Nine Protocols Express Concerns Over LayerZero’s wstETH Token, Citing ‘Proprietary’ Nature

A new token, wstETH, introduced by LayerZero, a cross-chain protocol, is facing criticism from nine protocols within the Ethereum ecosystem. In a joint statement released on October 27, Connext, Chainsafe, Sygma, LiFi, Socket, Hashi, Across, Celer, and Router expressed concerns over the token’s standard, claiming it is “a vendor-locked proprietary standard” that limits the freedom of token issuers.

Open Bridge Standards Call

The protocols, in their joint statement, described LayerZero’s new token as “a proprietary representation of wstETH to Avalanche, BNB Chain, and Scroll without support from the Lido DAO.” They contended that the token is created using “provider-specific systems” owned by the implementing bridges, thereby creating potential systemic risks that are difficult to quantify. The protocols recommended the use of the xERC-20 token standard for bridging stETH instead of LayerZero’s token.

The Role of wstETH

Lido Staked Ether (stETH) is a liquid staking derivative obtained when users deposit Ether (ETH) into the Lido protocol for staking. On October 25, LayerZero launched wstETH, a bridged version of stETH, on BNB Chain, Avalanche, and Scroll. Before 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 the approval of the Lido DAO, the governing body of Lido. Additionally, BNB Chain and LayerZero announced the token’s launch through social media, with BNB Chain tagging the Lido development team in the announcement. Some members of the Lido DAO claimed that these actions were intended to mislead users into believing that the new token had support from the DAO.

Concerns Over Token Approval

On the same day as wstETH’s launch, LayerZero proposed that the Lido DAO approve the 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. However, some Lido DAO members expressed concerns that this move was an attempt to pressure the DAO into approving the proposal under the guise of a fait accompli.

Some members also raised concerns about the security implications of the new token. They argued that LayerZero’s centralized framework could potentially expose Ethereum’s main protocol to catastrophic events, such as a hack in the verification layer that could lead to the unlimited minting of wstETH tokens.

LayerZero’s Response

When contacted for comment, the LayerZero team asserted that the wstETH token’s protocol is secure and decentralized. They explained that the omnichain fungible-token (OFT) standard, which the token is built on, has been audited and is open-source. According to LayerZero, over 75 projects have utilized this standard, facilitating native transfers between layer 1s and layer 2s, with a total value of over $3 billion being transferred.

LayerZero emphasized that developers have the flexibility to select their validation layer and can include other bridges as part of the immutable LayerZero framework. In April, LayerZero secured over $120 million in funding to contribute to the development of cross-chain functionality and partnered with Radix to bring cross-chain functionality to the Radix Babylon network.

Editor’s Notes:

I find it interesting that LayerZero’s wstETH token has faced criticism from multiple protocols within the Ethereum ecosystem. The concerns revolve around the token’s proprietary nature, potential systemic risks, and its approval process by the Lido DAO. While LayerZero maintains that the token’s protocol is secure and decentralized, it will be interesting to see how these criticisms are addressed and whether the protocols can find common ground. In the ever-evolving field of cryptocurrency, collaboration and consensus are paramount for long-term success.

Opinion by [Your Name]

For the latest news and updates on the crypto world, visit Uber Crypto News.