LayerZero V2 Update
Since this discussion was opened, LayerZero V2 was announced.
In brief, V2 shifts the message verification model from application-selected Oracles and Relayers to modular Security Stacks and the message execution model from Relayers to permissionless Executors.
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Modular Security Stacks: Any entity capable of verifying cross-chain messages may permissionlessly participate in LayerZero as a Decentralized Verifier Network (DVN), including native bridges, third-party bridges, oracles, etc. Applications building on LayerZero may select a combination of DVNs to attest to the validity of a cross-chain message before it is executed on the destination chain. An application’s selection of DVNs is called its Security Stack.
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Permissionless Executors: The Executor is a permissionless role that ensures the smooth execution of a message on the destination chain by handling gas for the end-user. Applications can choose a specific Executor, build and run their own executor, or operate without an Executor (end-users can manually invoke lzReceive on LayerZero Scan); V2 eliminates any issue of liveness dependency.
Additionally, V2 introduces improved handling, message throughput, programmability, and other contract-specific improvements. As mentioned in the original announcment, V2 will be live in late January. Below is a diagram of V2.
As with V1, LayerZero protocol remains the only immutable, permissionless, and censorship resistant messaging protocol. The design principles that inform the architecture of V2 are these exact ideals. LayerZero is un-opinionated about monolithic validation methodologies and can accommodate third-party and middle chain style bridges (i.e. Wormhole, Axelar, CCIP) should a developer choose to include them in their Security Stack.
More information on V2 can be found here: Medium Post, Whitepaper, Documentation, and Launch Video.
Recommended Security Stack for wstETH:
V2 introduces the ability for developers to set an x / y / n threshold for their Security Stack, empowering applications to combine DVNs however they like. For instance, a “1 of 3 of 5” combination of DVNs would include one required DVN and two arbitrary DVNs out of a total of five that must verify a message for cross-chain execution.
There are currently 14+ client-diverse Decentralized Verifier Network (DVN) options for LayerZero V2; third-party bridges, native bridges, oracles, and zkLightClients are supported as DVN options for LayerZero. This diverse group of verification methods allows Lido to take a future-proofed security posture, essential for maintaining the integrity and reliability of cross-chain wstETH transactions in perpetuity.
We recommend the following Security Stack configuration for wstETH based on its specific use case and security needs:
1. Polyhedra zkLightClient (achieves full Ethereum consensus)
2. Nethermind DVN
Should governance vote to include one or multiple monolithic security, third party bridge for additional verification, +
3a) Third-party bridge per DAO preference (i.e. Axelar, CCIP, Wormhole)
*3b) Alternatively StableLab or P2P DVN
Additional Security Measures
- Rate Limits: Additional security measures are ready out-of-the-box for LayerZero integrations. For example, rate limits can be implemented per pathway and adjusted with minimal engineering overhead per governance vote. $QI, the governance token of QiDao, and Angle’s $agEUR are prime examples of rate limit implementations using OFT.
- Pre-Crime: Pre-Crime is a proprietary security module that tests message validity against a set of defined rules or “invariants” by the application owner. Pre-Crime prevents hacks before they happen and has been live since Q2 2022.
- =nil; zkOracle: In the near future, the =nil; Foundation will offer a zkOracle as a DVN that leverages their zk Proof Marketplace. We recommend exploration of this new technology for all V2-based applications.
Implementation Overview
Should the Lido DAO approve this proposed implementation, Lido achieves the following for wstETH:
- DAO Control: Lido always maintains full ownership of wstETH contracts.
- Modular Security: Leverages zero-knowledge proofs, native bridges, and decentralized verification methodologies. See above for recommended configuration.
- Unified Liquidity: Unified wstETH supply across all networks without dependency on external liquidity.
- Unified Semantics: OFTs are universal, meaning that wstETH may extend to new networks that LayerZero supports without any contract upgrades and limited engineering overhead. LayerZero currently supports 50+ chains.
- Battle-tested Code: OFT implementation has been adopted by more 75+ DeFi protocols. Notable integrations include $CAKE, $MIM, $agEUR, $JOE, $BTC.b, and $STG.
- Control Over Fee Structure: Zero additional fees for OFT transfers, with an option for Lido to implement its own fee structure.
LayerZero is intentionally designed to be an immutable protocol that has no ability to custody assets or alter the security settings or chain support of integrated contracts. The protocol can never take custody of wstETH, make security decisions that would alter how wstETH transfers are verified, or disable support for a chain that wstETH is enabled on. The non-custodial nature ensures that wstETH remains under Lido’s control, eliminating counterparty risks that are prevalent in other cross-chain solutions.
Technical documentation for OFT can be found here.
Conclusion
The implementation of wstETH on BNB Chain via LayerZero V2 represents a significant step forward in unifying Lido’s cross-chain expansion strategy. The enhanced security, efficiency, and flexibility offered by V2 strongly aligns with Lido’s goals of simplifying user experience, increasing DeFi composability, and maintaining robust security standards. LayerZero Labs is committed to supporting the Lido DAO in this endeavor, ensuring the successful deployment and long-term success of wstETH on BNB Chain.