LayerZero OVaults: Unlocking DeFi Vaults

LayerZero is a blockchain messaging layer that allows information to move freely, seamlessly, and permissionlessly across blockchain networks.

With LayerZero endpoints integrated on networks, the transfer of assets across chains is instant and secure - there is no need for clunky centralized bridging infrastructure.

LayerZero's mission has always been to make the multichain experience as seamless and secure as possible. Now, they’ve taken that next step.

Just as LayerZero’s OFTs eliminated borders for value transfer, LayerZero’s OVaults will eliminate borders for deposits.

DeFi Vaults

Vaults are a critical part of DeFi infrastructure and are integral to the operations of multiple DeFi protocols focused on lending, trading, staking, or yield.

A user deposits assets into a vault and receives a receipt token representing their deposit.

Depending on the vault's purpose, smart contracts execute different onchain tasks (lending on AAVE, yield farming strategies, managing staking pools, etc.) with the deposited assets.

Then, a user can use their receipt token to redeem their share of assets from the vault.

This is the simplistic version of how they work.

So what’s the problem?

Well, most applications today are multichain, but the vaults often remain on one chain. This causes many issues.

• Liquidity fragmentation - liquidity for deposits, redemptions, and execution of these vaults remains fragmented despite the seamless transfer of value across chains.
  
• Inefficiency - Moving assets across chains to deposit or redeem from the vaults' home chain is very inefficient. It’s slow and expensive.
  
• User experience - Users should be able to deposit assets on any chain and redeem them on any chain. The chain should not matter when interacting with vaults.

This is where LayerZero, our omnichain lord and saviour, steps in with OVaults.

What is an OVault?

OVaults are simple.

The vaults remain unchanged in terms of logic and assets staying on the ‘home chain’ per se, but their functionality expands by leveraging LayerZero technology, making them available on multiple blockchains through a single transaction.

Currently, OVaults only work with the ERC-4626 standard, the most popular vault standard.

Still, the technology will eventually expand to work with all sorts of vault standards so that any onchain vault will be omnichain.

An OVault takes an existing or new ERC-4626 vault and connects the underlying assets/receipt tokens to multiple networks by converting them to the omnichain fungible token standard (OFTs).

Eventually, the same implementation will be made with other vault standards.

If you’re a dev, you can find the technical details of the implementation here.

Why do OVaults matter?

- User experience - Imagine ONE vault accessible across 140+ networks with a single click.

The level of access this provides is unprecedented. Whether you’re a pro user or a novice, it simply takes away a lot of the headaches of transacting across multiple chains.

- Innovation - OVaults brings cross-chain composability to vaults.

Vaults can be configured to execute strategies across multiple networks, bringing a new level of innovation since execution barriers have been lowered.

- TVL growth - TVL growth is crucial to a DeFi protocol's success. Being instantly compatible with every network simplifies and accelerates this TVL growth process.

Overall, this is great for the liquidity and efficiency of the DeFi ecosystem.

- More secure - Complexity is the enemy of security. OVaults remove complex bridging logic and dependence on centralized bridge infrastructure.

This ultimately lowers the surface area for errors, making it more secure for protocols and users alike.

The best way to summarize the importance of OVaults is in the words of LayerZero themselves.

“Your users aren’t on one chain, so why are you?”