Omnichain Fungible Token (OFT) is a token standard developed by LayerZero Labs designed to create fungible tokens that can exist natively across multiple blockchain networks. The standard enables a single token to maintain a unified supply and seamless transferability across all supported chains, addressing issues of liquidity fragmentation common with traditional cross-chain bridges and wrapped assets. ^{[5] [2]}

Overview

The proliferation of distinct blockchain ecosystems has led to a significant challenge known as liquidity fragmentation. When a token is deployed on multiple chains, it often exists as separate, non-interchangeable versions, such as a native token on Ethereum and a "wrapped" synthetic equivalent on another network. This separation divides the token's liquidity, complicates the user experience, and introduces security risks associated with the bridges that manage these wrapped assets. Many blockchain networks function in isolation, hindering the seamless transfer of assets and data between them. ^{[3] [4] [6]}

The OFT standard was created to solve this problem by establishing a framework for a single, canonical version of a token that is native to every chain on which it is deployed. This approach is described as "omnichain," where an asset is present on all chains simultaneously with a shared state, as opposed to "cross-chain," which typically involves moving a token from one isolated environment to another. By utilizing the LayerZero messaging protocol, an open-source interoperability protocol that enables direct communication between blockchains, OFTs can be transferred between networks through a process that updates the supply on each respective chain while keeping the global total supply constant. This creates a unified asset with consolidated liquidity, allowing for more efficient capital flow and a simplified user experience. ^{[5] [4] [7]}

History

The OFT standard was developed by LayerZero Labs and went into production around May 2022. The standard saw increased adoption over the following year. In February 2023, the decentralized finance application Trader Joe adopted the OFT standard for its native token, JOE. In April 2023, LayerZero Labs, the development team behind the protocol, raised $120 million in a Series B funding round at a $3 billion valuation, with backing from investors including Sequoia, a16z, and Coinbase Ventures. ^[7] That same month, the liquid staking protocol unshETH converted its token to an OFT to expand its presence from Ethereum to BNB Chain. In October 2023, Lido's Wrapped Staked Ether (wstETH) also adopted the OFT standard, enabling its liquid staking token to move across different networks. By February 2024, LayerZero Labs reported that over 100 projects had adopted the standard, securing over $4.5 billion in total transfer volume across its supported networks. ^[5]

Technology

The OFT standard is an application-specific implementation built on top of the LayerZero interoperability protocol. Its functionality relies on the protocol's messaging capabilities and security architecture to facilitate token transfers.

Core Transfer Mechanisms

OFTs use an accounting-like system of debits and credits to manage token supply across chains. Instead of wrapping an asset, a message is sent via LayerZero to instruct the token contracts on the source and destination chains to adjust their local supplies. This is achieved through two primary models. ^[3]

Burn-and-Mint

This mechanism is typically used for tokens that are created as native OFTs from their inception. The process is as follows:

1. A user initiates a transfer of a specified amount of the OFT from a source chain to a destination chain.
2. The token contract on the source chain burns (destroys) the specified amount of tokens.
3. A message is sent through the LayerZero protocol to the destination chain, containing the details of the transaction.
4. Upon successful verification of the message, the token contract on the destination chain mints (creates) an identical amount of the OFT.

This process ensures that the token's total circulating supply remains constant across all networks combined. ^{[2] [4]}

Lock-and-Mint/Unlock

For existing tokens that were not originally designed as OFTs (e.g., a standard ERC-20), this mechanism allows them to gain omnichain functionality without altering their original contract.

1. A user locks a specified amount of the original token in a dedicated contract (an adapter or extension) on its native chain.
2. This action triggers a LayerZero message to the destination chain, which then mints an equivalent amount of the OFT version of the token.
3. To return the tokens to the native chain, the OFT version is burned on the secondary chain. This triggers a message back to the native chain to unlock the original tokens from the contract.

This model effectively extends an existing asset to other chains while preserving its original form on its home network. ^[3]

OFT Adapter

The OFT Adapter is a specific implementation of the lock-and-mint pattern. It is an intermediary smart contract that wraps an existing single-chain token to give it omnichain capabilities. When a user wants to move the token to another chain, the original tokens are deposited and locked within the Adapter contract on the source chain. The Adapter then communicates through LayerZero to mint the OFT version on the destination chain. Once on other chains, the token functions as a standard OFT, using the burn-and-mint mechanism for subsequent transfers between non-native chains. ^[5]

Underlying Protocol and Architecture

The OFT standard is a specific application of the more general OApp (Omnichain Application) Standard defined by LayerZero. It uses the OApp interface for generic cross-chain message passing. All transactions are routed through the LayerZero Endpoint contract on each chain, which is responsible for managing message delivery, security validation, and fee payments. The OFT standard operates on LayerZero's network of these on-chain smart contracts known as Endpoints. An Endpoint is deployed on each supported blockchain, creating a unified network for sending and receiving messages. ^{[7] [6]}

To achieve this communication in a cost-effective manner, LayerZero utilizes a concept called an Ultra Light Node (ULN). Instead of maintaining a full on-chain light node, which can be expensive, the ULN streams block headers on demand from a decentralized oracle when a cross-chain message is sent. This approach significantly reduces the on-chain footprint and cost associated with verifying transactions across different networks. ^[7]

The standard is designed to be virtual machine (VM) agnostic, with implementations available for EVM-based chains, Solana, and Aptos Move, allowing developers to use a consistent framework across different blockchain environments. ^[2]

Security Model

The security of OFT transfers is inherited from the underlying LayerZero protocol, which provides a configurable and proactive security framework.

