Blockchain protocols often pride themselves on their “permissionlessness” – the idea that anyone, anywhere can build on top of a protocol without seeking explicit approval.
But in practice it is sometimes wiser to ask permission.
Last October, LayerZero, the leading company building interoperability infrastructure for blockchains, set up a crypto bridge that allows users to move Lido’s popular staked ETH (stETH) token to other networks, including Binance’s BNB chain and the Avalanche blockchain.
LayerZero had asked Lido DAO – the community that manages the protocol – for its approval, but activated the bridge before waiting for an official green light from the group.
There was nothing technically impermissible about that, and it wasn’t even entirely unprecedented: Lido has used several bridges in the past, and not all of them waited to launch until after a community vote. But LayerZero’s marketing particularly triggered some members of the Lido DAO community – critics thought LayerZero had tried to pass itself off as an official Lido partner without the signature of the DAO. “Announcing something that hasn’t even been voted on yet as if it is already a reality is disrespectful to the DAO and a clear gesture of non-seriousness,” one member wrote on the Lido DAO board forum at the time.
a A letter signed at the time by a consortium of crypto infrastructure providers suggested that LayerZero appeared to be inappropriately seizing first-mover advantage as a way to retain users ahead of the competition.
“By unilaterally deploying a bridge and marketing it in an official-looking manner, it feels like you are trying to pressure the DAO to accept your proposal to avoid liquidity fragmentation and poor UX for users,” Hasu said , a strategic advisor to Lido, in the Lido DAO forums. “Enticing users through marketing makes accepting an alternative bridge proposal more painful. These actions place the DAO, Lido strikers and participating chains in a difficult position.”
The reason this is all so important – and so controversial – is that as more blockchains proliferate, “interoperability” between the chains becomes critical.
There is an intense battle between bridge protocols, the key infrastructure needed to make cross-chain interoperability work. But so are these services problem-prone, and therefore protocols can be valuable in doling out their approvals.
Lido’s approval for stETH is seen as a big prize for interoperability providers, as Lido is the largest decentralized finance protocol (DeFi) of them all, with a total value of $20.8 billion, according to DeFi Lama.
This week, Lido DAO members voiced their displeasure with LayerZero in a temperature check poll: 81% of the votes went for a rival bridge proposal from two of LayerZero’s biggest competitors, Axelar and Wormhole.
Pending a formal vote ratifying the Axelar-Wormhole proposal, the bridge will soon become Lido’s property.official” provider for moving sETH tokens to BNB Chain.
“The Axelar and Wormhole teams decided to work together and create a joint proposal, effectively combining the security of both networks to achieve strong security properties for moving ETH from one chain to another,” says Sergey Gorbunov, CEO of the Interop Foundation, which supports Axelar’s development, told CoinDesk in an interview.
LayerZero Labs CEO Bryan Pellegrino did not respond to CoinDesk’s request for comment.
LayerZero was clearly in the crosshairs of its competitors when they drafted their proposal. Gorbunov told CoinDesk that the Axelar-Wormhole proposal was specifically aimed at preventing “vendor lock-in” – where service providers use their first-mover advantage to permanently embed themselves in a protocol’s infrastructure.
The Axelar-Wormhole bridge “can potentially be expanded to support other bridge providers on the back end if the Lido Foundation chooses to do so,” Gorbunov explains.
LayerZeros The competing proposal for official approval received a paltry 5% of the vote in this week’s temperature check poll.
“This, in my opinion, is a bigger deal than a normal board vote,” Robinson Burkey, Chief Commercial Officer of the Wormhole Foundation, told CoinDesk. “This was more about the principle than the actual technology.”
“Being able to communicate what you feel as a token holder is in the best interest of the protocol,” he continued. “If you take that power away from a token holder, you’re kind of breaking away from the foundations of decentralization.”
