A new bridged token from the cross-chain protocol LayerZero is drawing criticism from nine protocols across the Ethereum ecosystem. A joint statement from Connext, Chainsafe, Sygma, LiFi, Socket, Hashi, Across, Celer and Router on October 27 called the token standard “a vendor-locked proprietary standard,” claiming it restricts the freedom of token issuers.
Today we announce a joint call
Open Bridge Standards
alongside @AcrossProtocol @CelerNetwork @ChainSafeth @buildwithsygma @lifiprotocol @SocketDotTech @routerprotocol and @hashialliance pic.twitter.com/D4CLw2lBD1— Connext (@ConnextNetwork) October 27, 2023
The protocols claimed in their joint statement that LayerZero’s new token is “a proprietary representation of wstETH for Avalanche, BNB Chain and Scroll without support from the Lido DAO [decentralized autonomous organization]”, which is created by “provider-specific systems […] fundamental ownership of the bridges they implement.” As a result, it creates “systemic risks for projects that are difficult to quantify,” the researchers said. The protocols advocated using the xERC-20 token standard for bridging stETH instead of using LayerZero’s new token.
Lido Staked Ether (stETH) is a liquid staking derivative produced when a user deposits Ether (ETH) into the Lido protocol for staking. On October 25, LayerZero launched a bridged version of sETH called “Wrapped Staked Ether (wstETH)” on BNB Chain, Avalanche, and Scroll. Before this launch, sETH was not available on these three networks.
Because any protocol can create a bridged version of a token, LayerZero was able to launch wstETH without needing the approval of Lido’s governing body, LidoDAO. Additionally, both BNB Chain and LayerZero announced the launch of the token on X (formerly Twitter), and BNB Chain tagged the Lido development team in its announcement. Members of LidoDAO later claimed that these actions were an attempt to trick users into believing that the new token had support from the DAO.
On the same day that LayerZero launched wstETH, they proposed that LidoDAO approve the new token as the official version of sETH on the three new networks. They offered to transfer control of the token protocol to LidoDAO, relinquishing its management by LayerZero. In response, some LidoDAO members complained that this move was intended to… a fait accompli to pressure the DAO to approve the proposal when they otherwise would not have done so.
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“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 LidoDAO has already officially accepted the OFT standard,” LidoDAO member Hart Lambur posted on the forum, adding added: “How is this possible if this is just one proposal?”
Some members also argued that the new token could pose security concerns. “Layer Zero is a super-centralized option that exposes Ethereum’s main protocol to an unprecedented catastrophe,” claimed LidoDAO member Scaloneta, arguing that a hack into the protocol’s verification layer “would imply infinite money minting.”
Cointelegraph reached out to the LayerZero team for comment via Telegram and email, but did not receive a response by time of publication. In April, LayerZero raised more than $120 million to help build more cross-chain functionality into the Web3 ecosystem and partnered with Radix to bring cross-chain functionality to the Radix Babylon network.