What is Wormhole?

The Wormhole project is a message-passing protocol that facilitates interoperability between blockchains and networks. Although not a blockchain, its infrastructure allows it to operate as a communication layer on networks and rollups.

The Wormhole project aims to allow developers to leverage the strengths of multiple chains while developing decentralized applications. The ability to tap into the unique features of various blockchain ecosystems would enhance users’ experience on the platform.

The protocol uses its core contracts combined with on-chain and off-chain components to provide three functions. The functions are messaging, connecting chains, and being a gateway to the Cosmos and Polkadot ecosystems.

History of the Wormhole Project

Jump Crypto launched Wormhole in 2021 as a token bridge for blockchains. The project later evolved into Wormhole V2, an interoperability layer for sending information between blockchains and networks.

On February 9, 2022, the project suffered a major hack that took $323 million worth of crypto through its bridge infrastructure. The victims were promptly compensated. Although the project experienced a period of doubt, it has processed more than $40 billion worth of transactions and more than 1 billion messages sent through the project.

In November 2023, Wormhole broke away from the parent company, Jump Trading, to operate independently. It conducted a successful funding round that raised $225 million, increasing the project’s value to $2.5 billion.

Notable names participated in the funding round, including Coinbase Ventures, Jump Crypto, Multicoin Capital, Brevan Howard, and others.

Core Components

Core Contracts

The Wormhole project’s core contracts are the central mechanism of its operations, allowing it to send and receive messages. These contracts are imbibed into each blockchain for the network nodes, called Guardians, to observe and pick messages from.

The message-sending feature through the core components is executed without fees unless the transactions are conducted on Solana. The published message consists of the sender’s address publishing the message and a sequence number that increases with each message.

The payload or actual message content is subject to the limitations of the blockchain executing the event. The consistency level of the published message is determined by the finality level required for the network’s Guardian to attend to the message.

When the published message on the core contract is approved, the receiving end verifies it through the Verified Action Approval (VAA) function. The VAA feature is designed to be multicast by default, allowing the group of network receivers to receive the broadcasted information. This multicast design allows data verification on any chain without specifying a destination. It also provides for efficient state synchronization across the entire ecosystem.

Onchain Components

Aside from the core contracts, the other on-chain components of Wormhole are Emitters and Transaction logs.

The emitter is the application, protocol, or entity that initiates the communication using the core components. These emitters invoke the publishMessage method and record the message in the transaction logs, including sending details like the address, sequence number, and nonce.

The transaction logs are specialized records on the blockchain that hold the events invoked by the emitters. Guardians monitor these logs to verify the messages sent, ensuring they are consistent and can be trusted across the network’s blockchains.

The on-chain infrastructure is designed to efficiently and securely transmit data, making Wormhole a robust communication network.

Off-chain Components

The off-chain components of Wormhole’s infrastructure consist of the Guardians, spy, APIs, verifiable action approvals (VAAs), and relayers.

The Guardians are a set of 19 validators that operate a peer-to-peer network called the Guardian network. The network is responsible for observing and validating messages emitted by the core contract on each supported chain.

These validated messages are then encapsulated into VAAs through a multi-signature process. A daemon called the daemon Spy monitors the messages within the Guardian Network, forwarding network traffic and enhancing the distribution of VAAs. The API is a REST server that acts as an interface for developers to access details about VAAs or the Guardian Network.

The relayers are a form of transport that moves the signed VAA to the intended blockchain, completing the communication process. They consist of standard and specialized relayers. Standard relayers are part of the network and deliver messages requested through Wormhole. Specialized relayers handle the VAAs of specific or custom chains and protocols. They are created and managed by the developers of these projects.

Features of Wormhole: Wormhole Messaging, Wormhole Gateway and Wormhole Connect

Wormhole Messaging

Source: Wormhole Website

The Wormhole Messaging feature is the main feature of the protocol that allows developers to utilize cross-chain communication. The feature is designed to facilitate the flow of information and value across different networks. It also allows developers to integrate token bridging and custom messaging features in their applications.

