From: thepipeline_xyz
The new year marked the start of Monad Season 2, with a significant partnership announcement between Monad and LayerZero [00:00:07]. The CEOs and a co-founder from both protocols joined “The Pipeline” to discuss the details of this collaboration [00:00:19].
About LayerZero
Brian Pellegrino, co-founder and CEO of LayerZero, shared his background, noting his early exposure to Bitcoin through professional poker when online payment processors were banned [02:54:38]. He later sold companies and published machine learning models [03:07:37]. His co-founders worked with him in an IEEE testing and conformance lab focusing on early interoperability and networking [03:44:03].
LayerZero’s fundamental purpose is to connect distributed execution environments, much like the internet’s TCP/IP stack connects disparate systems [04:10:24]. It functions as a transport layer, allowing arbitrary contract invocation and the seamless movement of bytes between chains [04:48:47]. The goal is to facilitate data movement and enable all chains to communicate with each other [05:00:46]. LayerZero remains agnostic to the specific validation methodology used by different applications, believing that this will evolve over time [16:44:02].
The concept for LayerZero arose from building a game across BNB Chain and Ethereum, where it became clear there was no way to coordinate contracts across chains without a central coordinator [18:50:45]. This led to a realization about the issues with wrapped assets in bridges, which shift risk from liquidity providers (LPs) to end-users [20:29:05]. This concern prompted the development of LayerZero as a transport layer that enables native asset transfer with instant guaranteed finality [20:48:49].
Significance of the Partnership for Monad
Keone, representing Monad, expressed extreme excitement for the collaboration with LayerZero [05:23:46]. Monad believes that seamless interoperability between different ecosystems is crucial for the decentralized world to “eat” the centralized world [05:48:58]. There is significant capital, data, and applications on other blockchains, and it’s vital for these environments to communicate seamlessly and trustlessly to deliver the best user experience and most powerful applications [05:59:17].
Different blockchains excel at different tasks, using various programming languages and standards [06:24:00]. A single interoperability layer, like LayerZero, is essential to bridge these gaps and enable decentralized technology to gain widespread adoption [06:35:05].
As a new blockchain, Monad will initially be a “tiny baby” with significant potential, but much of the existing data, assets, and users reside on other chains [24:13:20]. Therefore, having a robust, trustless mechanism to move these users and assets to Monad from day one is incredibly important [24:31:07]. This partnership aims to reduce user concerns about the logistics of exploring a new environment and taking advantage of new opportunities within Monad [24:54:08].
Real-World Problems Addressed
Both LayerZero and Monad aim to solve real-world problems through this partnership:
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Self-Sovereignty and Permissionless Access Brian Pellegrino highlights the core crypto thesis: enabling individuals to have full control over their money, pay anyone they wish, and interact permissionlessly [07:57:04]. The initial goal was to disrupt traditional banking and finance, which has evolved with programmable smart contracts to create more interesting financial primitives and structures globally [08:29:21].
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Payments Keone emphasized payments as a “killer app” for crypto [10:07:07].
- High Fees: In developed nations, credit card companies charge substantial fees (around 3%) on every transaction, which is a significant cost for businesses [09:31:04]. Crypto offers a way for anyone with a phone to pay for services directly, bypassing these middlemen [10:30:26]. The combined market caps of Visa and Mastercard, representing a trillion-dollar business, highlight the scale of fees being taken out of the system [13:14:02].
- Global Access: In parts of the world where credit cards are less common, crypto, particularly Tether, is already widely used for payments [10:43:08].
- Scalability: For crypto to truly disrupt payments, networks must be able to handle transactions at the same scale as current processing systems, requiring high throughput [11:11:00]. Monad is poised to be this network with 10,000 transactions per second (TPS) throughput [11:27:00].
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Personal Finance (DeFi) Making decentralized finance (DeFi) the standard for banking, trading, borrowing, and lending offers significant value [11:41:09]. However, systems need to deliver an equal or better experience than centralized tools by reducing slippage and improving execution costs [11:54:19]. This requires a highly performant environment to allow market makers to quote tightly and compete down spreads, leading to better user execution [12:28:02].
