LayerZero’s wstETH bridge deployment draws Lido DAO ire

LayerZero recently introduced a bridge token allowing users to move Lido’s $5.5 billion wrapped staked ether (wstETH) token between Ethereum, Avalanche, BNB, and Scroll. 

There was one small problem, however: LayerZero apparently didn’t wait for Lido DAO’s permission before deployment.

LayerZero’s announcement of its omnichain fungible token (OFT) before a DAO vote led some Lido DAO members to feel that the DAO is being strong-armed into approval. While Lido DAO’s power has been a subject of concern lately , one member says the DAO has limited leverage to prevent situations like this one.

LayerZero announced its wstETH standard on Wednesday, and Binance’s BNB chain followed with an announcement of its own. 

Hart Lambur, a Lido seed investor, said the combined marketing push gave a wrongful sense of Lido’s approval.

“It looks like it’s the official Lido bridge to go to those chains,” Lambur said, “But it’s not been approved or okayed by Lido at all. It hasn’t been audited. The security risks haven’t been debated.” 

Lambur added that Lido DAO has no real recourse other than a potential lawsuit to stop LayerZero from deploying its OFT as Lido-approved. 

At around the same time that the announcement posts went up, LayerZero made a proposal on Lido DAO’s forum saying it had created the wstETH bridge and would like the product to be formally endorsed by Lido DAO. DAO members expressed immediate skepticism.

“By unilaterally deploying a bridge and marketing it in an official-seeming way, it feels like you are trying to pressure the DAO into accepting your proposal,” Hasu, the strategy lead at Flashbots, said. 

In a statement posted to Lido’s forum Thursday afternoon, LayerZero said it had asked Stargate, the protocol the wstETH bridge was built on, to remove bridging into Scroll. The statement added that LayerZero has been “engaging with the Lido Core team, community members and independent security teams for several months now on this specific permissionless deployment.”

Multiple forum posters advocated waiting a week before sending the proposal to a Snapshot vote, while others expressed concerns with the security of the OFT.

Lambur said that while a worst-case scenario may be unlikely, the real danger lies in LayerZero and BNB Chain advertising an OFT standard not audited by Lido DAO, since the two companies’ marketing could draw significant investment.

“Let’s just say…we have a billion dollars in this standard, and then there’s an exploit and then there’s unlimited minting of this thing that people sell, [causing] pandemonium and panic. Everybody’s selling stETH and trying to withdraw their ETH from Lido,” Lambur said. “That disaster scenario, I’m not saying that’s likely, but it’s not impossible.”

wstETH is the 13th-largest crypto token by market capitalization, according to Blockworks Research. 

Around $34.5 million in wstETH changed hands in the 24 hours following LayerZero’s announcement, a negligible change from the day prior.

Updated Oct. 26, 2023 at 4:45 pm ET: Added statement from LayerZero to clarify comment about audits for the OFT Standard.

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