Forward the Original Title：头等仓研报：跨链互操作性项目Axelar

Investment Summary

Axelar is a cross-chain interoperability project.

From the team and funding perspective, Axelar’s team has strong academic backgrounds and development capabilities. They have completed multiple rounds of funding, totalling $113.8 million, with investors including Binance, Polychain Capital, Coinbase Ventures, Dragonfly Capital, and Crypto.com Capital. The project’s development progress is good, with noticeable increases in code commits and the number of developers.

From a product and technology perspective, Axelar is based on cross-chain technology and introduces the concept of interchain on top of cross-chain and multichain. In this concept, all Web3 applications will have a unified development environment, accommodating various logical chains and supporting users from multiple chains. In 2024, Axelar developed the Axelar Virtual Machine (AVM) based on CosmWasm and introduced tools such as Interchain Amplifier and Interchain Maestro, allowing Axelar to evolve from a cross-chain layer responsible for message and asset delivery to a cross-chain layer capable of programming and deploying smart contracts for more complex operations. To a certain extent, Axelar’s interchain concept is an upgrade to the concepts of cross-chain and multichain, leveraging the advantages of the Axelar network as a central interaction node in a multi-chain network. By developing and deploying applications within this central node and then extending them to other networks, efficiency can be greatly improved, costs reduced, and users provided with a smoother experience. Therefore, Axelar’s proposed interchain solution has excellent potential in the future.

In terms of project development, Axelar’s current development progress is good. In terms of data, the growth of GMP cross-chain message volume reflects the growth and improvement of the cross-chain ecosystem, while the number of active users has remained relatively stable, demonstrating the user stickiness of the Axelar ecosystem. In addition, the Axelar ecosystem map is expanding continuously, with connections to 60 chains and over 600 integrated smart contracts for interaction and collaboration, including leading projects in DeFi, public chains, and Layer 2 solutions. In the future, as related projects in the ecosystem develop, Axelar will also achieve certain achievements.

From a token economics perspective, the AXL token mainly serves as the application token of the network, playing roles in consensus, governance, development, and payments. In the future, the AXL token will undergo deflation, further promoting the healthy development of the network.

From a track perspective, Axelar is in the growing stage of the cross-chain interoperability track. There will be considerable growth space in the future with the development of public chain and DeFi tracks. In the competition within the track, Axelar’s proposed solution and the concept of interchain give it a unique advantage in scalability. If it can attract enough projects to build a prosperous ecosystem based on this concept in the future, Axelar will have a significant competitive advantage in this track.

1. Basic overview

1.1 Project Introduction

Axelar is a cross-chain interoperability project that is based on cross-chain technology. Beyond the concepts of cross-chain and multichain, Axelar introduces the concept of interchain, aiming to provide a unified development environment for all Web3 applications. To achieve this goal, in 2024, Axelar developed the Axelar Virtual Machine (AVM) and released various development tools. This evolution transformed Axelar from a cross-chain layer responsible for message and asset transmission into a cross-chain layer capable of programming and deploying smart contracts to execute more complex operations.

1.2 Basic Information [1]

2. Project Overview

2.1 Team

Based on the information currently available, Axelar’s development team, Interop Labs, is located in Canada, with an estimated total of around 50 employees. Currently, there are 33 employees listed on LinkedIn:

Sergey Gorbunov - Co-founder, holds a Bachelor’s and Master’s degree in Computer Science from the University of Toronto and a Ph.D. in Computer Science from the Massachusetts Institute of Technology (MIT). After graduating, Gorbunov founded StealthMine, a company focused on enterprise data encryption. In 2018, he joined Algorand as Chief Cryptographer. In June 2020, Gorbunov co-founded Axelar.

Georgios Vlachos - Co-founder, holds a Bachelor’s and Master’s degree in Computer Science from MIT. After graduating, Vlachos joined Algorand as Head of Mathematics Research. In June 2020, he participated in the founding of Axelar.

Christian Gorenflo - Head of Development Team, holds a Bachelor’s degree in Physics from the Karlsruhe Institute of Technology in Germany and a Ph.D. in Computer Science from the University of Waterloo. After graduating, Gorenflo joined Axelar’s development team at Interop Labs as a blockchain engineer. In July 2023, he was promoted to Head of Development Team.

