LayerZero Deploys stETH Bridge Without Approval From Lido Governance

Lido, the top liquid staking provider, is fiercely debating whether to support cross-chain stETH transfers to Avalanche, BNB Chain, and Scroll via a new bridge deployed by LayerZero Labs.

The discourse surrounding the bridge has quickly attracted controversy, with Lido’s community accusing LayerZero, Avalanche, and BNB Chain of launching a slick marketing campaign inaccurately implying Lido also supports the bridge, despite Lido still discussing the Oct. 26 proposal.

“A bridge has been deployed to bring wstETH to Avalanche, BNB, and Scroll, facilitated by LayerZero Labs,” Lido tweeted. “The proposal for the Lido DAO to support the bridge must still go through the necessary checks, discussion, and governance process.”

Lido added that the bridge is not canonical, has not been audited, and is not endorsed by the Lido DAO. “Please exercise extreme caution if you choose to interact with the bridge,” it said.

LayerZero’s aggressive marketing included explicitly declaring that wrapped stETH “is now an OFT” enabling seamless transfers across Avalanche, BNB Chain, and Scroll. The bridge is also live on Stargate, a protocol enabling cross-chain swaps between native assets.

LayerZero facilitates cross-chain transfers for Ethereum Virtual Machine (EVM)-compatible via its Omnichain Fungible Token (OFT) standard. The standard allows users to mint OFT tokens on a destination chain by burning the OFTs from supply on the origin chain.

Although LayerZero is yet to suffer an exploit, members of the Lido community warn that LayerZero’s OFT protocol introduces additional risks for Lido.

“Lock-ins introduce systemic risks for wstETH, and, by extension, Ethereum,” said Arjun Bhuptani of Connext network. “Lido benefits from owning wstETH deployments on each chain more directly.”

“A thorough security assessment of the proposed solution… has been conducted or scheduled neither by Lido DAO contributors nor independent security experts on the particular request,” said TheDZhon on Lido’s governance forum.

Other users fear that wstETH liquidity could become fragmented between LayerZero’s OFT representation and native deployments from Lido.

“Honestly shocked by LayerZero’s move here,” tweeted Litocoen of Socket. “Completely frontrunning LidoDAO’s governance process and its network expansion team to deploy a wstETH version… Imagine the UX nightmare if liquidity for [LayerZero]’s fake version starts to build on these chains and then LidoDAO deploys their own version.”

This is particularly prescient regarding Scroll, a Layer 2 network. As such, Scroll already maintains a native bridge between Layer 1 and Layer 2, threatening to drive liquidity fragmentation between natively bridged wstETH and LayeZero’s OFT tokens.

LayerZero acknowledged said concerns and asked Stargate Foundation to remove support for bridging wstETH onto Scroll.