Introduction
A new bridged token developed by LayerZero, a cross-chain protocol, is facing backlash from nine protocols within the Ethereum ecosystem. These protocols, including Connext, Chainsafe, and Sygma, have criticized the token's standard, claiming that it restricts the freedom of token issuers.
Protocols' Joint Statement
In a joint statement released on October 27, the protocols referred to LayerZero's new token as "a vendor-locked proprietary standard." They argued that this standard limits the independence of token issuers. According to the statement, the token, which represents wstETH, does not have the support of the Lido DAO (decentralized autonomous organization). The protocols also expressed concerns about the systemic risks associated with the token.
Advocating for xERC-20 Token Standard
The protocols recommended the use of the xERC-20 token standard for bridging stETH instead of LayerZero's new token. They believe that this alternative standard offers more freedom and fewer risks for projects.
Background on stETH and wstETH
Lido Staked Ether (stETH) is a liquid staking derivative that is created when users deposit Ether (ETH) into the Lido protocol for staking. On October 25, LayerZero launched a bridged version of stETH called "Wrapped Staked Ether (wstETH)" on BNB Chain, Avalanche, and Scroll. Before this launch, stETH was not available on these three networks.
LayerZero's Launch without LidoDAO Approval
LayerZero was able to launch wstETH without seeking approval from Lido's governing body, LidoDAO, as any protocol can create a bridged version of a token. LayerZero and BNB Chain announced the token's launch on social media, with BNB Chain even tagging the Lido development team. Some members of LidoDAO claimed that these actions were misleading and aimed to create the perception of support from the DAO.
LayerZero's Proposal to LidoDAO
On the same day as the token's launch, LayerZero proposed that LidoDAO should approve wstETH as the official version of stETH on the new networks. They offered to transfer control of the token's protocol to LidoDAO, relinquishing their own administration. However, some LidoDAO members argued that this proposal was an attempt to pressure the DAO into accepting it.
Security Concerns
Some LidoDAO members raised concerns about the security of LayerZero's protocol. They claimed that LayerZero is a highly centralized option that could expose Ethereum's main protocol to significant risks. They argued that a hack in the protocol's verification layer could lead to the minting of infinite wsteth.
No Response from LayerZero
Cointelegraph reached out to the LayerZero team for comment but did not receive a response at the time of publication. LayerZero previously raised over $120 million to enhance cross-chain functionality and partnered with Radix to bring this functionality to the Radix Babylon network.
