A new bridged token from cross-chain protocol LayerZero has sparked criticism from nine protocols within the Ethereum ecosystem. Connext, Chainsafe, Sygma, LiFi, Socket, Hashi, Across, Celer, and Router released a joint statement on October 27, expressing their concerns about the token’s standard. They referred to it as a “vendor-locked proprietary standard,” arguing that it restricts the freedom of token issuers.
The protocols claim that LayerZero’s new token, called Wrapped Staked Ether (wstETH), is a proprietary representation of stETH to Avalanche, BNB Chain, and Scroll without the support of the Lido DAO (decentralized autonomous organization). They believe that the token’s standard is fundamentally owned by the bridges that implement them, creating systemic risks that are difficult to quantify. In response, they advocate for the use of the xERC-20 token standard for bridging stETH instead of LayerZero’s token.
stETH is a liquid staking derivative created when users deposit Ether (ETH) into the Lido protocol for staking. On October 25, LayerZero launched wstETH on BNB Chain, Avalanche, and Scroll, offering a bridged version of stETH on these networks where it was previously unavailable.
Since any protocol has the ability to create a bridged version of a token, LayerZero was able to launch wstETH without approval from the Lido DAO. Both BNB Chain and LayerZero announced the token’s launch on social media platforms, with BNB Chain tagging the Lido development team. This led some members of the Lido DAO to claim that these actions were an attempt to mislead users into thinking that the new token had support from the DAO.
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Simultaneously with the launch of wstETH, LayerZero proposed that the Lido DAO should approve the new token as the official version of stETH on the three new networks. It offered to transfer control of the token’s protocol to the Lido DAO, relinquishing LayerZero’s administration of it. However, some Lido DAO members criticized this move as an attempt to pressure the DAO into passing the proposal.
Critics of the new token raised concerns about security issues as well. They argued that LayerZero is a highly centralized option that exposes Ethereum’s main protocol to potential catastrophic events. They suggested that a hack in the protocol’s verification layer could result in the creation of an unlimited amount of wstETH tokens.
LayerZero responded to these criticisms by emphasizing that the wstETH token’s protocol is secure and decentralized. They mentioned that the omnichain fungible-token (OFT) standard, which the token follows, has been audited and used by numerous projects for cross-chain transfers. They also stated that developers have the ability to select their preferred validation layer and include other bridges within the LayerZero framework.
LayerZero has been actively working to enhance cross-chain functionality in the Web3 ecosystem. In April, the company raised over $120 million to further develop cross-chain messaging efforts. Additionally, they partnered with Radix to introduce cross-chain functionality to the Radix Babylon network.
In conclusion, the launch of LayerZero’s new bridged token, wstETH, has drawn criticism from several protocols within the Ethereum ecosystem. The protocols argue that the token’s proprietary standard limits the freedom of token issuers and presents potential risks. They advocate for the use of an alternative token standard and express concerns about security. LayerZero, on the other hand, defends the security and decentralization of the wstETH token’s protocol.
