9 Protocols Blame ‘Proprietary’ of LaberZero’s ‘wstETH’ Token

A new bridge token from cross-chain protocol LayerZero is drawing criticism from nine protocols across the Ethereum ecosystem. An October 27 joint statement from Connext, Chainsafe, Sygma, LiFi, Socket, Hashi, Across, Celer, and Router called the token requirement a “vendor-locked level of ownership” that limits the freedom of token issuers.

Today, we're announcing a call to action for the Open Bridge Standard side @AcrossProtocol @CelerNetwork @ChainSafeth @buildwithsygma @lifiprotocol @SocketDotTech @routerprotocol and @hashialliance pic.twitter.com/D4CLw2lBD1

— Connext (@ConnextNetwork) October 27, 2023

In their joint statement, the protocols said that LayerZero's new token is a “proprietary representation of wstETH to Avalanche, BNB Chain and Scroll with Lido DAO support.” [decentralized autonomous organization]Created by “provider-based systems”. […] It is essentially owned by the bridges that implement them” and as a result, “creates systemic risks for projects that are difficult to measure,” he said. The protocols support the use of the xERC-20 token standard to connect stETH instead of using LayerZero's new token.

Lido Staked Ether (stETH) is a liquid buffer produced when a user stakes Ether (ETH) in the Lido protocol. On October 25th, LayerZero launched a version of stETH called “Wrapped Staked Ether (wstETH)” on BNB Chain, Avalanche and Scroll. Prior to this launch, stETH was not available on these three networks.

Since any protocol can create a bridged version of the token, LayerZero is able to launch wstETH without the need for LidoDAO's recognition. Additionally, both BNB Chain and LayerZero announced the token's launch on X (formerly Twitter), and BNB Chain tagged the Lido development team in the announcement. Members of LidoDAO later described these actions as an attempt to mislead users into believing that the new token has support from the DAO.

On the same day that LayerZero launched wstETH, LidoDAO proposed to approve the new token as the official version of stETH on the three new networks. They offer to move the token protocol to LidoDAO, leaving the management of LayerZero. In response, some members of LidoDAO complained that the move was intended to pressure the DAO to convey its opinion in a different way.

Related: LayerZero partners with Immunefi to launch $15M bug bounty.

“A series of tweets and slick videos showing that LidoDAO has already officially accepted OFT status appears to have been a coordinated marketing effort between Avalanche, BNB and LayerZero.” Is this just a proposal?

Some members also argued that the new token could cause security problems. “Layer Zero is an extremely centralized option that exposes Ethereum's core protocol to unprecedented damage,” Lidodao member Scaloneta argued, arguing that hacking the protocol's authentication layer “would create infinite wsteth.”

Cointelegraph contacted the LayerZero team for comment via Telegram and email. In return, the wstETH token protocol is secure and decentralized, saying:

“The Omnichain fungible-token (OFT) standard is a multi-audited, open-source set of reference contracts used by more than 75 projects that are native, horizontally compatible between L1s and L2s. More than $3B worth of contracts have been awarded through the OFT.

LayerZero continued: “By design, developers always retain the ability to choose their authentication layers without permission and can incorporate other bridges as part of the immutable LayerZero framework.”

In April, LayerZero raised more than $120 million to help build more on-chain functionality in the Web3 ecosystem and 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.