Milap Sheth - Head of Engineering Team, holds a Bachelor’s degree in Computer Science from the University of Waterloo. After graduating, Sheth worked in software development at ISARA, a network security solutions company. In July 2021, Sheth joined Interop Labs as Head of Engineering Team.

Talal Ashraf - Head of DevOps Team, holds a Bachelor’s degree in Electrical and Computer Engineering from the University of Toronto. After graduating, Ashraf worked as a full-stack backend engineer at Symantec, an enterprise cloud service development company. In 2019 and 2020, he worked in DevOps development at two software development companies, Flywheel and Pixlee. In August 2021, Ashraf joined Interop Labs as Head of DevOps Team.

Overall, members of Axelar’s development team have solid academic backgrounds, and the founders have previous experience in research and development at Algorand, a public blockchain. Therefore, the project itself has strong development capabilities.

2.2 Funding

Table 2-1 Axelar financing overview[2]

As of March 5, 2024, Axelar has completed a total of 5 funding rounds. According to disclosed funding information, the total funding amount has reached $113.8 million. During the Series B funding round, the project’s total valuation reached $1 billion. Investors include Binance, Polychain Capital, Coinbase Ventures, Dragonfly Capital, Crypto.com Capital, among others. However, the most recent funding round was completed on March 10, 2022, nearly two years ago. The current actual financial situation of the project is unclear. However, as the project is still able to maintain its team size and continues to advance its development and operational plans, it is estimated that the project itself still has sufficient funds.

2.3 Code

Figure 2-1 Axelar code commitment status[3]

Figure 2-2 Axelar code contributors

Axelar’s source code is open-source on GitHub. As of March 4, 2024, from the figures above, it can be seen that Axelar’s code is continuously being updated, with a total of 12,110 commits. The number of developers has peaked at over 50, and currently, there are approximately 50 developers contributing to the project. Axelar’s development pace has not shown significant peaks and valleys. Since entering 2023, both the code update volume and the number of developers have steadily increased, indicating that the project’s development is in good shape.

2.4 Products and Technology

Axelar is a cross-chain interoperability project primarily developed using the Cosmos SDK.

2.4.1 Cross-chain layer

Figure 2-3 Axelar technology stack[4]

In Axelar’s cross-chain solution, it adopts a “trinity” architecture with gateways as points, validators as lines, and the Axelar network as surfaces. Each component serves a specific role:

Gateways: Gateways primarily handle communication and cross-chain execution functions. On the source chain where the cross-chain transaction is initiated, gateways initiate the corresponding request. On the target chain where the cross-chain transaction is received, gateways receive and execute the corresponding message to complete the cross-chain operation. On EVM-based chains, gateways exist in the form of smart contracts, while on Cosmos and other non-EVM chains, gateways exist as DApps. The control of gateway multi-signature keys is held collectively by all validators, and each validator’s share of the key is determined by the amount of AXL tokens they stake. The key becomes effective only when the share of keys submitted by validating nodes exceeds the threshold.

Users Interaction with Gateways: Users’ cross-chain messages on each chain interact first with gateways. Upon receiving the message, gateways generate an event in the background. These events are then picked up by relays, which submit them to the Axelar network for processing.

Validators: Validators are primarily responsible for message validation and network consensus. After cross-chain events are submitted to the Axelar network, validator nodes start working by querying their RPC ports on the source chain node to observe the submitted events. They then vote to approve the legitimacy of the event after confirming its existence. Validators then package these events into blocks and confirm them through proof-of-stake consensus.

Axelar Network: The Axelar network primarily handles all cross-chain requests and pays the corresponding gas fees. Once blocks are packaged and cross-chain request messages are authorized, another set of relays picks up these messages and periodically sends them to gateways on the target chain. Axelar needs to use tokens from the target chain to pay gas fees during this process. To facilitate user experience and avoid the need for users to prepare tokens on both the target chain and Axelar to pay gas fees, Axelar has created and deployed a smart contract called Gas Receiver. The Gas Receiver contract estimates the total gas fees required on the source chain, Axelar network, and target chain, and collects native tokens from the source chain as gas fees. These native tokens are then converted into AXL tokens, target chain tokens, and other required tokens to pay gas fees, and the excess gas fees are returned to the user’s account after the transaction is completed.