The messaging feature focuses on security using its Guardian network and VAA component. Additionally, the protocol incorporates Cosmos’ inter-blockchain communication protocol and Polkadot’s Cross-Consensus Messaging, enhancing its capability within the networks.

The feature is built to be decentralized and secure. This allows it to integrate with decentralized protocols, allowing for updates and improvements without disrupting the existing integrations.

Wormhole Gateway

Source: Wormhole Website

The Wormhole Gateway links the Ethereum and Cosmos ecosystem, facilitating the flow of assets through an IBC-based liquidity router. It is built on the Cosmos SDK, which uses a single IBC connection to provide users access to liquidity and message routing across chains.

The Wormhole Gateway is designed to drive liquidity to the Cosmos ecosystem without imposing additional bridging fees. It uses the ICS-20 standard for IBC-native tokens, which enhances asset fungibility and ensures compliance with Cosmos protocols.

The security of Wormhole’s Gateway earned it the top ranking in Uniswap’s 2023 bridge assessment report, which validates the project’s rigorous security testing and validation. The gateway allows developers to build projects utilizing Ethereum and Cosmos’ advantages.

Wormhole Connect

Source: Wormhole Website

The Wormhole Connect feature is a bridging widget built with React, allowing applications to move tokens. It supports various bridging methods, including native asset bridges, portal-wrapped asset bridges, and CCTP USDC bridges.

The Wormhole Connect feature has a Typescript SDK tool for developers to incorporate into their interface. This tool allows protocols and projects to provide the same functionalities as the Connet widget.

The widget allows applications to offer features like gas dropoff and gasless transactions. Gas dropoff provides users with extra native tokens for subsequent transactions, and gasless transactions allow the relayers to cover the gas fees.

Wormhole Connect is already used in popular applications like Portal Bridge, Jupiter, and Pancake Swap.

Queries

Queries on Wormhole allow users and developers to access authenticated on-chain data. The system operates through a REST endpoint that initiates off-chain requests. These requests are processed by a proxy that communicates with the network of guardians responsible for validating and responding to queries.

The guardians execute the necessary RPC calls, authenticate the results, and provide their signatures independently. This process is streamlined to ensure security and efficiency, which takes a second to conclude. In situations of complications, the system attempts to process the request for up to a minute before timing out.

The protocol also supports batching requests, enabling up to 255 queries to be processed simultaneously, which optimizes the on-chain verification process. It currently supports five types of queries: eth_call, eth_call By Timestamp, eth_call With Finality, sol_account, and sol_pda. Each query type serves a distinct purpose to fit developers’ needs.

NTT

The NTT framework on Wormhole offers a solution for creating and seamlessly transferring multichain tokens. It ensures that tokens retain their inherent properties and functionalities across different blockchains, providing a unified user experience without needing liquidity pools.

The aim is to eliminate the fees and risks associated with liquidity pools, maintaining the integrity and utility of the token. Tokens created with Wormhole’s NTT framework are designed to be flexible, allowing the integration of various token contracts and standards.

This flexibility is crucial for the adaptability and longevity of tokens within the ever-evolving blockchain space. The open-source nature of NTT’s framework encourages developers to adopt and extend the framework by building customized functionalities.

Security on Wormhole

Source: Wormhole Website

Wormhole’s security infrastructure is a fundamental aspect of its cross-chain design. The platform archives this through Guardians, rigorous auditing, a global accountant, and decentralized validation.

Auditing involves internal reviews by contributors and external audits by specialized firms. This dual-layered scrutiny ensures the reliability of the project’s structure and instills users’ confidence.

Wormhole utilizes Ethereum’s cryptography in a multi-signature setup, supported by a network of 19 globally distributed Guardian nodes. These nodes operate on mutual distrust, each signing messages with a private key as proof of authentication. This protects the infrastructure in the event any of the Guardian nodes get compromised.

The Global Accountant is a CosmWasm module on the Wormhole Gateway that aids in maintaining asset security. It ensures that the native tokens in the network are adequate to back the wrapped assets. This prevents the total amount of wrapped assets on a blockchain from exceeding the native assets sent to it.

