Research report: Cross-chain interoperability protocol Axelar

As of March 11, 2024, Axelar’s ​​social media platform is larger in scale and has a larger number of fans, but less interaction. The community has a large number of people, but its activity level is average. The communication content mainly focuses on the problems encountered in project interaction. The governance forum is generally active, and the communication content mainly focuses on the technical upgrade and development direction of subsequent projects.

3.3 Future

According to the roadmap announced by Axelar on January 30, 2024, The next development of Axelar will revolve around AVM. Specifically, it will include the following sub-items:

1) Let AVM become a development platform for open source tools and carry out Development of various Dapps.
2) Use Interchain Amplifier to achieve permissionless links to any chain, extending potential network effects to hundreds of blockchains such as Ethereum Layer2.
3) Expand the use cases of Interchain Tokens and expand their availability on the native chain across all connected chains.
4) Add a Gas burning mechanism to the AXL token to achieve deflation to protect the Axelar network.
5) Integrate consensus mechanisms on different chains, including Solana, Stellar and Move-based chains such as Aptos and Sui.
6) Improve the Gas pricing mechanism and improve the accuracy of cross-chain Gas estimation services on the Axelar network.

Summary:

From the perspective of project development, Axelar is currently developing well. In terms of data, the growth in the number of GMP cross-chain messages reflects the growth and improvement of the cross-chain ecosystem. At the same time, the number of active users has remained relatively stable, which also shows the user stickiness of the Axelar ecosystem. In addition, Axelar’s ​​ecological landscape is also constantly expanding. Currently, it has been connected to 60 chains and has interacted, cooperated and integrated with more than 600 smart contracts, including many leading projects in DeFi, public chains, second-tier and other tracks. With the development of eco-related projects in the future, Axelar will also achieve certain results.

4. Economic Model

4.1 Supply

4.1.1 AXL Token Allocation [9]

AXL is the project token of Axelar. It will be launched on the main network in September 2022. The initial supply is 1,000,000,000. New AXL tokens will be issued using inflation. As of March 5, 2024, the supply of AXL tokens There are 1,137,455,595 pieces, and the total circulation is 587,380,415 pieces.

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From the perspective of token distribution, among the 1 billion AXL initially distributed, both team and financing accounted for At about 30%, community and ecology account for 40%, which is a relatively reasonable proportion. As of March 5, 2024, it has been nearly 17 months since the initial issuance of the token, and the unlocked tokens among the 1 billion tokens initially issued are approximately US$452[1.1] million.

4.1.2 Analysis of currency holding addresses

As shown in Figure 4–2 above, according to Axelar’s ​​browser, as of February 2024 On the 22nd, there were a total of 849,110 AXL currency holding addresses, with the top 100 holdings accounting for 86.94%. Among the top 20 currency holding addresses, there are 10 contract addresses, accounting for approximately 62.37%. Among them, there are 273,740,417 tokens in the locked contract of AXL tokens, 62,683,244 tokens in the reserve contract, and 40,063,641 tokens in the stable currency reserve. After deducting these contracts and reserve tokens, the overall holdings of AXL tokens are relatively dispersed.

From the perspective of the token issuance method, the current AXL token is still an inflation token, and the calculation formula of its token inflation rate is, 1 % base inflation rate plus each externally supported blockchain (EVM chain) provides an inflation rate of 0.3% (0.75% until December 5, 2023), there are currently 20 externally supported blockchains, so currently The inflation rate is 7% (14.5% before December 5, 2023).

In order to promote the healthy development of the network, Axelar plans to change the AXL token from an inflationary token to a deflationary token by implementing a Gas burning plan. Currently, Axelar costs about 0.2 AXL tokens to process a cross-chain message. If calculated based on processing 100,000 transactions per day, it will collect approximately 104 [1.3] million AXL a year. By burning these AXL tokens as gas fees, Axelar will be able to offset up to 10% of the inflation rate and achieve deflation of the token.

Although the proposal has been passed, the plan for burning AXL as a network Gas token has not yet been deployed on the main network. This will be the next step. One of the focuses of Axelar's efforts this year.

4.2 Requirements

AXL token, as the native token of the Axelar network, mainly includes the following Functions:

1) As the basis for DPoS to conduct network consensus, and as the block reward that validator nodes can obtain.

2) As a governance token, it is used to vote on governance proposals, including network parameters and the marketing, development and technical upgrades of the protocol.

3) Pay transaction fees on the network, which will be the main Gas fee in the Axelar network ecosystem in the future.

4) Used to reward ecosystem participants and community contributors.

4.2.1 Network Node

Axelar network adopts Tendermint’s consensus algorithm for DPoS form of network consensus. The number of validator nodes is currently fixed at 75, and the nodes with the top 75 token pledges will be able to register as validators. This number of validators can be adjusted through governance in the future.

A validator on the Axelar chain needs to first configure a node on the external chain of its choice, and then submit the RPC endpoint of the external chain to the Axelar validator node, and Register as the maintainer of these external links to submit the status of these external links for voting at any time, so there is a certain operational threshold.

