A new bridged token called Wrapped Staked Ether (wstETH) introduced by LayerZero, a cross-chain protocol, has faced criticism from nine protocols within the Ethereum ecosystem. In a joint statement issued on October 27, Connext, Chainsafe, Sygma, LiFi, Socket, Hashi, Across, Celer, and Router referred to the token as a “vendor-locked proprietary standard” and claimed that it limits the freedom of token issuers. These protocols argued for the use of the xERC-20 token standard instead of LayerZero’s new token to bridge stETH, a liquid staking derivative produced when users deposit Ether (ETH) into the Lido protocol for staking. They expressed concerns about systemic risks for projects that are difficult to quantify due to the provider-specific systems and ownership structure of the bridges implementing the proprietary standard.
LayerZero’s wstETH was launched on October 25 on BNB Chain, Avalanche, and Scroll, enabling the availability of stETH on these networks. Unlike previous tokens, LayerZero’s bridged version did not require approval from the Lido DAO, the governing body of the Lido protocol, due to the nature of bridged token creation. However, both BNB Chain and LayerZero announced the token’s launch on social media platform X (formerly Twitter), with BNB Chain tagging the Lido development team in its announcement. Members of the Lido DAO accused LayerZero and its partners of attempting to mislead users into believing that the new token had official support from the DAO.
On the same day as the launch of wstETH, LayerZero proposed that the Lido DAO should approve the token as the official version of stETH on the three new networks. The proposal included transferring control of the token’s protocol to the Lido DAO, relinquishing LayerZero’s administration of it. Some Lido DAO members criticized this move, considering it an attempt to pressure the DAO into accepting the proposal. They accused Avalanche, BNB, and LayerZero of coordinating a marketing effort to imply that the Lido DAO had already accepted the new token’s standard.
Aside from concerns about freedom and coordination issues, Lido DAO members also raised security concerns regarding wstETH. They argued that LayerZero’s centralized approach and the protocol’s verification layer made Ethereum susceptible to catastrophic consequences in the event of a hack. Some members believed that a successful hack would lead to the unlimited minting of wstETH.
LayerZero responded to these criticisms by emphasizing the security and decentralization of the wstETH protocol. They described the omnichain fungible-token (OFT) standard as a multiaudited, open-source set of reference contracts that has been used by over 75 projects, facilitating value transfers between layer 1 and layer 2 solutions. LayerZero stated that developers retain the ability to choose their validation layer and can include other bridges within the immutable LayerZero framework.
In April, LayerZero raised over $120 million to enhance cross-chain functionality within the Web3 ecosystem. They also partnered with Radix to bring cross-chain capabilities to the Radix Babylon network.
Update (Oct. 27, 8:36 pm UTC): This article has been updated to include a statement from LayerZero.