In this section, we will estimate LayerZero's valuation and future upside potential based on fundamental metrics and analysis of other publicly traded bridge protocols. To facilitate this analysis, I created a dashboard that can be accessed here.

In its last known fundraise, LayerZero had a valuation of $3 billion. Both LayerZero and Wormhole are fully subsidized by their teams and do not generate any revenues from fees. Axelar has a publicly traded token that was launched at an FDV of $1 billion and is currently trading at less than ~$0.4 billion.

From this dashboard, there are some notable insights about the bridge market in general:

1. Outside of native bridges such as Rainbow and Arbitrum bridge, Stargate dominates the third-party market with nearly 60% of the entire market.
2. Portal (Wormhole) and Satellite (Axelar) are far behind LayerZero's solution despite zero fees compared to Stargate, likely due to better UX and speculative reasons.
3. Synapse token has a majority of its supply unlocked at its current price levels and has low risk of sell pressure due to supply inflation. It is also one of the most capital-efficient bridges after Stargate.
4. Celer might be overvalued compared to its peers based on FDV to volume bridged (usage).

It is difficult to model LayerZero due to an unknown business model or existing cash flows, but we can estimate it based on the potential market share it can capture and its ownership in Stargate. It is assumed that LayerZero will eventually capture the market via a native token that will incentivize the relayers and oracles. The take rate on LayerZero will likely be lower than that on the app layer, estimated to be between 0.01% to 0.03%, given that Stargate currently charges a 6bps fee.

LayerZero likely owns 17% of the $STG token, currently valued at $104.55 million (the exact shareholding of Stargate investors is unknown). Stargate is also estimated to generate roughly $16.8 million in annualized fees that go to the treasury. LayerZero’s share of this cash flow would be $2.94 million annually.

To estimate LayerZero’s potential valuation, we first need to estimate the market it operates in. As discussed previously, this number is at least $85 billion in annual volume in the current market. In a 5-year period and more favorable crypto market conditions, this could increase to about $500 billion.

Here is the estimated potential revenue for LayerZero:

Given that LayerZero's business model and fee structure are not clear, the estimate is based on two main variables:

1. Size of the overall market