Table of Contents
Researcher
*Special Thanks to outputlayer for building an insightful dashboard on LayerZero OFT, and Mark from LayerZero for providing an insight.
Key Takeaways
OFT (Omnichain Fungible Token) by LayerZero enables cross-chain token transfers without wrapping, using a burn-and-mint mechanism to maintain unified token supply across networks.
Token frameworks like OFT are adopted for improved liquidity management and issuer control, with customization options such as OFT Adapter for existing tokens and configurable security measures.
The adoption of OFT is highest among native tokens, stablecoins, and Liquid Restaking Tokens (LRTs), providing benefits for trading, governance participation, and yield aggregation across multiple blockchains.
While OFT currently leads in adoption, competition in the token framework space is intensifying, with key factors for success including capturing major tokens, ensuring protocol alignment, and maintaining security measures.
So, “Just OFT it?” For now, yes. But as others are still in an early stage of production, looking into how they will ship in the market would be important to track.
1. Background - OFT, OFT, OFT?
Multichain strategy has now become essential. Blockchain, Dapp, and token projects should expand beyond their home chains to reach more users and access liquidity. One of the most common approaches is using "Token Framework" built on top of cross-chain messaging protocols, which enables token transfers and management across blockchains.
In this article, we'll explore the current landscape, focusing on leading token framework OFT by LayerZero, and examine what the future holds for this sector.
1.1 Why Token Framework is Needed
Token standards are designed specifically for their respective blockchains. Standards like ERC20, SPL20, CW20, and Sui Coin each have features tied to their native chain. For example, Sui Coin lacks an approve function, and although tokens can have different object IDs, they maintain their fungibility. Since these standards are confined to a single blockchain, challenges arise in managing liquidity and wrapped token versions when third-party bridges move tokens to chains.
Projects are adopting token frameworks primarily for two major benefits:
Unified Liquidity Management across multiple blockchains: As tokens gain popularity, their liquidity and trading activities expand simultaneously. This increased attention enables tokens to be utilized across various projects, not only within their native blockchain but across multiple chains as well. With the token framework, the transfer to other blockchains can be done easily and the overall token supply management is possible
Owning Control Over Issuance: Issuers need control over their tokens to deliver a unified user experience across different ecosystems. When third-party providers control tokens, it results in multiple versions of wrapped tokens. These wrapped tokens face liquidity challenges and it is difficult to implement cross-chain application logics as different tokens have different trust assumptions.
1.2 How Does Token Framework like OFT Work?
OFT (Omnichain Fungible Token) by LayerZero is the most adopted token framework in the current token framework market.
This standard enables transfer of fungible tokens across multiple blockchains without asset wrapping. It works by burning tokens on the source chain when a cross-chain transfer is initiated, then sending a message via LayerZero's protocol to mint an equivalent amount on the destination chain. This mechanism ensures a unified token supply across all supported networks.
Source: LayerZero V2 OFT Quickstart | LayerZero
OFT can be customized in two ways to be more “Protocol-Aligned.” First is to use OFT Adapter: This adapter works as an intermediary contract for existing ERC20 tokens. So for existing tokens, it can expand their tokens to other blockchains without burning their token, rather locking and having them minted.
Source: LayerZero V2 OFT Quickstart | LayerZero
Another way is to customize the configuration of verifiers (DVNs) and executors, which each play roles in the cross-chain message verification and execution. Recent Ondo Finance’s case is a good example. Ondo Finance and LayerZero have created a bridging system that meets institutional standards. The system uses multiple DVNs to verify messages. These collective of DVNs include Polyhedra's zkBridge, Axelar, LayerZero Labs' general DVNs, and Ondo's custom DVN — creating an environment that aligns with Ondo Finance and prevents single points of failure.
The bridge is now operational, enabling users to transfer Ondo's USDY tokens with no slippage between Ethereum, Arbitrum, and Mantle networks, with future blockchain integrations planned.
Source: Setting a New Standard for Institutional-Grade Bridging with LayerZero
1.3 Current Adoption of OFT
The adoption of OFT has gained significant traction across various token categories. OFT adoption is highest among these token types:
Native Governance Tokens: While native governance tokens traditionally operate only on their home blockchain, OFT adoption enables them to expand. For instance, as ENA has adopted OFT, it can now be transferred to 15+ blockchains and be utilized.
Stablecoin: Stablecoins are essential tokens in every ecosystem, serving as settlement tokens for trading and value markers. Since creating new stablecoins is inefficient and integration with issuers like Circle and Tether is costly, utilizing OFT-adopted stablecoins offers an easier solution. Current examples include PYUSD by PayPal, USDe by Ethena, USD0 by Usual, FRAX by Frax Finance, and USDY by Ondo Finance.
LRTs: Liquid Restaking Tokens (LRTs) are yield-aggregating tokens whose value increases over time. Investors benefit from buying these tokens where they already hold assets, rather than moving assets to the home chain. This makes OFT adoption particularly valuable for LRT projects. Examples include weETH by Etherfi, rsETH by Kelp DAO, and cmETH by Mantle.
