Jack Kubinec

Lido’s wrapped staked ether (wstETH) is now available on Coinbase’s layer-2 network Base following nearly unanimous approval from Lido’s DAO.



The bridge deployment makes Base the latest protocol to access wstETH, joining the likes of Optimism, Arbitrum, Polygon and Cosmos. The news comes two weeks after LayerZero’s bridging solution was widely called non-canonical by the DAO.



wstETH is a wrapped version of Lido’s popular staked ether (stETH) product that gives the token a constant balance — rather than changing daily to reflect staking rewards — for <a href="https://help.lido.fi/en/articles/5231836-what-is-wrapped-steth-wsteth">easier</a> use in DeFi. Around $21 million of wstETH changed hands over the past 24 hours, <a href="https://coinmarketcap.com/currencies/lido-finance-wsteth/">according</a> to CoinMarketCap.&nbsp;



And wstETH deployments have a deep pool to potentially draw from. Lido staked ether (<a href="https://blockworks.co/price/steth">stETH</a>) is currently the eighth-largest cryptocurrency by market capitalization.&nbsp;



Since launching in August, Base has <a href="https://defillama.com/chains/Rollup">become</a> the third-largest rollup by number of protocols and total value locked (TVL). It trails only Arbitrum and Optimism, according to DeFiLlama. <a href="https://blockworks.co/tag/base">Base</a> was built on Optimism’s OP stack, so Lido could reuse the same wstETH bridging solution from when it deployed on Optimism.



Read more: <a href="https://blockworks.co/news/base-next-internet-jesse-pollak">Base protocol is spearheading ‘the next generation of the internet’: Coinbase’s Jesse Pollak</a>



Users can access the bridge through Superbridge, an OP Stack bridge launched in September.



The initial <a href="https://research.lido.fi/t/wsteth-deployment-to-base-and-ownership-acceptance-by-lido-dao/5668">proposal</a> for the Base deployment was written by KyberSwap. 20% of the votes in favor were cast by Hasu of the Flashbots MEV protocol.&nbsp;



KyberSwap’s proposal was careful to note wstETH would reach Base through a canonical bridge designed to be managed by Lido DAO. In late October, the bridging protocol LayerZero <a href="https://blockworks.co/news/layerzero-lido-dao-wsteth">drew criticism from Lido’s DAO after deploying and marketing</a> its omnichain fungible token (OFT) before the DAO accepted its bridge standard.



Following the criticism, LayerZero asked Stargate to <a href="https://research.lido.fi/t/wsteth-on-avalanche-and-bnb-and-ownership-acceptance-by-lido-dao/5749/22">remove</a> the zero-knowledge layer-2 Scroll as a part of its wstETH OFT. At the same time, it doubled down on its request for the DAO to accept control of the bridging contracts to BNB and Avalanche. Scroll, Avalanche, and BNB all still appear on Stargate’s wstETH transfer page. The Scroll bridge is only live for users to remove assets from the OFT.



Lido and LayerZero did not immediately return requests for comment.



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Base

WstETH gets on Base after LayerZero strikeout

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.&nbsp;



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 href="https://blockworks.co/news/lido-centralization-debate-ethereum">a subject of concern lately</a>, one member says the DAO has limited leverage to prevent situations like this one.



LayerZero <a href="https://twitter.com/LayerZero_Labs/status/1717224879869907065">announced</a> its wstETH standard on Wednesday, and Binance’s BNB chain followed with an <a href="https://x.com/BNBCHAIN/status/1717360402009321581?s=20">announcement</a> of its own.&nbsp;



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



“It looks like it&#8217;s the official Lido bridge to go to those chains,” Lambur said, “But it&#8217;s not been approved or okayed by Lido at all. It hasn&#8217;t been audited. The security risks haven’t been debated.”&nbsp;



Lambur added that Lido <a href="https://blockworks.co/tag/lido-dao">DAO</a> has no real recourse other than a potential lawsuit to stop <a href="https://blockworks.co/tag/layerzero">LayerZero</a> from deploying its OFT as Lido-approved. 



“The OFT Standard has been reviewed extensively by independent security and risk managers. All audits are publicly accessible in the technical documentation,” LayerZero Labs said in a statement shared with Blockworks.



At around the same time that the announcement posts went up, LayerZero made a <a href="https://research.lido.fi/t/wsteth-on-avalanche-bnb-and-scroll-and-ownership-acceptance-by-lido-dao/5749/14">proposal</a> 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.&nbsp;



In a statement <a href="https://research.lido.fi/t/wsteth-on-avalanche-and-bnb-and-ownership-acceptance-by-lido-dao/5749/22">posted</a> 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&#8217;s just say…we have a billion dollars in this standard, and then there&#8217;s an exploit and then there&#8217;s unlimited minting of this thing that people sell, [causing] pandemonium and panic. Everybody&#8217;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.”



<a href="https://blockworks.co/price/wsteth">wstETH</a> is the 13th-largest crypto token by market capitalization, <a href="https://blockworks.co/price/wsteth">according</a> to Blockworks Research.&nbsp;



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. 27, 2023 at 4:51 pm ET: Added statement from LayerZero to clarify comment about audits for the OFT Standard.



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LayerZero

LayerZero’s wstETH bridge deployment draws Lido DAO ire

Bessie Liu

Lido, the liquid staking protocol, will bring its wrapped liquid-staked ETH (wstETH) to the Cosmos ecosystem in a partnership with Axelar and Neutron.