In comparison to common cross-chain bridges, Axelar’s cross-chain layer offers several advantages:

1) Firstly, in terms of security, Axelar’s security is ensured by multi-signature keys and the network consensus layer. When transmitting cross-chain information and executing cross-chain operations, a threshold number of validator nodes must confirm the authenticity of the message and submit the shared key before the gateway can function. Additionally, Axelar has added a feature of rate limiting at the gateway level, where there is an upper limit on the number of transactions for each type of asset within a given time interval. Secondly, after all cross-chain events are packaged, they need to be confirmed through the Delegated Proof of Stake (DPoS) consensus mechanism before new blocks can be generated. Moreover, to reduce the risk of voting power being concentrated among a few stakeholders due to different AXL stake amounts, Axelar has introduced a “Quadratic voting” mechanism at the consensus layer. When validators vote, they receive one unit of voting power for staking one unit of AXL token. However, if they need to obtain two units of voting power, they must stake the square of two, i.e., four units of AXL tokens, and so on. Validators’ token stakes need to be squared to obtain the corresponding number of voting rights. By limiting validators with high stake amounts, the decentralization of the network is greatly enhanced. The existence of these two mechanisms ensures that Axelar has better security compared to common cross-chain bridges.

2) Secondly, in terms of scalability, Axelar, as a public chain, is capable of executing smart contracts. This means Axelar can more conveniently, rapidly, and cost-effectively integrate with other public chains and Dapps, even acting as their “cross-chain layer” in the concept of modular blockchains to assist these projects in completing cross-chain operations, thus effectively enhancing user experience. For example, Axelar has released an API that helps integrated Dapps generate a one-time deposit address. These addresses can receive cross-chain funds of any token from any wallet on the integrated chains, enabling users to have an interaction experience in cross-chain transactions comparable to that of centralized exchanges. Furthermore, by expanding the functionality of General Message Passing (GMP), Axelar not only achieves asset cross-chain capabilities but also supports complex cross-chain function calls and cross-chain state synchronization, greatly enhancing the scalability of Dapps collaborating with Axelar.

Additionally, Axelar has introduced the concept of “Interchain” on top of cross-chain and multichain concepts, aiming to provide a unified development environment for all Web3 applications. This environment accommodates diverse logic from various chains and supports users from multiple chains, further realizing Axelar’s vision of full-stack interoperability. With the development of Axelar Virtual Machine (AVM) on CosmWasm in 2024, Axelar evolves from a cross-chain layer responsible for message and asset transmission to a cross-chain layer capable of programming and deploying smart contracts to execute more complex operations.

2.4.2 Axelar Virtual Machine (AVM)

The Axelar Virtual Machine (AVM) serves as a Turing-complete virtual machine. Its significance lies not only in its ability to deploy smart contracts but also in fundamentally altering the traditional logic of implementing cross-chain decentralized applications (DApps). For DApp developers, building applications on the AVM inherently provides cross-chain functionality without the need for subsequent integration with other cross-chain projects. The cross-chain functionality is facilitated by the underlying blockchain, which is Axelar, introducing the concept of “Interchain” as proposed by Axelar itself. In Axelar’s own words, it’s “Build once, run everywhere.”

Specifically, developing DApps on the AVM enables various possibilities:

DeFi projects can utilize liquidity from multiple chains for trading or lending.

Stablecoin projects can expand their application space, providing users with a seamless experience across multiple chains.

Gaming projects can choose to issue the same asset or token on multiple chains.

NFT projects can integrate into cross-chain games or enjoy increased trading liquidity.

Wallet projects can access any blockchain to provide services for their users.

DAO projects can govern and act across multiple chains more easily, facilitating asset allocation.

Figure 2-4 AVM architecture[5]

To help developers deploy their projects on AVM more efficiently and cost-effectively, Axelar has introduced two tools for developers to build applications: Interchain Amplifier and Interchain Maestro.

