Zilliqa announced on November 5, 2026, that it will end nine years of operating as an independent blockchain and transition into an Ethereum Layer 2 network. The project will become the Zilliqa Institutional Layer (ZIL), targeting regulated institutions through Ethereum-secured settlement and built-in compliance features.

The decision follows limited adoption of Zilliqa's standalone Layer 1 and an October 2026 security breach. Existing ZIL holders will not need to take any action during the initial phase of the transition.

Nine Years as a Standalone Layer 1

Zilliqa launched in 2017, developed by researchers in Singapore. It gained early attention for its sharding-based architecture, which split the network into smaller groups of nodes to process transactions in parallel. The project attracted early funding of $22 million and backing from investment firms including Polychain Capital. However, the network struggled to achieve the adoption required to sustain its independent blockchain infrastructure.

In its announcement, Zilliqa acknowledged that its nine-year Layer 1 strategy had not delivered the expected results. The team cited limited network usage and declining funding and liquidity for standalone Layer 1 projects, as well as the growing security demands associated with operating an independent blockchain. Operating an independent Layer 1 requires sustaining a dedicated validator network and security budget on the project's own resources, rather than drawing on an established base chain.

The project outlined the new direction in a post on X:

We know it's not great. For nine years we built and ran our own Layer 1. It hasn't worked. We're not giving up. Here's the first of many next steps in a new direction: Zilliqa is becoming the Zilliqa Institutional Layer (ZIL): an Ethereum Layer 2 for regulated institutions.… pic.twitter.com/Mt4Zm9DuYb

— Zilliqa (@zilliqa) November 5, 2026

View the original post on X

October Exploit Added Pressure

The October 2026 exploit involving Zilliqa's X-Bridge added pressure to the project's existing infrastructure. The incident reportedly resulted in approximately $800,000 in losses involving the bridge and certain tokens. However, native ZIL and the network's Ethereum Virtual Machine (EVM) remained unaffected by the incident.

Following these developments, Zilliqa announced its transition into the Ethereum Layer 2 ecosystem. Layer 2 networks settle transactions on Ethereum, inheriting the base chain's security while operating separately from it. Ethereum's Layer 2 ecosystem hosts a mix of general-purpose networks and application-specific designs built on top of the base chain. The project intends to retain its existing partnerships, community, and ZIL token while changing its underlying network strategy. According to the announcement, the move represents a new direction rather than an abandonment of the project.

Institutional Layer Targets Regulated Institutions

The proposed Zilliqa Institutional Layer will use Ethereum's security for transaction settlement. It will also integrate verifiable Legal Entity Identifiers (vLEIs) — cryptographically verifiable versions of the ISO-standard identifiers used to verify legal entities — to support institutional identity verification and compliance requirements. The vLEI framework falls under the Global Legal Entity Identifier Foundation (GLEIF), the organization that oversees the global Legal Entity Identifier system. These features will form the foundation of the network's proposed regulated financial environment.

Zilliqa plans to begin with a permissioned market in which verified institutions can transact with one another. Access will initially remain restricted to approved participants, although the project intends to expand participation to individuals and autonomous agents at a later stage. Permissioned, identity-gated environments of this kind correspond to the counterparty-verification obligations that regulated institutions typically operate under.

The Liechtenstein Trust Integrity Network (LTIN) will serve as an initial infrastructure partner. The state-backed trust network will operate the Layer 2 sequencer and become a qualified vLEI issuer, placing both institutional verification and transaction sequencing within the network's initial operating structure.

No Immediate Action Required From ZIL Holders

Zilliqa also addressed concerns surrounding the transition's effect on existing token holders. The team confirmed that ZIL holders do not need to take any action immediately, and said technical and migration details will be published before any changes requiring holder participation take place.

The project directed users to its official website for migration announcements and warned against relying on unofficial claims.

The rollout described in the announcement gives observers several markers to track: the publication of technical and migration documentation before any holder-facing changes, the initial permissioned phase with LTIN operating the sequencer and issuing vLEIs, and the planned later-stage opening to individuals and autonomous agents.

Community reactions have included surprise and questions about ZIL's future role within the new network, particularly amid an exchange shutdown.

Source: Blockonomi