Sergey Gorbunov, co-founder of Axelar, noted that this partnership will mark one of the biggest cross-chain expansions of the largest liquid staking tokens and will be achieved via Squid, a cross-chain liquidity routing and swap protocol on the Axelar network.&nbsp;



Squid protocol recently announced that it would<a href="https://blockworks.co/news/squid-one-click-cross-chain-swaps-cosmos"> enable one-click cross-chain swaps on Cosmos</a>.&nbsp;



&#8220;Through Squid&#8217;s cross-chain liquidity router we can optimize asset bridging, significantly speeding secure deposits, presenting a different experience from the lengthy delays required for current bridged deployments,&#8221; Gorbunov said in a statement.



This is the first time Lido will not use native chain bridges to bring its liquid staking tokens across ecosystems.



Historically, <a href="https://blockworks.co/tag/lido">Lido</a> has worked with canonical bridges to bring their assets across chains, according to Avril Dutheil, co-founder of Neutron.



“This is because these [canonical] bridges have interesting properties from a perspective of trustlessness, but when bridging to ecosystems such as <a href="https://blockworks.co/tag/cosmos">Cosmos</a>, it’s a lot trickier to get the same properties because most of these emerging technologies introduce additional trust assumptions,” Dutheil said.



Even though it is possible to bring wstETH to Cosmos today, as Cosmos itself is a network of different layer-1 blockchains, the staked tokens will all belong to different denominations, Dutheil explained.



Read more: <a href="https://blockworks.co/news/cosmos-liquid-staking-upgrade">Cosmos votes on liquid staking plan in bid to boost DeFi</a>



What the team at Neutron has developed is a wrapper contract designed to ensure that bridging components are unified.



“The goal is to basically lock in the denomination so that the ecosystem has a unified token to represent the wrapped assets,” he said. “To improve and upgrade this implementation over time, we want to be able to update the contract and add other bridge providers to eventually build it into a bridge agnostic solution that becomes more secure.”



Following the initial bridging implementation of wstETH onto Cosmos, Axelar and Neutron will hand administration and management of the bridge to the Lido DAO, which will govern the bridge contracts on the Neutron network.



The DAO will be responsible for determining if further security upgrades and bridging solutions need to be added.



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Cosmos

Lidos’ wrapped staked ETH is coming to Cosmos

<div id="highlights-block_62d5947c1c48d" class="highlights">
 <ul>
 <li>The announcement comes days after Sept. 19 was announced as the target date for ETH’s Beacon Chain Merge</li>
 <li>“For Ethereum stakers, this means staking with lower fees and access to a new suite of DeFi applications to amplify yields,” Lido wrote</li>
 </ul>
 
</div>



As ether’s price surges in anticipation of its long-awaited “<a href="https://cms.blockworks.co/the-investors-guide-to-the-ethereum-merge/" target="_blank" rel="noreferrer noopener">Merge” to proof-of-stake validation</a>, staking protocol <a href="https://cms.blockworks.co/tag/lido/" target="_blank" rel="noreferrer noopener">Lido Finance</a> is scaling staked ether (stETH) to layer-2 Ethereum protocols. 



Lido said Monday it’s supporting a wrapped version of stETH, known as wstETH on layer-2s, a move the company believes will allow stETH to increase its market capitalization and usage, while reducing gas fees for investors.



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">What does this mean? Lower gas fees + expanded DeFi ecosystem⚡️ Lido on L2 is not limited to a single network, but will unfold via an ongoing roadmap of L2 scaling solutions. The supported Lido On L2 networks will be announced soon.&mdash; Lido (@LidoFinance) <a href="https://twitter.com/LidoFinance/status/1549034820927655936?ref_src=twsrc%5Etfw">July 18, 2022</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



Lido stETH investors receive staking rewards when they lock ether on the proof-of-stake Beacon Chain. ETH’s Beacon Chain Merge has been in the works since 2020, but, last week, Ethereum developers set Sept. 19 as their latest merge target.&nbsp;



Even after The Merge, stETH holders will have to wait six to 12 months to unlock tokens.



Staked ether can be exchanged on integrated DeFi protocols such as Curve, but stETH is not now compatible with layer-2s that do not support “rebasable” tokens that change value based on staking rewards.&nbsp;



WstETH gives stETH a fixed value, allowing the wrapped token to be traded on prominent layer-2s such as UniSwap, ArcX, 1inch and SushiSwap, according to Lido.



“If the theory plays out that ETH will become the settlement layer that is slower and more expensive for finality then most if not all transaction volume will eventually move to [layer-2s]. If that turns out to be true, Lido wants to make sure we are skating to where the puck is going,” a Lido representative told Blockworks in a statement.



The wstETH move comes a month after the Curve liquidity pool for stETH <a href="https://cms.blockworks.co/will-lido-staked-ether-trigger-the-next-big-crypto-crash/" target="_blank" rel="noreferrer noopener">nearly ran out of ether</a>, making it difficult for investors to exit positions.&nbsp;



The liquidity crunch caused the price of stETH to lose its traditional parity with ether, reaching a low of 0.93 ETH. One stETH is currently trading at 0.98 ETH, per CoinMarketCap.&nbsp;



“It’s possible that stETH:ETH exchange rates may be slightly shallower and more volatile in specific markets” in the short term, Lido said, adding that it expects its protocols to stabilize over time as layer-2s draw greater investment.



LDO, Lido’s DAO token, rallied over 130% in the past week. Prominent DeFi (decentralized finance) trading platform FTX <a href="https://twitter.com/FTX_Official/status/1549031235606888449?s=20&amp;t=lyWFwWvMF8mWE17n-7ZJKQ" target="_blank" rel="noreferrer noopener">said</a> LDO is slated to be listed on the exchange Tuesday.





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