Interchain Amplifier is a tool for developers to connect and utilize the Axelar network, primarily aimed at assisting developers in establishing connections with the Axelar network without permission and at low cost. Developers only need to pay the cost of joining the Axelar network to enjoy the connections between Axelar and other ecosystems and networks, adding new functional attributes to enhance Dapp security and scalability, hence termed as Amplifier. Use cases include easily integrating components developed on Ethereum, such as ZK proof components, into Dapps on the Axelar network.

Interchain Maestro is a tool for developers to deploy and manage multi-chain Dapps. Developers can deploy their contracts on multiple chains through the following simple process:

1) Specify the contracts to be deployed, set the key parameters of the contracts, and the desired chains involved.

2) Store the parameters and content on Axelar’s smart contracts and deploy the smart contracts on the relevant chains.

3) Extend or clone these contracts to other chains.

4) When Dapp upgrades are needed, developers only need to initiate a transaction on Axelar to upgrade their contract code. The upgrade of these codes will be sent to other connected chains without the need for separate upgrades of smart contracts on other chains.

Developers can greatly improve the efficiency of Dapp deployment and reduce the cost of Dapp deployment through Interchain Maestro. One important component of Interchain Maestro, the Interchain Token Service, has been released on the mainnet. With this feature, projects can easily issue and manage tokens between chains, maintaining the cross-chain interchangeability of tokens and some custom functionalities during this cross-chain deployment process.

By deploying on AVM, Axelar’s proposed concept of “Interchain” can be truly realized, thereby laying a solid foundation for the development of the Axelar ecosystem. To some extent, Axelar’s interchain concept is an upgrade to the concepts of cross-chain and multi-chain, with its core establishing a central interaction node in a multi-chain network. By developing and deploying applications in this central node, efficiency can be greatly enhanced, costs reduced, and users can have a smoother user experience. Therefore, Axelar’s proposed solution holds promising potential for the future.

Summary

In terms of team and funding, the Axelar team possesses a solid academic background and development capabilities. They have completed multiple rounds of financing, totaling $113.8 million, with investors including Binance, Polychain Capital, Coinbase Ventures, Dragonfly Capital, Crypto.com Capital, among others. The current development status of the project is good, with both the volume of code submissions and the number of developers showing a noticeable upward trend.

From a product and technical perspective, Axelar is built on cross-chain technology and introduces the concept of interchain on top of cross-chain and multichain concepts. In this concept, all Web3 applications will have a unified development environment that accommodates various logics from different chains and supports users from multiple chains. To achieve this, in 2024, Axelar developed the Axelar Virtual Machine (AVM) based on CosmWasm and launched tools like Interchain Amplifier and Interchain Maestro. These advancements transform Axelar from a cross-chain layer responsible for message and asset transmission into a cross-chain layer capable of programming and deploying smart contracts to perform more complex operations. In a way, Axelar’s interchain concept upgrades the traditional cross-chain and multichain concepts by leveraging the advantages of the Axelar network, positioning it as a central interaction node in a multi-chain network. By developing and deploying applications on this central node and then extending them to other networks, efficiency can be greatly enhanced, costs reduced, and users can enjoy a smoother user experience. Therefore, Axelar’s proposed interchain solution holds promising potential for the future.

3. Development

3.1 History

Table 3-1 Axelar’s Major Events

3.2 Current Situation

3.2.1 Operational Data

Figure 3-1 Axelar’s Trading Volume[6]

Figure 3-1 Number of Axelar Active Addresses

According to Axelar’s block explorer, as of 11:00 on March 11, 2024, a total of 1,528,445 transactions have been generated on Axelar. Among them, General Message Passing (GMP) transactions amount to 962,300, accounting for approximately 62.96% of the total. GMP transactions are mainly used to call smart contracts on other chains connected via Axelar within a single chain. The key difference between GMP transactions and regular cross-chain transactions is that GMP transactions specify smart contracts as their targets, whereas regular cross-chain transactions are solely responsible for transferring assets from an account on the source chain to an account on the target chain. Therefore, the rapid increase in GMP transaction volume since 2023 reflects the continuous improvement and activity of Axelar’s cross-chain ecosystem. In addition, since 2023, there has been a significant increase in the number of active users on Axelar, which has subsequently remained relatively stable, demonstrating Axelar’s strong user ecosystem stickiness.

