Stargate token holders question LayerZero's $138 million acquisition offer, which they claim has "flaws"

Stargate Finance governance community is embroiled in heated debate over LayerZero Foundation’s proposal to acquire Stargate’s cross-chain bridge and migrate the STG token to LayerZero’s ZRO token. The proposal is described as a $138 million acquisition valued in ZRO terms, immediately causing divisions among Stargate holders. Critics say the plan is fundamentally flawed and economically unfavorable for current STG token holders.

Although on the surface this move appears as a logical integration of two closely related ecosystems, community reactions reveal deeper concerns, including valuation, fee distribution rights, and governance legitimacy—core issues that investors focused on STG as a cross-chain infrastructure asset care deeply about.

This article will analyze the specific details of the proposal, reasons some Stargate community members oppose it, and the broader implications for cross-chain narratives, supported by an actual tracking perspective of the STG token on Gate.

What the LayerZero Acquisition Proposal Means for STG Holders

Essentially, the proposal would incorporate Stargate into the LayerZero ecosystem, converting STG tokens into ZRO, and effectively dissolving Stargate’s DAO. The official reason given is to simplify the ecosystem: as one of the most important applications built on LayerZero’s messaging infrastructure, merging into a single token is seen as aligning incentives and reducing ecosystem complexity.

However, for many STG holders, the key issue isn’t whether the strategic integration makes sense, but whether the economic exchange is fair. Governance participants quickly shifted focus to how the value capture mechanism would change post-merger and whether existing STG holders would be adequately compensated after relinquishing independent protocols and DAO control.

Following the announcement, both STG and ZRO tokens experienced sharp short-term increases, reflecting the high sensitivity of infrastructure tokens to governance and M&A narratives.

Why Do Some STG Holders Believe the Proposal Is “Flawed”?

The main opposition centers on fee distribution and token dilution.

Before the proposal, locked STG holders had the right to share in the fees generated by Stargate’s cross-chain bridge, establishing a direct economic link between the token and actual protocol usage. While Stargate’s revenue isn’t enormous, its cross-chain business income is considered a core part of STG’s value proposition.

Under the new structure, these fees would no longer directly benefit STG holders but would instead be used to buy back ZRO tokens. The value capture mechanism shifts from STG to LayerZero’s token ecosystem. Critics argue this effectively rewrites the original “protocol” for locked STG, replacing explicit fee participation rights with an indirect exposure to ZRO buybacks.

Some community members point out that this change underestimates Stargate’s asset value and growth potential, essentially transferring future earnings to LayerZero, while STG holders bear the trade-offs.

Fundamentally, this controversy reflects a common tension in DeFi governance: while merging and token consolidation simplify narratives, they also reshape how benefits and protocol value are distributed.

The Root of the Stargate and LayerZero Merger Dispute

Part of the dispute stems from the shared background of Stargate and LayerZero. Both are developed by LayerZero Labs, but Stargate launched as an independent protocol in 2022, with its own token STG, governance process, and fee model.

LayerZero later introduced ZRO as the token for its messaging layer, which has long raised questions in the community: why does the core infrastructure system need two tokens closely linked to the same underlying system?

The proposed acquisition can be seen as an attempt to eliminate this ambiguity, integrating Stargate into LayerZero’s token economy. Supporters argue this would give Stargate access to broader resources and clearer development direction, while opponents see it as a de facto change to the original DAO and revenue model chosen by STG holders.

Governance Process Disputes and Community Opposition

Beyond economic concerns, governance process itself is a point of contention.

Some Stargate community members believe the proposal did not fully adhere to DAO guidelines and best practices. They call for extending feedback periods, revising the plan to address valuation and fee distribution concerns, and clarifying whether dissolving the DAO truly benefits token holders.

Given the significance of dissolving the DAO and migrating the entire token economy, critics argue that transparency and community consensus thresholds should be very high. Whether the proposal proceeds as-is or is adjusted based on community feedback remains uncertain.

STG Market Environment: Sentiment and Mechanisms Matter Equally

This controversy occurs amid a broader downturn in DeFi and infrastructure tokens. After prolonged declines, the community has become more sensitive to issues like low valuations and value redistribution caused by governance decisions.

For STG, this context is especially critical. Even for highly used infrastructure projects, if fee capture, incentive mechanisms, or long-term narrative confidence weaken, token prices can struggle to sustain. Such governance events often trigger price volatility and prompt markets to reassess what the token truly represents.

Lessons for Cross-Chain Narratives and STG

Regardless of the final outcome, the LayerZero acquisition debate offers several insights for the cross-chain space:

First, actual usage does not necessarily translate into token value. As a mainstream cross-chain bridge, STG holders are still debating whether STG truly captures protocol economic benefits.

Second, token consolidation is becoming more prevalent. As ecosystems mature, maintaining multiple highly overlapping tokens becomes increasingly difficult, especially during periods of low liquidity and attention.

Third, fee distribution rights are highly politically sensitive. Removing or redirecting explicit fee-sharing mechanisms often provokes strong resistance, even if alternative buyback schemes are proposed.

For STG, these dynamics and technological performance are equally important.

How to Track STG on Gate

For investors and readers monitoring this from a market perspective, two practical aspects are worth focusing on:

One is governance progress: whether revised proposals will respond to community concerns about valuation, fee distribution, or process.

The other is market structure: liquidity depth, spread behavior, and volatility around governance developments. On Gate, the STG spot market provides a convenient way for investors to track sentiment shifts and respond promptly to news without directly participating in on-chain governance.

Conclusion: Why the LayerZero Acquisition Became a Controversy for STG

This $138 million LayerZero acquisition has sparked intense debate not because the integration itself is problematic, but because it touches on core aspects of the STG token—fee distribution rights, governance autonomy, and long-term value capture.

For many Stargate holders, the most immediate concern is that giving up direct claims to protocol fees and DAO independence in exchange for exposure to a different token economy is not a fair trade. Others see the proposal as a broader discussion on governance and simplification in cross-chain projects.

For all those watching STG, this event is a reminder that DeFi fundamentals go beyond code and usage. Token rights, incentive design, and governance credibility can, just like technological upgrades, rapidly reshape market narratives and price movements.