Initial V1 Mechanism: Oracle and Relayer

The initial version of the LayerZero protocol relied on a combination of an off-chain Oracle and a Relayer. The Oracle was responsible for forwarding the block header from the source chain to the destination chain, while the Relayer independently submitted the proof for the transaction. A transaction was considered valid on the destination chain only if the block header from the Oracle and the transaction proof from the Relayer matched. This two-factor validation was designed to ensure security, as it required two independent off-chain entities to agree on the state of a transaction before it could be finalized. ^{[7] [6]}

Decentralized Verifier Networks (DVNs)

LayerZero's security model is modular, allowing applications like OFTs to select their own set of independent verifiers, known as Decentralized Verifier Networks (DVNs). Instead of relying on a single entity or a fixed validator set, token issuers can configure a custom security stack by choosing one or more DVNs to validate cross-chain messages. This allows for flexibility in balancing security, cost, and speed. ^{[5] [4]}

Pre-Crime

Pre-Crime is an additional security layer that acts as a proactive threat prevention mechanism. Before a cross-chain transaction is finalized on the destination chain, it is run through a simulation to forecast its outcome. If the simulation detects a malicious result, such as a contract exploit or a violation of predefined security rules (e.g., minting more tokens than were burned), the system can flag and halt the transaction before it is executed, preventing potential damage. ^{[5] [4]}

Key Features

The OFT standard offers several distinct features compared to traditional cross-chain token solutions.

Unified Liquidity and Supply

By design, an OFT maintains a single global supply across all networks. This eliminates the need for separate liquidity pools for wrapped versions of a token on different chains, consolidating liquidity and leading to more efficient markets with potentially lower slippage for traders. ^[3]

Contract Ownership and Control

Token issuers retain full ownership and control over their OFT contracts on every chain. LayerZero Labs does not have custody of the assets or the ability to alter an application's security configurations. This non-custodial approach reduces counterparty risk. Token issuers can also implement optional fee structures on transfers to generate revenue from their token's cross-chain activity. ^[5]

Capital Efficiency

OFT transfers are direct point-to-point movements of supply and do not rely on liquidity pools for bridging. As a result, transfers are not subject to slippage. The cost of an OFT transfer is limited to the gas fees on the source and destination chains, plus a fee for the LayerZero protocol's verifiers and executor. ^[3]

Universal Semantics and Composability

An OFT behaves as a native token on every blockchain it is deployed on. This provides a consistent experience for users and simplifies integration for developers. Because OFTs are not synthetic or wrapped assets, they can be more easily composed within decentralized finance (DeFi) applications, such as lending protocols, decentralized exchanges, and yield aggregators, across different ecosystems. OFT transfers can also be bundled with additional instructions, allowing a single cross-chain transaction to perform complex actions, such as swapping the token on a destination DEX immediately after it arrives. ^[2]

Gas Abstraction

When using the LayerZero Executor, the OFT standard supports gas abstraction. This feature allows a user to pay for the entire cross-chain transaction, including gas fees on the destination chain, using the native token of the source chain in a single transaction. This simplifies the user experience by removing the need to hold multiple gas tokens for different networks. ^[5]

Adoption and Use Cases

As of February 2024, the OFT standard had been adopted by over 100 projects and was supported on over 45 blockchain networks. The standard is used by various categories of tokens to expand their utility across the multi-chain landscape. The OFT standard underpins a wide range of cross-chain functionalities beyond simple asset transfers. It serves as the foundational technology for applications like cross-chain swaps on decentralized exchanges (DEXs), multi-chain money markets that allow borrowing and lending against collateral on different networks, and unified cross-chain governance systems. ^{[5] [7]}

Stablecoins

• Angle (agEUR): The largest decentralized Euro-pegged stablecoin, agEUR, uses the OFT standard to exist natively on 11 chains.
• Abracadabra (MIM): The MIM stablecoin was one of the first to adopt the standard, making it available across 11 chains.

Blockchain Tokens

• Bitcoin (BTC.b): A version of Bitcoin bridged to the Avalanche network, BTC.b, utilizes the OFT standard to extend its presence to other LayerZero-supported networks.
• Metis (METIS): The native token of the Metis Layer 2 network uses the OFT standard to enhance its cross-chain functionality.

DeFi Tokens

• Trader Joe (JOE): The governance and utility token for the Trader Joe decentralized exchange is an OFT, allowing it to function across multiple chains where the DEX is deployed.
• Radiant (RDNT): The governance token for the Radiant Capital cross-chain lending protocol uses the OFT standard.
• Pendle (PENDLE): The governance token for the Pendle yield-tokenization protocol, which leverages LayerZero for cross-chain governance.

Liquid Staking and Restaking Tokens

• unshETH (unshETH): A diversified liquid staking token for Ethereum that adopted the OFT standard to expand to BNB Chain.
• StakeStone (STONE): A yield-bearing token for staked ETH that is available on Ethereum and Manta as an OFT.
• weETH: A liquid restaking token from Ether.fi that uses the OFT standard to make Ethereum-native restaking yields accessible and composable on other blockchains.
• wstETH: Lido's Wrapped Staked Ether (wstETH) utilizes the OFT standard to enable seamless cross-chain transfers of its liquid staking token.

The above examples illustrate the adoption of the OFT standard across different sectors of the digital asset market. ^{[5] [3]}