3.2.2 Ecosystem Projects

As a cross-chain layer capable of programming and deploying smart contracts to execute more complex operations, Axelar’s ecosystem includes not only other chains connected to it but also Dapps developed on top of it.

Figure 3-2 Axelar Cross-Chain Public Chain Ecosystem Diagram

There are currently 60 blockchains connected to Axelar, and these blockchains can be divided into three levels based on the level of user and Dapp interaction activity.

Public chains at T1 level include: Polygon, Osmosis, BNB Chain, Arbitrum, Avalanche, Ethereum, Fantom, Moonbeam, Celo, Terra Classic, Terra, Base, Optimism, and Kujira.

Public chains at T2 level include: Kava, Sei, Mantle, Linea, Neutron, Umee, Juno, Crescent, Secret-SNIP, Cosmos, Filecoin, Evmos, Scroll, Comdex, and XPLA.

Among these, transactions initiated from Polygon account for approximately 19.00%, transactions from BNB Chain account for approximately 12.42%, transactions from Osmosis account for approximately 10.87%, transactions from Arbitrum account for approximately 9.91%, transactions from Avalanche account for approximately 8.89%, and transactions from Ethereum account for approximately 6.25%. It can be observed that the participation of various public chains in the Axelar cross-chain ecosystem is relatively diversified, with no particular dependence on any specific public chain, indicating a healthy overall development trend.

At the application level, as of March 11, 2024, there are already 635 Dapps deployed or preparing to be deployed on Axelar.

Figure 3-3 Partial Projects in the Axelar Ecosystem

Currently deployed projects include wallet projects such as MetaMask, Trust Wallet, Keplr; infrastructure projects such as Biconomy; gaming projects such as Decentraland; DeFi projects such as dYdX, Lido, PancakeSwap, SushiSwap, QuickSwap, and KyberSwap.

In addition, there are also projects integrated or cooperating with Axelar, including Uniswap, Ripple, Immutable, Frax Finance, Vertex, Ondo Finance, Fantom, Band Protocol, Sommelier, Filecoin, Umee, Polygon, Sui, Circle, and others.

As of now, the projects related to the Axelar ecosystem are mainly focused on DeFi and public chains, which are inseparable from Axelar’s cross-chain nature. With the prosperity of the DeFi and public chain ecosystems, Axelar has good development potential in the future.

3.2.3 Social Media Scale

Table 3-2 Axelar Social Media Data

As of March 11, 2024, Axelar’s social media platforms have a large scale with a considerable number of followers, but there is relatively little interaction. The community has a significant number of members, but the level of activity is moderate, with discussions primarily revolving around issues encountered in project interactions. The governance forum has moderate level of activity, with discussions mainly focused on future project technical upgrades and development directions.

3.3 Future

According to the roadmap announced by Axelar on January 30, 2024, Axelar’s future development will revolve around AVM, including the following sub-items:

1) Developing AVM as an open-source platform for various Dapp developments.

2) Achieving permissionless connections to any chain through Interchain Amplifier, extending potential network effects to hundreds of blockchains including Ethereum Layer2.

3) Expanding use cases of Interchain Tokens, extending their availability on all connected chains from their native chain.

4) Adding a gas burning mechanism for the AXL token to achieve deflation and protect the Axelar network.

5) Integrating different consensus mechanisms from various chains, including Solana, Stellar, and Move-based chains such as Aptos and Sui.

6) Improving the pricing mechanism for gas, enhancing the accuracy of cross-chain gas estimation services on the Axelar network.

In summary, Axelar’s current development is promising. The growth in the number of GMP cross-chain messages reflects the growth and improvement of the cross-chain ecosystem, while the consistent number of active users demonstrates the user stickiness of the Axelar ecosystem. Additionally, the Axelar ecosystem continues to expand, currently connecting with 60 chains, with over 600 smart contracts interacting, cooperating, and integrating, including leading projects in DeFi, public chains, Layer 2, and other sectors. In the future, as ecosystem-related projects develop, Axelar is expected to achieve significant milestones.

