LayerZero Jumps the Gun with wstETH OFT "Integration"

LayerZero announced yesterday an “integration” with Lido to transition wstETH to the OFT standard. For those unaware, the OFT standard allows a protocol’s token to be burned/minted by LayerZero contracts and thus avoids the wrapping and tokens parked in bridges. There are clear UX benefits to protocols who adopt because liquidity is not needed for bridging, although you still need liquidity on whatever chain the token is bridged to, otherwise it’s useless (can’t allow wstETH as collateral on a money market if no on-chain liquidity to liquidate into).

However, there’s been some pushback and outrage today from Lido contributors, as this “announcement” was really just a pitch. This hasn’t gone through Lido’s governance process at all and there’s a big risk assessment to be done. For starters, if tokens adopt the OFT standard then they are now officially relying on LayerZero’s 2/2 protocol (relayer and oracle) for security rather than the bridges of L2s. This moves the trust model from “secured by Ethereum” to “secured by LayerZero”.

This LayerZero/Lido conversation will be important to follow and watch over the coming days. While it’s become popular to say Lido is the biggest threat to Ethereum in recent months (which I disagree with), an even bigger potential threat would be all of the tokens adopting the OFT standard, as the entire point of rollup trust models become rather moot.

Some good takes here I would recommend digesting: – Lido tweet – on OFT risks – Lido contributor take

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