Zilliqa Abandons Standalone Layer 1 Strategy for Ethereum-Based Institutional Layer 2

Zilliqa is making one of the biggest strategic changes in its nine-year history, moving away from operating an independent Layer 1 blockchain to build an Ethereum Layer 2 network aimed at regulated financial institutions. The new network, called the Zilliqa Institutional Layer (ZIL), will use Ethereum for settlement and security while placing identity verification and compliance at the centre of its design.

The announcement comes with a candid admission from the project: its standalone blockchain did not attract enough activity to sustain the cost of operating an independent network. Zilliqa said funding and liquidity for smaller Layer 1 projects have also become more difficult to secure, while recent security incidents have highlighted the financial and technical burden of maintaining a chain independently.

Founded in 2017 by a research team associated with the National University of Singapore, Zilliqa initially attracted attention for its sharding-based architecture, which was designed to increase transaction throughput by dividing network processing across smaller groups. Its mainnet launched in January 2019, positioning the project among the earlier blockchain networks pursuing alternatives to conventional single-chain execution.

The project also secured backing from prominent crypto investors during its early development. Zilliqa raised approximately $22 million through seed and initial coin offering rounds between late 2017 and early 2018, with Polychain Capital, FBG Capital and NGC Ventures among its reported backers. That early support helped establish its position in the market, but investor backing and technical development did not ultimately translate into the sustained network usage required to support its original operating model.

The new direction reflects a different assessment of where blockchain infrastructure can create commercial value. Rather than competing to maintain another independent settlement network, Zilliqa intends to build on Ethereum’s established security, liquidity and ecosystem while concentrating on a problem it believes remains unresolved: enabling institutions to identify and verify the parties involved in on-chain transactions.

Zilliqa says existing tokenholders do not need to take action at this stage. The project plans to publish technical specifications and explain any required token or migration procedures before changes take effect. The announcement therefore establishes the strategic direction, rather than providing a complete migration timetable or final technical specification.

Identity Verification Becomes the Core of Zilliqa’s New Network

The proposed ZIL network is designed around verifiable Legal Entity Identifiers, or vLEIs. These digital credentials build on the global Legal Entity Identifier framework and are intended to establish which legal entity is conducting a transaction and whether an individual or representative has authority to act on its behalf. This could give financial institutions a more reliable way to verify counterparties than relying on wallet addresses alone.

Zilliqa’s plan involves working with the Liechtenstein Trust Integrity Network (LTIN), which is expected to become a qualified vLEI issuer and operate the network’s sequencer. Participating institutions would obtain verified credentials, and wallets associated with those identities would be approved to transact within the permissioned market. Transaction batches would then be settled on Ethereum.

This design separates identity and authorization from blockchain settlement. Ethereum provides the underlying settlement infrastructure, while Zilliqa’s institutional layer determines which verified participants can access the market. The project describes the model as a way to support compliant trading without requiring institutions to operate entirely separate private blockchains.

The initial focus will be institutional participants, including banks, asset managers, funds and issuers. Zilliqa has also outlined a longer-term ambition to extend access to individuals and autonomous agents. That latter possibility is increasingly relevant as financial institutions explore AI agents capable of initiating transactions, although such systems will require clear controls over identity, authority and accountability.

ZIL’s Future Depends on Execution and Token Utility

The transition also raises questions about the future role of the ZIL token. Zilliqa says it will retain one token under the new structure, but the change from an independent Layer 1 to an Ethereum-based network could alter how transaction fees, staking and network incentives operate. The project has yet to publish the complete economic model, so holders should not assume that every existing token function will remain unchanged.

The commercial challenge may be more demanding than the technical transition. Ethereum offers an established settlement ecosystem, but institutional adoption depends on more than blockchain security and identity credentials. Zilliqa will need to attract credible financial participants, demonstrate that its verification framework meets their operational requirements and generate meaningful transaction activity.

For Zilliqa, the move is an attempt to turn years of blockchain development into infrastructure with a more specific market. Its original Layer 1 strategy struggled to achieve sustainable usage despite early investor support and technical ambition. The institutional Layer 2 now gives the project a different proposition, but its success will depend on whether regulated organisations actually use it, and whether that activity creates lasting value for the ZIL ecosystem.