4. Economic Model

4.1 Supply

4.1.1AXL Token Distribution[9]

AXL is the project token of Axelar, which was launched on the mainnet in September 2022 with an initial supply of 1,000,000,000 tokens. New AXL tokens are issued through inflation. As of March 5, 2024, the total supply of AXL tokens is 1,137,455,595, with a circulating supply of 587,380,415 tokens.

Table 4-1 Rough Distribution of Initial Issuance of AXL Tokens

Figure 4-1 AXL Token Initial Distribution

Figure 4-2 AXL Token Allocation Stacked Chart

Looking at the token allocation, among the initial distribution of 1 billion AXL tokens, the team and financing each hold about 30%, while the community and ecosystem hold about 40%, which is relatively reasonable. As of March 5, 2024, nearly 17 months since the token’s initial issuance, approximately 452 million tokens have been unlocked from the initial issuance of 1 billion tokens.

Regarding the token issuance method, AXL tokens are still inflationary, with the inflation rate calculated as follows: a base inflation rate of 1% plus an additional 0.3% inflation rate provided by each external supported blockchain (EVM chain) (0.75% before December 5, 2023). Currently, there are 20 external supported blockchains, resulting in a current inflation rate of 7% (14.5% before December 5, 2023).

To promote the healthy development of the network, Axelar plans to transition AXL tokens from inflationary to deflationary by implementing a gas burning plan. Currently, Axelar charges approximately 0.2 AXL tokens for processing a cross-chain message. Calculated based on handling 100,000 transactions per day, Axelar would collect approximately 104 million AXL tokens annually. By burning these AXL tokens collected as gas fees, Axelar can offset up to 10% of the inflation rate, achieving token deflation.

Although the proposal has been approved, the deployment of AXL as the network gas token and the burning plan has not yet been implemented on the mainnet, which will be one of Axelar’s focus areas in the coming year.

4.2 Demand

As the native token of the Axelar network, AXL token serves several functions:

1) Serving as the basis for DPoS consensus in the network and as block rewards for validator nodes.

2) Acting as a governance token for voting on governance proposals, including network parameters and protocol marketing, development, and technical upgrades.

3) Paying transaction fees on the network, which will become the primary gas fee on the Axelar network in the future.

4) Rewarding participants and community contributors in the ecosystem.

4.2.1 Network Nodes

The Axelar network adopts the Tendermint consensus algorithm for DPoS-form consensus. Currently, there are 75 fixed validator nodes, and the top 75 nodes in terms of token staking can register as validators. The number of validators on Axelar can be adjusted through governance in the future.

Validators on the Axelar chain need to first configure nodes on the selected external chains and then submit the RPC endpoints of these external chains to Axelar validator nodes. They also need to register as maintainers of these external chains to submit their states for voting at any time. Therefore, there is a certain operational threshold for validators.

Figure 4-3 Validator Node Share

Each validator node receives block rewards during the block consensus process. Currently, the expected APR for block rewards of each validator node ranges between 5% and 10%, depending on the number of nodes deployed on external chains, with actual APRs hovering around 9%. Users of the Axelar network can stake their AXL holdings to corresponding validator nodes to share the block rewards they receive. Additionally, unstaking requires 7 days to complete.

Currently, the validator node ValidatorREX holds the highest share of AXL, accounting for approximately 7.52% of the total share. The top ten validator nodes collectively hold about 34.31% of the share, with the top three validator nodes’ shares being almost entirely uninvolved in protocol governance. Therefore, although Axelar has a relatively small number of validator nodes, it still maintains a certain level of decentralization.

In summary, from a tokenomics perspective, the design of the AXL token is conventional, primarily serving as the network’s utility token, facilitating network consensus, governance, development, and payments. In the future, AXL tokens will transition to deflationary, further promoting the network’s healthy development.

5. Track

5.1 Track Overview

As a cross-chain layer capable of message and asset interoperability, Axelar can be categorized into the cross-chain interoperability track.

