LayerZero Labs has introduced ColorTrace, a practical implementation addressing the long-standing challenge of coloring fungible assets.
This innovative solution provides a new paradigm for on-chain attribution, opening the door to various applications, including equitable distribution of yield, affiliate programs, referral links, and more.
LayerZero Labs is a Vancouver-based start-up that has developed an interoperability protocol called LayerZero. The protocol enables direct, cross-chain transactions between blockchain networks, allowing for seamless communication between blockchains without compromising security or decentralization.
LayerZero comes with a lightweight on-chain client called the LayerZero Endpoint, which every chain can support, creating a fully connected network where every node has a direct connection to every other node. This enables cross-chain transactions directly with any other chain on the network.
Coloring fungible assets challenge
Coloring fungible assets has been a problem in the blockchain space, with early attempts presented by notable figures such as Yoni Assia and Vitalik Buterin.
LayerZero Labs acknowledges the historical struggle and formally defines the fungible token coloring problem: attributing (coloring) fungible tokens to their originating entities or minters.
LayerZero Labs says that it is presenting the first practical on-chain algorithm to solve the fungible token coloring problem. This algorithm addresses the challenges of tracking the attribution of colored tokens losslessly, which, using existing approaches such as the Colored Coins protocol, proves computationally intractable.
This inaugural contribution from LayerZero Labs ensures that colored tokens are atomically burned and minted, ensuring that each wallet contains tokens of a single color. This simplifies the process and enhances efficiency in managing colored tokens on a single chain.
Additionally, ColorTrace is not just a solution to a specific problem; it’s a gateway to a new class of on-chain primitives. LayerZero Labs suggests that ColorTrace can be utilized to enable fair tracking of contributions across a protocol’s success.
