As Wall Street embraces blockchain technology, the crypto industry still faces an existential problem: how to scale the technology so that it can handle the massive volume created by traditional financial entities like the New York Stock Exchange. Meanwhile, big banks and trading companies are seeking assurance that their customers’ sensitive data does not appear on the public ledger of a blockchain like Ethereum or Solana. One startup thinks it has found a way to address these concerns. On Tuesday, crypto firm LayerZero, backed by Andreessen Horowitz and Sequoia, announced a proposed solution: a new blockchain called Zero designed to meet the needs of Wall Street.
Although a slew of previous blockchain companies have claimed to build TradFi-level commercial infrastructure, LayerZero is also announcing an impressive lineup of Wall Street players joining as investors, partners and advisors, including market-making giant Citadel as well as Ark’s Cathie Wood and the Intercontinental Exchange, the parent company of the New York Stock Exchange.
In an interview with Fortuneco-founder Bryan Pellegrino said the Zero blockchain can overcome the scaling challenge through a breakthrough on a type of cutting-edge technology known as zero-knowledge proofs, which allows different parties to verify information in a privacy-preserving method.
“(LayerZero) has a very deep understanding of what’s happening in the markets,” Wood said. Fortune. “Really bringing the speed of the Internet to the financial sector: it’s a big idea. »
Day zero
Founded in 2021, Vancouver-based LayerZero initially focused on creating technologies to connect the sprawling blockchain landscape, allowing decentralized applications to send tokens and information between different networks. The company was one of the darlings of the last bull market, raising a $120 million funding round in 2023 from Andreessen Horowitz (a16z) and Sequoia that valued the startup at $3 billion. The former also announced last April that it had purchased LayerZero’s exclusive token, ZRO, for an additional $55 million, whose market capitalization currently exceeds $500 million.
Zero takes a different approach by competing with other blockchains, rather than serving as an infrastructure layer for them. Pellegrino explained that the decentralized nature of blockchain networks makes it difficult to manage a large number of transactions at a profitable price. By re-approaching the fundamental technology of zero-knowledge proofs to first principles, Pellegrino says his company’s new blockchain can handle two million transactions per second at a fraction of a cent per transaction, compared to Solana’s previous maximum of 100,000.
LayerZero plans to hold a blockchain demo on Tuesday, but it won’t launch until September. (Pellegrino says they were able to achieve this breakthrough in part by hiring two of the world’s top ZK engineers and programmers, whose names are still secret even to the majority of his 165-person company.)
The result, if Zero proves true, is that institutions like DTCC that manage billions of dollars in assets may be more likely to turn to blockchain infrastructure. Many of these companies have announced pilot projects and experiments in tokenizing or issuing financial assets on blockchains, including the NYSE. Some critics, however, have argued that these projects essentially amount to marketing with no real integration.
“One of the biggest obstacles has been speed and transactions per second,” Wood said. “It’s in a completely different league.”
Pellegrino pointed to the partners’ arrival as proof that LayerZero will help break the logjam in blockchain adoption on Wall Street. This includes Citadel, which is investing in LayerZero via a token purchase, although they declined to specify the size of the transaction. Stablecoin giant Tether also announced that it would invest in the company, as well as Ark.
Citadel, whose capital markets arm handles about 35% of retail stock trading in the United States, has faced challenges in the crypto sector after arguing to the Securities and Exchange Commission that decentralized finance should be regulated the same as its traditional counterpart. But Pellegrino said LayerZero’s focus was not on industry feelings about Citadel, but on integrating the global institutions with the most experience with market structure.
“When you think about the next few years, how will markets evolve from 7 days a week to 24 hours a day, 7 days a week? What will it look like when markets evolve entirely on a global scale?” says Pellegrino. “How do you actually build these markets for the future?”
At this point, everything is still theoretical, from the Zero blockchain itself to how the NYSE integrates decentralization into its core infrastructure. When asked how the NYSE would adopt Zero, Pellegrino said he did not want to speak for the company, arguing that it cannot currently run its systems through blockchain due to cost and speed concerns.
“That’s not what exists today,” said Raz Zarick, co-founder of LayerZero. “But something that actually uses two million transactions per second is the future global economy.”
