A new bridge token introduced by LayerZero, a cross-chain protocol, has stirred controversy in the Ethereum ecosystem, with nine prominent protocols expressing their concerns. In a joint statement on October 27, Connext, Chainsafe, Sygma, LiFi, Socket, Hashi, Across, Celer, and Router criticized LayerZero's new token standard, describing it as a "vendor-locked proprietary standard." They asserted that this proprietary standard limited the freedom of token issuers.
According to these protocols, LayerZero's new token is a "vendor-locked proprietary representation of Avalanche, BNB Chain, and Scroll," which doesn't require support from the Lido DAO (Decentralized Autonomous Organization). They claim that these proprietary systems are effectively controlled by the bridge operators, introducing hard-to-quantify systemic risks to the project. The protocols suggest the use of the xERC-20 token standard for bridging stETH instead of LayerZero's token.
Lido Staked Ether (stETH) is a liquid staking derivative created when users deposit Ether into the Lido protocol to stake. On October 25, LayerZero launched Wrapped Staked Ether (wstETH), a bridged version of stETH on BNB Chain, Avalanche, and Scroll. This was the first time stETH was available on these three networks. LayerZero doesn't require approval from Lido's governing body, the Lido DAO, to launch wstETH, as any protocol can create a bridged version.
The joint statement from the nine protocols accuses LayerZero of attempting to mislead users into thinking that the new token was officially backed by the Lido DAO. LayerZero's proposal to transfer control of the token protocol to the Lido DAO led to suspicions that it aimed to create a fait accompli and force the DAO's approval. Some members of the Lido DAO expressed concern that the new token could pose security risks, potentially allowing unlimited wstETH to be minted if the protocol verification layer is compromised.
LayerZero clarified that their protocol was designed to allow developers to choose validation layers without permission and use other bridges within the immutable LayerZero framework. The Full Chain Fungible Token (OFT) standard, as used by LayerZero, is an open-source reference contract utilized by over 75 projects, facilitating transfers between Layer 1 and Layer 2. It has enabled over $3 billion in value transfers through integrated contracts.