Traditionally, the term “cross-chain track” has been associated with projects focusing on asset cross-chain transfers. However, with the introduction of information transfer solutions, the cross-chain interoperability track emerged. Cross-chain interoperability, as the name suggests, aims to enable interoperability among multiple chains. For example, users should be able to perform operations on Chain A that affect Chain B. This interoperability relies on the exchange of data between different chains, including assets, chain states, contract calls, and other information. To some extent, cross-chain interoperability shares similarities with sidechains, as both emphasize achieving interoperability between the main chain and sidechains, facilitating the sharing of assets and information. The difference lies in that cross-chain interoperability projects strive to establish an interoperable network, where all other chains connected to the network theoretically become “sidechains” of the main chain once connected.

Currently, projects in the cross-chain interoperability track generally follow a similar implementation architecture, known as “observe-confirm-transmit/interact.” Fundamentally, all cross-chain projects serve as intermediaries, requiring them to first obtain information from the source chain, confirm and process it, and then interact with the target chain. Therefore, the key focus of competition among various cross-chain interoperability projects lies in how they acquire information from the source chain, how they confirm and process the obtained information, and how they interact with the target chain, both in terms of product and technology.

There are not many projects in the cross-chain interoperability track at present, and the overall development of the track is still in its infancy, with significant potential for future growth. In the following competitor comparison, we will select LayerZero and Wormhole as competitors of Axelar and compare their implementation solutions to some extent.

5.2 Competitor Comparison

5.2.1 LayerZero

LayerZero is a full-chain interoperability protocol.

In terms of team and funding, LayerZero’s team has rich development experience, and team members have a long history of collaboration, ensuring a high degree of cohesion. It has completed multiple rounds of financing, with a total funding of $293.3 million. Investors include Binance Labs, Delphi Digital, A16z, Sequoia Capital, Coinbase Ventures, and other renowned capital firms.

From a product and technology perspective, LayerZero focuses on achieving “lightweight” data transmission by using oracles and relay networks. When users complete operations at the endpoints of LayerZero’s source chain, the oracle, as an external component, forwards the block headers of transactions on the source chain to the target chain. Simultaneously, the relay retrieves transaction proofs from the source chain and transmits them to the target chain. This approach offers three advantages:

1) Reduced cost of information transmission: LayerZero does not need to run its nodes on each chain, outsourcing the information verification function. Moreover, the oracle only sends information to the target chain in one direction, avoiding interaction costs with verification nodes.

2) Ensured security: Separating the functions of oracles and relays and ensuring their independence allows mutual verification of the information transmitted by the two, reducing the threat to the network from a single malicious oracle or relay.

3) Increased scalability: Oracles and relays are only responsible for transmitting information, and all verification is completed on the respective source and target chains. Therefore, the speed and throughput of transactions depend entirely on the properties of the two chains involved.

In January 2024, LayerZero launched the V2 version, which separates message verification and execution into two independent stages. Developers can set different security configurations according to their needs and conduct independent executions, thereby gaining more autonomy and enhancing the protocol’s programmability.

In terms of token economics, although LayerZero has not yet issued tokens, the team has released some information in the official documentation code, indicating that LayerZero’s tokens are expected to serve functions such as paying gas fees in the future.

From the perspective of project development, LayerZero’s development is promising. Especially since March 2024, there has been a significant increase in user usage. The ecosystem already supports interoperability with more than 20 chains, with the most transactions originating from Arbitrum, Optimism, Polygon, Avalanche, Binance, Fantom, and Ethereum. The number of integrated and cooperating Dapps has reached 95 and is still increasing.

5.2.2 Wormhole

Wormhole is a universal message-passing protocol.

In terms of team and funding, Wormhole originated from the collaboration between Solana and Certus.One, initially established as a cross-chain bridge between Ethereum and Solana networks, thereby possessing extensive development experience. In November 2023, Wormhole completed a $225 million financing round at a valuation of $2.5 billion and established a new company, Wormhole Labs, responsible for developing the new protocol.

Figure 5-1 Wormhole Architecture

From a product and technical perspective, Wormhole’s implementation solution is relatively straightforward, consisting of both on-chain and off-chain components.

The on-chain components primarily include the emitter, Wormhole core contract, and transaction logs.

