the IBC cross-chain protocol, the Cosmos SDK development framework also plays a part. These infrastructures together form the Cosmos ecosystem.

Layer 1 Projects on Cosmos Ecosystem

Currently, data from Coingecko indicates 10 projects within the top 100 market cap in the Cosmos ecosystem, with over 260 projects constructed within the ecosystem. Cosmos technology has spawned numerous robust projects. This could be attributed to the different technological development paths chosen by Polkadot and Cosmos. Polkadot ensures security by designing relay chains and parachains, whereas the Cosmos Hub doesn’t handle on-chain message exchange and security. As noted in a previous article by Gate Learn, the Cosmos ecosystem resembles a radiative network structure. Each application chain manages its security, offering DeFi projects within the Cosmos ecosystem greater flexibility and autonomy.

Injective
Injective is a modular, ready-to-use interoperability blockchain that can build fully decentralized order books, prediction markets, or other on-chain financial services dApps. Built using the Cosmos SDK, Injective can implement instant transactions with the Tendermint proof of stake consensus framework.

For interoperability, Injective supports seamless cross-chain transactions between Ethereum, Moonbeam, CosmosHub, and other IBC-supporting chains, as well as Solana, Avalanche, and other Wormhole integrated chains. Since Injective supports cross-chain transactions with Ethereum and all IBC-supporting chains, this means that tokens created on Injective can appear in multiple networks by default.

Regarding cross-chain ecosystem compatibility, Injective supports CosmWasm, a new type of smart contract platform built for the Cosmos ecosystem. This means that developers can easily launch their smart contract-driven dApp on Injective. Smart contracts running on other chains that support CosmWasm can also seamlessly migrate to Injective.

Cronos
Cronos is a Layer 1 blockchain compatible with Ethereum, built using the Cosmos SDK. Initially, Crypto.com utilized the open-source public chain of Cronos.org to offer financial services. The project team later developed Cronos, a parallel-running blockchain, to broaden DeFi, NFT, and GameFi use in specific sectors. The creation of this new chain has also made the deployment of dApps and smart contracts more affordable and has helped to reduce carbon emissions.

Cronos is compatible with EVM, and Solidity, and all EVM tools are readily available. Furthermore, there’s Cronos Play, a suite of developer tools designed for Web, Unity, Unreal, and C++ game developers. These tools can be utilized for convenient development of GameFi projects.

The most unique feature of Cronos is the direct support from Crypto.com: The Cronos Ecosystem Grants Program, a plan to support the early projects of Cronos by guiding initial product development and providing technical support. In addition, there is the Cronos Accelerator, a plan for potential dApp developers.

Celestia
Celestia is a standout project in the data availability race. It is a modular network that focuses on ordering transactions and verifying the availability of published data.

Celestia uses Data Availability Sampling (DAS) technology, which samples randomly on different block segments multiple times. Each successful sampling will increase the confidence in data availability and the block’s validity. Moreover, this method is scalable. As more light nodes join the network to sample data, the block size will increase, allowing higher throughput. Its technical innovation attracted 55 million in financing in 2022. Ethereum has stated that it wants to focus on data availability and security in the future. Compared with Ethereum’s DA layer, Celestia significantly reduces data costs, which is considered a threat to Ethereum.

Limitations and Future Direction of Cosmos

Like Polkadot, whose most crucial project assets are stablecoins (USDC worth $250 million), Cosmos’s success in 2022 was largely due to the deployment of Terra’s stablecoin UST on the Cosmos blockchain. At that time, UST was the fourth-largest stablecoin by market value. However, the death spiral of Terra’s decoupling in May 2022 posed a severe test for Cosmos, leading to a significant plunge in the price of ATOM tokens.

Subsequently, Cosmos began to focus on modularity. Currently, the forked network of Cosmos Hub, AtomOne, is scheduled to launch its mainnet on February 27, 2024. This event was triggered by founder Jae Kwon’s dissatisfaction with the slight margin by which the ATOM token inflation rate proposal was passed, leading him to propose a fork.