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Reducing Friction and Centralization Current financial systems often involve significant friction, such as high currency exchange fees at airports [13:50:06]. A decentralized system with a shared global state and high execution for transactions or swaps can remove this unnecessary friction, enabling actions like FX swaps for much lower costs [14:31:05]. This also provides protection against any single entity failing or becoming corrupt [14:49:03].
Omnichain Fungible Tokens (OFTs)
Brian Pellegrino described the concept of Omnichain Fungible Tokens (OFTs) as a solution for seamless native asset transfer across multiple chains [21:54:02]. Historically, moving assets like Tether between chains involved external bridging providers, high costs (e.g., 6-12 basis points), wrapped assets, and inventory management challenges [22:20:00].
OFTs allow assets to be handled directly through the contract itself, eliminating the need for external bridging providers [22:31:04]. The asset issuer maintains full security over the contract [22:41:06]. This means a stablecoin issuer could move $100 million worth of Tether for essentially the cost of gas (e.g., one-tenth of a penny) [22:56:06].
Reducing the friction of moving assets to near zero improves capital efficiency, enabling arbitrage across chains at sub-cent spreads and allowing market makers to make markets more efficient. This can eliminate large slippage gaps (e.g., 5%) and lead to fairer pricing mechanisms [23:08:00].
Parallel EVM and Blockchain Innovations
Monad being fully bytecode EVM compatible, along with its underlying architectural changes like parallel execution and a parallel access database, enables significantly higher throughput [25:21:00]. This allows for new types of applications that cannot exist elsewhere [25:48:02], such as fully on-chain order book trading, highly interactive social apps, or games with frequent on-chain actions [25:58:02]. This opens up new dimensions of possibility in blockchain without requiring users to restart from scratch [26:29:05].
The development of the parallel EVM in Monad stemmed from the team’s DNA of identifying and addressing performance bottlenecks, similar to their prior work on a high-performance trading system [28:41:00]. Profiling existing Ethereum clients revealed that state access was the single biggest bottleneck, primarily due to the inefficiency of the LevelDB commodity key-value store used by clients like Go Ethereum [31:18:00].
Monad Labs and Blockchain Innovations included a year-long journey to build a new custom database with two key properties [32:03:07]:
- Optimized Merkel Tree Data Storage: It natively stores Merkel tree data in a custom data structure optimized for that specific data type [32:14:02].
- Asynchronous Reads and Writes: This enables parallel access to different regions of the Merkel tree, allowing many virtual machines to progress more efficiently when executing transactions in parallel [32:29:06]. This removes the “single pipe” bottleneck that would otherwise limit the benefits of parallelizing EVM execution [32:58:04].
The parallel EVM development was driven by a pursuit of performance based on benchmarking and identifying hotspots, rather than merely for marketing [33:51:00]. Keone and his co-founder James decided to build a Layer 1 solution rather than an L2, believing it made more sense from first principles [36:40:02]. Brian referred to Keone as the “Godfather of the parallel EVM” due to his pioneering work on it more than a year before others became excited about the concept [37:04:02].
The Future of Bridging and Cross-Chain Communication
LayerZero’s long-term vision is to become an invisible, abstracted layer, similar to how developers don’t think about TCP/IP when building internet applications today [45:00:00]. The protocol aims to be agnostic to what is built on top of it, simply enabling applications to function across chains [45:22:00].
The future of cross-chain communication involves different blockchains providing “fundamentally different or structurally different things that Ethereum can’t do” [46:04:00]. LayerZero facilitates interaction between these specialized environments, whether it’s computation on one network and storage on another [46:22:00]. The market for decentralized finance (DeFi) and enterprise adoption is advancing much faster than initially expected [46:34:00].
For Monad, the future involves a renormalization of cost expectations for users and developers in crypto [51:01:00]. Current “normal” practices, such as paying $20 for gas or accepting 1-5% slippage, are seen as irrational and deter new users [48:02:00]. Experiences on high-performance chains like Solana, where transaction costs are negligible, are changing user expectations [49:21:00].
This cost reduction will enable a new wave of applications and users [51:09:00]. Developers can also benefit, as they won’t need to over-optimize for gas, potentially leading to more robust protocols with additional defensive assertions that minimize security risks [50:30:00].