WTF are LayerZero's OFTs?
Understanding Omnichain Fungible Tokens (OFTs)
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Now, to the article! So, WTF are OFTs? 🤌🏻
Bridges were built to unify the fragmented liquidity across several blockchains. However, with so many active bridges and 100s of non-native wrapped assets spread across the ecosystem, we’ve reached a point where instead of unifying liquidity, bridges have just moved the isolated silos from blockchains to token and contract standards.
Yes, it’s easier to move assets from one chain to another, but is it as easy to use those assets across dApps across any DeFi ecosystem? Perhaps not, and this primarily comes down to having wrapped or canonical tokens of an asset that are not fungible with another.
TLDR: Bridges mint their own assets, which are not fungible with each other, i.e., you cannot swap USDC minted by Multichain 1:1 for USDC minted by Wormhole.
How do you tackle this lack of composability among tokens?
Last week, LayerZero launched Omnichain Fungible Token (OFT), an extensible token contract that enables tokens to be externally composed in any type of dApps, across any DeFi ecosystem, just like an ERC-20. This means tokens can now have a unified standard for all protocols and blockchains, making it seamless for users to swap cross-chain and use the token on any dApp on any chain.
Need a better explanation to understand OFTs? Learn more about them from Bryan Pellegrino, the CEO and co-founder of LayerZero Labs, himself!
Now that you’re aware of OFTs and understand what they’re all about, let’s take a look at their use cases and benefits for users:
The first use case of the OFT standard is BTC.b, a token representing Bitcoin on Avalanche and automatically bridged (transferred cross-chain) in Core.
Since BTC.b is an OFT, it offers the following benefits to the users:
Users can immediately use their native Bitcoin on dApps as BTC.b and quickly convert their BTC.b back to native Bitcoin. For example, users can transfer Bitcoin using Core and receive BTC.b, which can be used across Avalanche DeFi dApps.
Users can use LayerZero’s Bitcoin Bridge to transfer BTC.b to any supported LayerZero blockchain, such as Ethereum, Polygon, Arbitrum, Aptos, etc.
For token issuers, the OFT standard enables composability across the ecosystem and the ability to own their contracts, security, and fees explicitly.
Such innovations are key to achieving a truly composable and efficient multi-chain ecosystem. Congrats to the LayerZero team on building this and the Avalanche team for showcasing the first use case with BTC.b (learn more about the integration here).
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