Each node will receive block rewards during the block consensus process. Currently, the expected APR of block rewards for each validator node is between 5% and 10%, depending on the number of nodes deployed on the external chain. is fixed, and the actual APR is around 9%. Axelar network users can share the block rewards they receive by staking their AXL holdings to the corresponding validator nodes. In addition, canceling the pledge will take 7 days to complete.

At present, ValidatorREX, the validator node with the highest share of AXL, accounts for about 7.52%, and the share of the top ten validator nodes is about 34.31%, and The top three validator nodes by share hardly participate in the governance of the protocol. Therefore, it can be seen that although Axelar has a relatively small number of validator nodes, it still has a certain degree of decentralization.

Summary:

From the perspective of token economics, the AXL token’s The design is quite satisfactory and is mainly used as the application token of the network to play the functions of network consensus, governance, development, payment and other aspects. In the future, AXL tokens will turn deflationary, which will further promote the healthy development of the network.

5. Track

5.1 Track Overview

Axelar, as a cross-chain layer that can carry out message cross-chain and asset cross-chain, can be classified into the cross-chain interoperability track.

In the past, the public generally understood that the cross-chain track refers to projects that carry out cross-chain assets. After the information transfer plan was proposed, , the cross-chain interoperability track came into being. As the name suggests, the purpose of cross-chain interoperability is to achieve interoperability between multiple chains. For example, users can complete operations on chain B on chain A. The completion of this operation depends on the interaction between data on different chains, including The exchange of information such as assets, chain status, contract calls, etc. To a certain extent, cross-chain interoperability has certain similarities with side chains. Both emphasize the realization of interoperability between the main chain and side chains, that is, the sharing of assets and information. The difference is that the cross-chain interoperability project is committed to realizing an interoperable network. When the main chain is connected to this network, all other chains connected to the network can theoretically become the main chain. side chain".

Projects in the current cross-chain interoperability track generally follow a similar implementation architecture, which is "observation-confirmation-transmission/interaction". Because in essence, all cross-chain projects perform functions similar to "intermediaries". They need to obtain the source chain information first, confirm and process it, and then interact with the target chain. In this process, how to obtain the source chain information? Chain information, how to confirm and process the obtained information and how to interact with the target chain have become the focus of product and technology competition among various cross-chain interoperability projects.

At present, there are not many projects in the cross-chain interoperability track. The overall development of the track is still in the growth stage, and there is still great development potential in the future. In the following comparison of competing products, we will select LayerZero and Wormhole as Axelar's competing products, and compare the implementation plans of the three to a certain extent.

5.2 Competitor Comparison

5.2.1 LayerZero

LayerZero is a full-chain interoperability protocol.

From the perspective of team and funding, LayerZero’s team has relatively rich development experience, and the team has a long-term cooperative relationship with each other and has a high degree of integration. It has completed multiple rounds of financing, with the total financing amount reaching US$293.3 million. Investors include Binance Labs, Delphi Digital, A16z, Sequoia Capital, Coinbase Ventures and other star capitals.

From a product and technology perspective, LayerZero focuses on achieving "lightweight" data transmission, so it chooses to use oracles and relay networks to complete data transmission. transmission. After the user completes the operation on the endpoint of the LayerZero source chain, the oracle, as an external component, will forward the block header of the transaction on the source chain to the target chain. At the same time, the relay will obtain the transaction proof on the source chain and transmit it. to the target chain. There are three benefits of doing this:
1) Reduce the cost of information transmission. Because LayerZero does not need to run its own nodes on each chain, it outsources the function of information verification. At the same time, the oracle sends information to the target chain in one direction, which also avoids the cost of interaction with verification nodes.
2) Safety is guaranteed. The functions of the oracle and the relay are separated and independent from each other, and the information transmitted by the two can be mutually verified, reducing the threat to the network caused by the oracle or relay acting alone.
3) Increased scalability. Because oracles and relays are only responsible for transmitting information, and all verification is done on the respective source and target chains, the speed and throughput of transactions will entirely depend on the properties of the two transaction chains.

In January 2024, LayerZero launched the V2 version, which divided message verification and execution into two independent stages. Developers can set different settings according to their needs. security configuration and independent execution, thus having more autonomy and improving the programmability of the protocol.

From the perspective of token economics, although LayerZero has not yet issued tokens, the team has released some information in the code of its official document. It is expected that in the future LayerZero’s token will undertake functions such as paying Gas.

From the perspective of project development, LayerZero is currently developing well, especially since March 2024, user usage has increased significantly. The ecosystem has supported the interconnection of more than 20 chains, among which the source chains with the most transactions are Arbitrum, Optimism, Polygon, Avalanche, Binance, Fantom and Ethereum. The number of integrated and cooperative Dapps has reached 95 and is still increasing.

5.2.2 Wormhole

Wormhole is a general messaging protocol.