This reveals at least three major issues with Cosmos:

• Centralization: In addition to the founders being able to counter community proposals through forks, the Satoshi coefficient (indicating the degree of centralization) of node operators (such as individual validator operator Chainflow) and stake pools like LIDO, showed Cosmos has a score of 7, Ethereum 2, Solana 20, and Polkadot 92 (at the time of writing), reflecting that the Cosmos ecosystem is relatively centralized.
• High inflation rate and network security cost: Initially, research from Blockworks Research showed that Cosmos’s $ATOM token had a high inflation rate. This implies unsustainability in tokenomics and affects the cost Cosmos pays for network security, prompting the team to propose related proposals.
• Fragmented ecosystem governance and token liquidity: The former is exemplified by the renaming and splitting of Tendermint, which potentially confuses the ecosystem. The latter affects user experience and, subsequently, the adoption of Cosmos.

What is the future development direction of the Cosmos ecosystem? According to the AMA share by Billy Rennekamp, who is in charge of Cosmos Hub, the upcoming features of Cosmos Hub include Vega upgrade, new modules AuthZ and FeeGrant, and updated network stability and security. In addition, the IBS packet routing function will be introduced. Gravity DEX and Emeris mark the development of the Cosmos ecosystem, but also sparked some discussions about the credibility and balance of the ecosystem. The implementation of inter-chain security and ATOM functions will further enhance the value and security of Cosmos Hub. Meanwhile, the ongoing NFT and IRISnet projects on Cosmos will also bring more applications and value to the ecosystem. These upgrades and features will improve user experience and are expected to drive the development and adoption of the Cosmos ecosystem.

Conclusion and Outlooks

The term Layer 0 became well-known early on, largely due to Gavin Wood’s evangelism and its use in the Polkadot parachain blog. However, in Polkadot’s end-of-year roundup for 2023, Polkadot and Layer 0 are no longer discussed together. This may be because both Polkadot and Cosmos have encountered similar issues in their ecosystem development:

Aside from Ethereum’s willingness to integrate Polkadot into its protocol, other Layer 1 networks seem less likely to follow suit. Similarly, the security of the Cosmos network is ensured by its native token, ATOM. Everyone ultimately wants to acquire more Layer 1 tokens to achieve more on-chain interactions. Network security depends on the distribution of sequencers. Redefining these roles (such as XAI addresses the authentication incentive problem through Sentry nodes), and developing a modular, composable infrastructure within cross-chain ecosystems, are real challenges that the Layer 0 track will face in 2024. If Polkadot and Cosmos fail to deliver satisfactory solutions to these challenges, the path to address these issues may not be called Layer 0, but something else.

The Future of Universal Cross-Chain Protocols
Other projects are also competing in the cross-chain race. For instance, Wormhole is a cross-chain protocol that facilitates universal messaging between blockchains. It’s not a blockchain itself, nor a token bridge. Instead, it provides tools for constructing cross-chain exchanges, implementing NFT governance, and creating cross-chain games.

Another similar cross-chain protocol is LayerZero, which uses Ultra Light Nodes (ULN), and its design is somewhat similar to Wormhole. The CEO of LayerZero believes that the operation of systems like Wormhole is to place control components in the “system”, and only trusted administrators can upgrade them (requiring 13/19 multisig). LayerZero also uses external keys to manage the parameters of dApps and relies on the key managers not to act maliciously. The difference is that Wormhole’s dApp has no control and cannot prevent the “system” from forcing upgrades and changing the underlying message transmission protocol. LayerZero allows each dApp to choose a set of immutable security parameters. This means that LayerZero, as a key infrastructure, is immutable, open-source, and always owned by the user.

In addition to the light node protocol developed by Polkadot and Cosmos’s IBC cross-chain protocol, this race will likely see more universal cross-chain protocols like Wormhole and LayerZero in the future, offering more efficient, flexible, and secure solutions.