The emitter contains smart contracts such as the xAsset contract (which converts regular tokens into xAssets and bridges them) and the relay contract (which allows cross-chain applications to send messages to specific blockchain smart contracts via a decentralized universal cross-chain relay network). Additionally, the Worm Router contract allows developers to turn Dapps into smart contracts for cross-chain applications. These smart contracts are responsible for calling the core contract for message transmission.

The Wormhole core contract interacts with off-chain components and is primarily responsible for message validation and confirmation.

Transaction logs are specific logs on the blockchain that allow off-chain components to observe messages sent by core components.

Off-chain components mainly consist of guardian nodes and message transmission networks.

The guardian nodes consist of 19 guardians who hold Verifiable Action Approvals (VAAs) multi-signatures. They run a full node on each connected chain, specifically monitoring any messages from the core contract. Once two-thirds or more of the guardians verify and sign the message, the validated message is relayed to the target chain, where it is processed and completes the cross-chain transaction.

Wormhole employs an external validation solution, which offers advantages such as faster speed, lower cost, and the ability to rapidly expand to multiple chains. However, its disadvantages include sacrificing some security, relying on a few validating nodes, and posing certain centralization risks.

From a token economics perspective, Wormhole’s token will primarily be used for future project and ecosystem development and will have certain governance functions. However, overall, the connection between the W token and project development is not tight enough, unable to fully share in the project’s dividends or empower the project further.

In terms of project development, Wormhole is currently in good shape. Although it experienced a period of decline for over a year due to the fallout from the FTX scandal, which affected the Solana ecosystem, the project regained some vitality from mid-2023 onwards. Currently, Wormhole connects to over 40 networks (including verification networks), with Ethereum, Solana, Sui, and Arbitrum constituting the main transactions on Wormhole. There are already over 100 integrated and cooperating Dapps with Wormhole, and this number is still increasing.

Competition Summary

Table 5-1 Competitive Analysis of Axelar, LayerZero, and Wormhole

After comparing with LayerZero and Wormhole, we can see that Axelar’s architecture is less efficient than LayerZero because Axelar requires node verification and network consensus. In terms of security, both LayerZero and Axelar have their advantages. LayerZero simplifies the process of cross-chain information interaction and is not responsible for information verification. In the event that oracles and relays do not conspire, the security of cross-chain transactions is ensured by the source and target chains themselves. Axelar relies on network consensus to ensure cross-chain security. Axelar’s architecture is similar to Wormhole’s, but compared to Wormhole, Axelar has more validator nodes, making it more decentralized.

However, in terms of scalability, as a cross-chain layer that can execute more complex operations through programming and burning smart contracts, Axelar has a unique advantage. Its proposed inter-chain concept can further lay the foundation for the development of subsequent ecosystems. Meanwhile, from the perspective of token economics, the integration of AXL tokens with Axelar is undoubtedly tighter. After the application of the new token economic model, it can bring new empowerment to the project’s development. Currently, we can see that LayerZero focuses on interaction between Ethereum Layer 2 ecosystems, Wormhole focuses on interaction between the Solana ecosystem and the Ethereum ecosystem, while Axelar focuses on interaction between the Ethereum ecosystem and the Cosmos ecosystem. These three projects compete and complement each other, indicating that the current market competition environment is still in the blue ocean. In the future, with the development of the public chain and DeFi tracks, the cross-chain interoperability track will still have broader market growth space.

All in all, we are optimistic about Axelar’s competitive potential in the cross-chain interoperability track in the future.

Summary

From the perspective of the track, Axelar is still in the growth stage of the cross-chain interoperability track. In the future, with the development of the public chain and DeFi tracks, there will be great growth space. In the competition within the track, Axelar’s proposed solutions and inter-chain concepts give it a significant advantage in scalability. If it can attract enough projects to build a thriving ecosystem based on this concept, Axelar will have a significant competitive advantage in this track.

6. Risks

1) Code security risk: Despite multiple audits, Axelar still faces the possibility of system risks and vulnerabilities, especially as the cross-chain track is a prime target for hacking attacks, users need to be more vigilant.

2) Market competition risk: Currently, Axelar faces competition from several strong competitors.

3) Centralization risk: With only 75 network nodes, Axelar still faces a certain degree of centralization risk.

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