From the perspective of team and funding, Wormhole was born out of the cooperation between Solana and Certus.One. It was initially only a cross-chain established for the two networks of Ethereum and Solana. Bridge, so it has rich development experience. In November 2023, Wormhole completed US$225 million in financing at a valuation of US$2.5 billion, and established a new company, Wormhole Labs, to be responsible for the development of new protocols.

From a product and technology perspective, Wormhole's implementation solution is relatively "simple and crude". The overall architecture consists of on-chain components and off-chain components.

The components on the chain mainly include the emitter (Emitter), Wormhole core contract and transaction log.

The emitter includes the xAsset contract (a smart contract that converts ordinary tokens into xAsset and bridges them), and a relay contract (which allows cross-chain applications to pass It consists of smart contracts such as a decentralized universal cross-chain relay network that sends messages to a specific blockchain) and a Worm Router contract (a smart contract that allows developers to build Dapps into cross-chain applications), which is responsible for calling core contracts. Send messages.

The core contract of Wormhole is a contract that interacts with off-chain components and is mainly responsible for the verification and confirmation of messages.

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

The off-chain components are mainly composed of guardian nodes and message transmission networks.

The guardian nodes are composed of 19 guardians. They hold VAA (Verifiable Action Approvals) multi-signatures, which run on each connected chain. A complete node dedicated to listening for any messages from the core contract. When two-thirds or more of the guardians verify the message and sign it, the verified message will be relayed to the target chain, where the message will be processed and cross-chain transactions completed.

The external verification solution adopted by Wormhole has the advantage of being faster, lower cost, and can be expanded to multiple chains very quickly. , but its disadvantage is that it sacrifices a certain degree of security and needs to rely on a few validator nodes, and there is also a certain risk of centralization.

From the perspective of token economics, Wormhole's tokens will be mainly used for the development of future projects and ecosystems, and will have certain governance functions. However, in general, the link between W tokens and project development is not close enough, and the dividends of project development cannot be fully shared and it cannot bring more empowerment to the project.

From the perspective of project development, Wormhole is currently developing well. Although after the FTX thunderstorm, it was affected by the Solana ecology and experienced a low period for more than a year, but Starting from mid-2023, the project will regain a certain vitality. Currently, Wormhole is connected to more than 40 networks (including verification networks). From the perspective of transaction volume, the source chains with the most transactions are Ethereum, Solana, Sui, and Arbitrum. The transactions between these four constitute the main transactions on Wormhole. Currently, there are more than 100 Dapps integrated and cooperated with Wormhole, and the number is still increasing.

Competition summary

After comparing with LayerZero and Wormhole, we can find that because Axelar requires node verification and network consensus, Therefore, Axelar's architecture is not as efficient as LayerZero. In terms of security, both LayerZero and Axelar have merits. LayerZero simplifies the process of cross-chain information interaction. It is not responsible for the verification of information. There is no collusion between oracles and relays. In this case, the source chain and the target chain themselves ensure cross-chain security, while Axelar relies on the consensus of the network to ensure cross-chain security. Axelar is similar in architecture to Wormhole, but compared to Wormhole, Axelar has a larger number of validator nodes and is therefore more decentralized.

But in terms of scalability, as a cross-chain layer that can program and deploy smart contracts to perform more complex operations, Axelar has unique advantages. The inter-chain concept proposed can also further lay the foundation for the subsequent development of the ecosystem. At the same time, from the perspective of token economics, the integration of AXL tokens and Axelar is undoubtedly closer. After the application of the new token economic model, it can bring new empowerment to the development of the project. Judging from the current specific project development, we can see that the development of LayerZero focuses on the interaction between the second-layer ecology of Ethereum, the development of Wormhole focuses on the interaction between the Solana ecology and the Ethereum ecology, and the development of Axelar focuses on The focus is on the interaction between the Ethereum ecology and the Cosmos ecology. The three compete with and complement each other. This means that the current market competition environment is still in a blue ocean. In the future, with the development of the public chain track and the DeFi track, the cross-chain interoperability track will still have broader market growth space.

To sum up, we are optimistic about Axelar’s ​​potential to compete in the cross-chain interoperability track.

Summary

From a track perspective, Axelar is in a cross-chain interaction The operational track is still in the growth stage, and there will be a lot of room for growth in the future with the development of the public chain track and the DeFi track. In the competition on the track, the solutions proposed by Axelar and the concept of inter-chain give it unique advantages in scalability. If we can rely on this concept to attract enough projects to build a prosperous ecosystem in the future, Axelar will have a great competitive advantage in this track.

6. Risk

1) Code security risk: despite completing multiple audits , Axelar still has the possibility of system risks and vulnerabilities. At the same time, the cross-chain track is the hardest hit area by hackers, so users need to be more vigilant.

2) Market competition risk: Currently, Axelar has many competing products, and its strength is not weak.

3) Centralization risk: Currently, Axelar only has 75 network nodes, and there is still a certain degree of centralization risk.