A new bridged token from cross-chain protocol LayerZero is facing criticism from nine protocols in the Ethereum ecosystem. Connext, Chainsafe, Sygma, LiFi, Socket, Hashi, Across, Celer, and Router issued a joint statement on October 27, referring to the token’s standard as a “vendor-locked proprietary standard.” They argue that this standard restricts the freedom of token issuers.
Today, we’re announcing a unified call for Open Bridge Standards alongside @AcrossProtocol @CelerNetwork @ChainSafeth @buildwithsygma @lifiprotocol @SocketDotTech @routerprotocol and @hashialliance pic.twitter.com/D4CLw2lBD1
— Connext (@ConnextNetwork) October 27, 2023
The joint statement from the protocols argues that LayerZero’s new token is a “proprietary representation of wstETH to Avalanche, BNB Chain, and Scroll without support from the Lido DAO.” They claim that the token is created by “provider-specific systems” solely owned by the bridges implementing them. This, according to the statement, creates potential systemic risks that are difficult to quantify. The protocols recommend using the xERC-20 token standard for bridging stETH instead of LayerZero’s new token.
Lido Staked Ether (stETH) is a liquid staking derivative that is generated when users deposit Ether (ETH) into the Lido protocol for staking. On October 25, LayerZero launched a bridged version of stETH called Wrapped Staked Ether (wstETH) on BNB Chain, Avalanche, and Scroll. Before this launch, stETH was not available on these three networks.
As any protocol can create a bridged version of a token, LayerZero was able to launch wstETH without requiring approval from Lido’s governing body, the Lido DAO. Additionally, both BNB Chain and LayerZero announced the token’s launch on X (formerly Twitter), with BNB Chain mentioning the Lido development team in its announcement. Some members of the Lido DAO later claimed that these actions were meant to mislead users into believing that the new token had support from the DAO.
On the same day as wstETH’s launch, LayerZero proposed that the Lido DAO approve the new token as the official version of stETH on the three new networks. LayerZero offered to transfer control of the token’s protocol to the Lido DAO, relinquishing its administration. In response, some Lido DAO members criticized this move as an attempt to pressure the DAO into accepting the proposal.
Lido DAO member Hart Lambur posted on the forum, stating, “There appears to have been a coordinated marketing effort between Avalanche, BNB, and LayerZero with a series of Twitter posts and slick videos implying that the Lido DAO has already officially accepted the OFT standard. How is this possible when this is just a proposal?” Some members also raised concerns about potential security issues with the new token, arguing that it exposes Ethereum’s main protocol to unprecedented risks.
LayerZero responded to Cointelegraph’s inquiry, stating that the wstETH token’s protocol is secure and decentralized. They emphasized that the OFT standard is multiaudited and has been used by more than 75 projects, facilitating transfers between layer 1s and layer 2s with a total value of over $3 billion.
In April, LayerZero raised over $120 million for the development of cross-chain functionality in the Web3 ecosystem. The protocol also partnered with Radix to bring cross-chain functionality to the Radix Babylon network.
Update (Oct. 27, 8:36 pm UTC): This article has been updated to include a statement from LayerZero.