Also another notable trend is having the chain's native gas token as OFT, for example APE, VANA, BTCN. This means that the chain itself can run the LayerZero infrastructure, DVN, to serve as the gateway for the token transfer. For example, the APE token is secured by Horizen Labs, the developer of Apechain. This means that the operator of the chain secures how the native APE token comes in and out. This provides an additional security layer for chains to have a native bridge embedded in the chain.
Extending the scenario above, let's think about runningSui native bridgewith LayerZero, which is secured by Sui validators and connects with Ethereum. This native bridge enables secure asset transfers from Ethereum to Sui through chain validator verification. If some Sui validators were to participate as a LayerZero DVN for their chain, they could establish connections with other blockchains. This would enable Sui to connect with established chains like Solana and Arbitrum, as well as upcoming chains such as Initia, Berachain, Sonic, and Abstract from launch. This would allow OFT tokens to be available in the Sui ecosystem, which would be secured by Sui validators.
Source: LayerZero OFTs
2. Takeaway - The Future of Token Framework
2.1 Three Adoption Points for Token Frameworks
The rationale for using multichain tokens is clear. With low integration costs, they can be used across different blockchains. However, the direct use cases are limited when leveraging just the token framework. For example, if I want to hold ENA in Solana and stake it for points, this requires separate OApp logic to support it. Without specific implementation, the token simply exists as a pure token in different blockchains.
For token issuers, I believe the adoption of token frameworks will evolve in three steps:
Adoption Point 1. For Cross-chain Transfer and Trading: Token Framework enables users to gain price exposure without complex multichain interactions. For example, Solana users seeking yields from Ethena sUSDe can simply buy sUSDe in a DEX, rather than executing multiple steps to move and swap assets across chains. As there are more users wanting to access the token using their assets in different chains, having token framework in many different ecosystem could drive the usage.
Adoption Point 2. Extended Interaction: Protocols are now learning to speak the "multichain language." With cross-chain infrastructure recently maturing, protocols are developing their application logic for cross-chain interactions. For example, Uniswap is determining its multichain upgrade process, which will allow holders to participate in governance. Aragon's multichain gasless voting infrastructure built with LayerZero demonstrates this potential. These extended interactions would allow users to use the token framework in different scenarios rather than just holding them.
Adoption Point 3. Interaction to Invisible: While Token Framework improves token accessibility across blockchains, users increasingly hold tokens across multiple networks. Managing assets across chains (like managing $ATOM across 7+ blockchains in the Cosmos ecosystem) can be complex. The ideal future for Token Frameworks should let protocols and users send assets across blockchains seamlessly. For instance, while OFT transfer is currently supported through Stargate, users should be able to manage their OFT balance more easily in their wallets or DeFi protocols, since OFT is essentially the same token across different blockchains. This means that as applications like token transfer can be universally used for token frameworks like OFT, projects like Ethena should make ENA, USDtb, USDe, etc. transfers available in their applications and abstract the users' experience in interacting with cross-chain operations.
2.2 Competition - 7+ Projects
Token Framework has stood out as one of the largest use cases for cross-chain messaging, and this led most messaging protocols to develop their own token frameworks. Major frameworks include OFT by LayerZero, ITS by Axelar, NTT by Wormhole, Warp Token by Hyperlane, and CCT by Chainlink. Additionally, messaging-agnostic frameworks like xERC20 and ecosystem-specific tokens like superchainERC20 by Optimism are emerging. Among these, OFT currently leads in both total value secured and project adoption.
Three key factors will determine success in token framework development as competition intensifies:
Capture big tokens: According to Coinmarketcap, there are over 10,000 blockchain tokens, but fewer than 300 use token frameworks. This gap presents an opportunity for framework providers to expand by securing major tokens.
Protocol-Alignment: While protocols act as token issuers within their native blockchains, token framework providers become issuers on destination chains. This can pose risk to the protocol as they have to rely on the control of the token framework providers. So token framework providers should provide a way for protocols to have partial or full control. Projecs like LayerZero addresses this by offering customizable DVN for cross-chain message validation and Restaking DVN, allowing token restaking with slashing conditions.
Security, Security, Security: While token frameworks have not experienced hacks yet, there could be risks like minting tokens when token hasn’t be transferred (though most implement maximum caps). Even IBC, considered one of the most secure cross-chain messaging protocols in the Cosmos ecosystem, has faced security incidents, including a recent exploit in Terra's IBC hooks. Risk minimization and operational diversification are crucial for each of the token frameworks to see the adoption.
In this competitive landscape, LayerZero has been the one that had its token framework since 2022, and most of the others were shipped in 2024. So the first-mover advantage, no hacks, and its quick market adoption had put OFT as the leader in this position.
So, “Just OFT it?” For now, yes. But as others are still in an early stage of production, looking into how they will ship in the market would be important to track.
3. Resource
Related Articles, News, Tweets etc. :
