LayerZero Labs Launches Colortrace, Onchain Attribution Solution 

LayerZero Labs Launches Colortrace, Onchain Attribution Solution 

UTC by Tolu Ajiboye · 3 min read
LayerZero Labs Launches Colortrace, Onchain Attribution Solution 
Photo: Unsplash

ColorTrace is LayerZero’s solution to problems with Colored Coins, including the amount of storage required to color digital assets.

Cross-chain communication protocol LayerZero has launched ColorTrace, a value attribution solution that facilitates fair tracking. The solution easily attributes tokens to the entity that minted the token, allowing for easy verification of the token’s origin and making related yield collection seamless. In addition to revenue distribution, ColorTrace can also help with tracking in alliance programs, referral links, and other real-world uses.

Colored Coins is a method of creating distinctions among a group of digital assets by attributing colors to specific coins. Although each colored coin still functions the same way and is as usable or redeemable as non-colored coins, the coins carry markings that indicate details of their history, including former holders and original minters.

ColorTrace solves a primary problem with the original Colored Coin algorithm. This algorithm used a lossless layer of metadata function atop the Bitcoin ledger. This is equivalent to a continuously growing ledger list of every address that has ever colored a token. This list is essentially infinitely sized, increasing with every coloring done on the network. Unsurprisingly, this solution is not sustainable because of the storage and computation demands required to maintain the list. This also makes accurate onchain value attribution difficult.

LayerZero’s ColorTrace Solutions for Colored Coins

The ColorTrace solution from LayerZero provides a few solutions that simplify the problem of identifying tokens and indicating provenance. Firstly, it promotes single-chain coloring, which atomically burns and mints tokens to ensure that a wallet only holds tokens of a single color. Another elegant solution is the transfer of colored tokens between blockchains. ColorTrace facilitates safe token transfers across networks, ensuring that there is no mixup during the transfer process. The ColorTrace design also promotes efficiency, making it easy to identify a colored token without combing through a complicated tracking system. Furthermore, it ensures that the total amount and value of tokens remain consistent across all networks and transactions.

ColorTrace already functions as a solution that ensures equitable value-sharing of USDV, a new community-driven stablecoin launched by the Verified USD Foundation. Through ColorTrace, USDV facilitates transparent reward distribution among verified minters. This way, the likelihood of disputes arising from said distribution is eliminated.

LayerZero wstETH Cross-Chain Transfers

Last month, LayerZero announced a new feature that allows users to transfer wrapped staked Ethereum (wstETH) across multiple blockchains. Now available on the Ethereum, BNB Chain, Scroll, and Avalanche chains, wstETH transfers are set to increase accessibility of staked tokens. This opens up wstETH for more unique opportunities on other blockchains and improves decentralized finance (DeFi).

wstETH is a wrapped token representing staked Ethereum (stETH) in the Lido Finance protocol. Users on Lido stake ETH and receive stETH in return, which represents the value of the assets staked.

In April, LayerZero Labs raised $120 million in a Series B funding round at a $3 billion valuation. This tripled the company’s valuation from the $1 billion valuation in March 2022 when it raised $135 million in a Series A extension round.

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