LayerZero and Wormhole are OFT's.
But what are OFT's?
OFTs are tokens that move across blockchains just like data packets move across the Internet.
This article is about OFTs, how they work, key properties, and who is using the OFT Standard.
Let’s dive in.
What is the OFT Standard?
OFT stands for “Omnichain Fungible Token.”
You can think of OFT as a universal token standard used to send, receive, and compose assets across all blockchains.
The OFT Standard is a contract for creating and tracking tokens across many chains at the same time. It is available to anyone building on LayerZero. The OFT Standard extends fungible tokens, like ERC20, to all the chains LayerZero supports.
Projects deploying a token using the OFT Standard maintain complete ownership of their contracts, may select what chains to deploy on (now and in the future), and have the option to choose how messages are verified by configuring a unique Security Stack.
The OFT Standard has been live and in production for 21 months, securing over $4.5 billion in transfer volume across 45+ chains.
How Do OFTs Work?
On OFT transfers and adapting existing tokens into the OFT Standard…
OFT Transfers
OFTs operate through a mint-and-burn mechanism that works the same on every type of blockchain.
Transferring an OFT between blockchains involves two steps:
First, the token is ‘burned’ (or destroyed) on the original blockchain.
Second, an equal amount of the token is ‘minted’ (or created) on the new blockchain.
LayerZero facilitates this accounting process by sending a message from the source to the destination blockchain, instructing it to mint the same number of tokens that were burned. This keeps the token’s total amount the same across all networks, ensuring its value stays stable during the move and that the OFT retains a unified, global supply count.
OFT Adapter
For projects that have already minted a token on a single chain, the OFT Adapter is available to extend that token across every LayerZero-supported blockchain. This process involves an intermediary contract that handles sending and receiving tokens that have already been deployed.
For example, when transferring an ERC20 from the source chain (Chain A), the token will lock in the OFT Adapter, triggering a new token to mint on the selected destination chain (Chain B) via the paired OFT Contract. From there, the OFT can be moved across any LayerZero-supported blockchain the project wants to enable using the burn and mint mechanism described above.
Key Properties of the OFT Standard
Any project creating an OFT inherits the following characteristics:
Contract Ownership
Inherently non-custodial, the OFT Standard allows developers to retain ownership and control over their token contracts, managing the token supply directly across each blockchain. LayerZero is intentionally designed to be an immutable protocol that has no ability to custody assets or alter the security settings or chain support of integrated contracts. LayerZero can never take custody of an OFT, make security decisions that would alter how an OFT transfer is verified, or disable support for a chain that an OFT is enabled on.
The non-custodial nature of the OFT Standard ensures that tokens remain under a project’s control, eliminating counterparty risks that are prevalent in other cross-chain solutions. Furthermore, OFT deployers may customize an optional fee structure on top of OFT transfers should they wish to generate revenue for their project.
Flexible Security
Any entity capable of verifying cross-chain messages may permissionlessly participate in LayerZero as a Decentralized Verifier Network (DVN), including native bridges, third-party bridges, oracles, etc. Applications building on LayerZero may select a combination of DVNs to attest to the validity of a cross-chain message before it is executed on the destination chain. An application’s selection of DVNs is called its Security Stack.
LayerZero empowers token developers to select their own set of DVNs for verifying OFT transfers. This flexibility allows token deployers to configure customized Security Stacks that align with the specific requirements of their tokens.
On top of choosing what entities verify token transfers, token issuers may also choose what chains the token is deployed on, how many blocks a DVN must wait to verify a message, and how a message is executed on the destination chain. Application owners can update configurations when new technologies emerge and expand their OFT to new chains at any time.
Additionally, the Pre-Crime module functions as an advanced security layer, proactively scrutinizing transactions for potential threats or irregularities before they are executed, thus bolstering the protocol’s defense against exploits.
Universal Semantics
OFTs bring standardization to token operations across different blockchain networks. Traditional tokens are often bound by the rules and standards of their native blockchain, leading to a fragmented experience when interacting with multiple chains. OFTs, however, maintain a consistent standard across all chains they operate on.
This uniformity simplifies the user and developer experience, as the token behaves identically regardless of the blockchain and can be composed via a wide variety of contracts. Such standardization is invaluable for developers and users alike, as it reduces the complexity and learning curve associated with managing assets on multiple chains. Furthermore, developers deploying an OFT using the LayerZero Executor can take advantage of full gas abstraction, allowing users to pay only a single gas fee from the source chain to execute an entire cross-chain flow.
Unified Token Supply
OFTs unify liquidity across networks through swift and secure communication between contracts via burn and mint. This eliminates the need for wrapped assets (4/5 largest exploits have occurred with wrapped assets, including $326M Wormhole hack in 2022) and liquidity on multiple chains for bridging via standalone asset pools, paving the way for scalable liquidity across numerous L2s and L1s.
In terms of efficiency, OFTs exist as native tokens on each chain, requiring only gas fees for transfer, devoid of additional costs associated with wrapping, bridging, or slippage. OFTs can be natively transferred across any LayerZero supported chains (currently 55+ chains) in a point-to-point flow, without ever needing to redeem on any one base chain.
OFT Standard Adoption
Any type of project can utilize the OFT Standard.
Over 100 projects have adopted the OFT Standard, ranging from stablecoins to gas tokens to LSTs.
For the sake of brevity, we will only list a few specific examples below…
Stablecoins
Angle (agEUR): agEUR is the largest decentralized stablecoin pegged to the EURO. agEUR is available on 11 different chains. The coin has been moved 7.6 million times since it was launched 18 months ago.
Abracadabra (MIM): Abracadabra was one of the first stablecoin projects to make their token omnichain. MIM is currently available on 11 chains.
Blockchain Tokens
Bitcoin (BTC.b): Borderless Bitcoin leverages the LayerZero Omnichain Fungible Token (OFT) standard to seamlessly integrate Bitcoin across all LayerZero-supported networks.
Metis (METIS): By leveraging OFTs, Metis enhanced the movement and utility of their native tokens across various blockchain environments.
DeFi Tokens
Trader Joe (JOE): The Avalanche-founded dApp Trader Joe opted into the OFT Standards in February of 2023.
Radiant (RDNT): Radiant Finance uses OFTs to enhance the liquidity and transferability of its governance token across various networks.
Liquid Staking Tokens
StakeStone (STONE): StakeStone native LST, $STONE, is available on Ethereum and Manta as an OFT. As of January 2024, StakeStone’s TVL is above $750 million.
unshETH (unshETH): unshETH expanded to BNB Chain from Ethereum by making its LST $unshETH an OFT in April 2023.
Conclusion
The OFT Standard represents a unified, secure, and user-friendly approach to tokenization.
OFT is one token standard for many chains that can use any type of verification method to approve token transfers.
As the industry continues to expand to 1000s of chains, the OFT Standard is here to enable unified token supply and liquidity while empowering token issuers to control the security specifications protecting asset transfers.