Additionally, the Governor function monitors asset outflows across connected chains, limiting the volume of assets that can be transferred. This protects the project from the spread of issues that could cause vulnerabilities in smart contracts and would assist in containing such issues before they spread to multiple chains.

What is the W Token?

Source: Wormhole Website

The W token is the native token of the Wormhole project. It was initially launched on Solana using the Solana Program Library (SPL). After launch, the token was designed to be multi-chain and capable of ERC-20 functionalities through Wormhole’s Native Token Transfers (NTT).

The token has a maximum supply of 10 billion and an initial supply of 1.8 billion. 82% of the supply is locked for a four-year unlock period.

The tokenomics allocated 5.1% of the total supply to Guardian nodes, 17% to the community on launch, and 31% to incubators and the ecosystem. 12% is allocated to core contributors, 11.6% to strategic partners, and 23.3% to the treasury.

The token allows users to stake W tokens to participate in governance activities on the platform. These activities include contract upgrades, rate limitations, token utility, connection management, and fee adjustment.

Is W a Good Investment?

The W token is a multichain token that leverages the Solana and Ethereum networks to power the industry’s first multichain governance infrastructure. The Wormhole project is also one of the leading cross-chain projects, supporting 30 blockchains and networks.

The W token powers a leading communication-layer project that popular projects utilize. This communicates the future development potential of Wormhole and its native token and also gives early investors access to the W token’s future growth potential.

Holders of the token could earn passive income by staking the W token while participating in governance. This allows holders to have a say in Wormhole’s future developments.

Risk Analysis

Advantages

One major issue surrounding the crypto space is the fragmented landscape of isolated networks, which makes it difficult to move between networks and blockchains. Wormhole’s interoperability and data transfer layer help solve this problem.

It also allows developers the flexibility to customize applications using multiple protocols. Its messaging infrastructure allows various use cases, including gaming, NFTs, governance, and DeFi applications.

Disadvantages

Despite its security protocol, the Wormhole project has faced a significant hack attempt that led to the loss of assets and credibility. This is due to the architecture, which uses a centralized Guardian network of only 19 nodes for easy integration into blockchains. This brings to mind the risks associated with interoperability, discouraging developers and potential investors from joining the cross-chain space.

The interoperable section is also complex, which can discourage new users from participating in the sector. The fragmented structure of the crypto space also poses a fundamental problem for the project, which can affect its future growth.

Challenges

Although the Wormhole project has grown in popularity, it is still a new project in the crypto space. This means it has yet to create a track record of credibility compared to other more established projects in the space.

While the project is recovering from the effects of the previous hack, it still faces the challenge of maintaining high credibility. Additionally, the pressure of increasing security measures while building user-friendly protocols will be challenging as more protocols are integrated.

The Wormhole project is part of the crypto space, making it susceptible to volatility. It is also subject to the uncertainty of future regulatory actions, which could pose a challenge.

Competitive Analysis

Wormhole and LayerZero are recent, popular cross-chain communication protocols focused on interoperability. While they both provide cost-efficient cross-chain features, they approach the problem differently.

Wormhole leverages a centralized guardian network to safeguard transactions. While this simplifies integration to different protocols, libraries, and standards, it introduces a potential single-point vulnerability if a guardian is breached.

LayerZero, on the other hand, prioritizes decentralization using a low-level communication primitive that relies on oracles and relayers for on-chain verification. This makes it incapable of facilitating high-level communication.

Wormhole excels in secure cross-chain token transfers and passing messages between chains, making it possible to create intricate applications. LayerZero, on the other hand, is focused on passing general messages and contract calls, making it a jack of all trades.

How Can You Own W?

Users can follow a simple process to own W tokens and become a part of the Wormhole ecosystem.

Setup a Wallet

One way to own W tokens is to purchase them through an exchange. For this, the user must create a Gate.io account, complete the KYC process, and add funds to the account to buy the token.

Utilize the W Tokens

Once users have acquired W tokens, they can explore the Wormhole ecosystem by staking, conducting cross-chain transactions, and participating in governance.

Take action on W

Users can trade the W token here.