9 protocols criticize LayerZero’s wstETH token, claiming it’s ‘proprietary’

A new bridged token from cross-chain protocol LayerZero is drawing criticism from nine protocols throughout the Ethereum ecosystem. A joint statement from Connext, Chainsafe, Sygma, LiFi, Socket, Hashi, Across, Celer and Router on Oct. 27 called the token’s standard “a vendor-locked proprietary standard,” claiming that it limits 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 protocols claimed in their joint statement that LayerZero’s new token is “a proprietary representation of wstETH to Avalanche, BNB Chain, and Scroll without support from the Lido DAO [decentralized autonomous organization],” which is created by “provider-specific systems […] fundamentally owned by the bridges that implement them.” As a result, it creates “systemic risks for projects that can be tough to quantify,” they stated. The protocols advocated for the use of 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 Oct. 25, LayerZero launched a bridged 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 a token, LayerZero was able to launch wstETH without needing the approval of Lido’s governing body, the Lido DAO. In addition, both BNB Chain and LayerZero announced the token’s launch on X (formerly Twitter), and BNB Chain tagged the Lido development team in its announcement. Members of the Lido DAO later claimed that these actions were an attempt to mislead users into believing that the new token had support from the DAO.

On the same day that LayerZero launched wstETH, it 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. In response, some Lido DAO members complained that this move was intended to create a fait accompli to pressure the DAO into passing the proposal when they otherwise wouldn’t have.

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

“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,” Lido DAO member Hart Lambur posted to the forum, adding, “How is this possible when this is just a proposal?” 

Some members also argued that the new token could pose security issues. “Layer Zero is a super centralized option that exposes Ethereum’s main protocol to an unprecedented catastrophe,” Lido DAO member Scaloneta claimed, arguing that a hack in the protocol’s verification layer “would imply that infinite wsteth will be minted.”

Cointelegraph reached out to the LayerZero team for comment through Telegram and email. In response, it claimed that the wstETH token’s protocol is secure and decentralized, stating:

“The omnichain fungible-token (OFT) standard is a multiaudited, open-source set of reference contracts used by more than 75 projects to enable native, horizontally composable transfers between layer 1s and between layer 2s. More than $3 billion in value has been transferred by contracts that have integrated OFT.”

LayerZero continued: “By design, developers always maintain the ability to permissionlessly select their validation layer and can include other bridges as part of the immutable LayerZero framework.”

In April, LayerZero raised over $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.

Update (Oct. 27, 8:36 pm UTC): This article has been updated to include a statement from LayerZero.