Lido DAO Backs Wormhole, Axelar Over LayerZero for Crypto Bridge

• Blockchain Protocols: The Balance between Permissionlessness and Respect for Governance
• Case Study: LayerZero's Early Bridge Launch
• A Controversial Move
• Reaction of Lido DAO and LayerZero's Rival Proposal

Blockchain Protocols: The Balance between Permissionlessness and Respect for Governance

Blockchain protocols often pride themselves on being accessible to all without requiring prior approval. However, in certain situations, seeking permission is the more sensible course of action. In October, interoperability infrastructure developer LayerZero established a cryptocurrency bridge that enables users to transfer Lido's widely-used staked Ethereum$2,315 -2.42% (stETH) token to different networks. Included are popular chains such as Binance's BNB$312 -5.65% and the Avalanche blockchain.

Case Study: LayerZero's Early Bridge Launch

LayerZero sought the approval of Lido DAO$2.64 -10.86%, the community governing the protocol, but proceeded with the bridge's deployment before obtaining the group's definitive consent. While this move was not technically inappropriate, some members of the Lido DAO community took issue with LayerZero's marketing approach. They perceived it as an attempt to present LayerZero as an official Lido partner without the necessary backing from DAO.

One member deemed LayerZero's premature announcement disrespectful and unprofessional. A group of crypto infrastructure providers also raised concerns, suggesting that LayerZero seemed to be exploiting its first-mover advantage to attract users before its competitors could.

A Controversial Move

The central issue that makes this case highly controversial is the increasing importance of cross-chain interoperability as blockchain platforms multiply. A fierce competition is unfolding between bridge protocols, essential infrastructures for enabling this interoperability. However, these services also carry risks, leading protocols to be selective about their endorsements.

Securing Lido's stETH endorsement is a significant achievement for interoperability providers, given that Lido is the largest decentralized finance (DeFi) protocol with a total locked value of $20.8 billion.

Reaction of Lido DAO and LayerZero's Rival Proposal

In a recent poll, 81% of Lido DAO members expressed their preference for a competing bridge proposal offered by Axelar and Wormhole, two of LayerZero's main competitors. Subject to a formal vote approving the Axelar-Wormhole proposal, the bridge is set to become the designated provider for transferring stETH tokens to the BNB Chain.

Interop Labs CEO, Sergey Gorbunov, shared that Axelar and Wormhole came together to offer a joint proposal that promises robust security for moving staked ETH between chains. LayerZero was evidently the target of this proposal, designed with the purpose of preventing service providers from exploiting their initial advantage to gain a permanent spot in a protocol's infrastructure.

LayerZero's own proposal for official endorsement received a meager 5% in the recent poll. Wormhole Foundation's chief commercial officer, Robinson Burkey, believes that this situation is more significant than a typical governance vote as it reflects fundamental principles of decentralization.

Edited by Jonathan Stoker