This is a good move, as it supports the standard Cosmos version of this token.
But what about taking it a step further and recognizing Neutron wstETH as the canonical version of ETH? For context, the canonical version of ETH is currently axlWETH.
The benefits would be: Neutron wstETH would require fewer OSMO incentives, since there would be no hurdle rate due to forfeited staking rewards. And if all OSMO incentives currently going to axlWETH went to Neutron wstETH instead, then there would be enough liquidity for Mars to support wstETH as collateral. And that’s a much more desirable collateral than sxlWETH.
The downsides would be: reliance on Lido.
But zooming out, wstETH is undoubtedly more attractive to hold and use than any form of unstaked ETH - since it earns staking rewards. And it’s looking like the default version of ETH on Neutron will be wstETH. So basically, it could end up that Neutron’s ETH liquidity is more attractive than Osmosis’ ETH liquidity, and so all DeFi involving ETH on Neutron could be more attractive than ETH DeFi on Osmosis.
So all things considered, I think Neutron wstETH should be the canonical version of ETH on Osmosis.