Nansen: A Brief Analysis of the Three Major Cross-Chain Communication Protocols, What Possibilities Are There for Future Cross-Chain Communication?

Source: Nansen

Compiled by: Captain Hiro, The Way of DeFi

Considering that the future is likely to be a multi-chain world, how will a world composed of thousands of blockchains achieve seamless interoperability?

As Celestia has previously pointed out elegantly, each layer one or layer zero will form its own "cluster."

A 'cluster' is a group of chains that communicate with each other using trust-minimized cross-chain communication protocols (through fraud proofs, validity proofs, or direct transaction verification). For example: a set of rollups on Ethereum or independent main chains like Solana.

Within these clusters, there exists "internal communication," which is the communication method of rollups within the cluster. This internal communication is typically resolved through trust-minimized bridge solutions, relying on the assumption of an honest minority.

However, how do independent clusters like Ethereum and its set of second-layer networks communicate with other clusters such as Cosmos Zones or Solana ('inter-cluster communication')?

In simple terms, what we need is a trusted cross-chain protocol. Let's take a look at some of the current top market participants and what "trusted" means:

• Axelar Network
• Wormhole
• LayerZero

Currently, these cross-chain protocols are best known for their bridge solutions.

However, these protocols serve as a general information transmission layer, allowing higher-level implementations to exist above them, such as:

• Cross-chain NFT minting
• Cross-chain swaps
• Cross-chain lending
• Cross-chain bridges
• And more implementations

We will not delve into the different trust and security assumptions of each method, but we hope to provide a simplified description of how they work and the functionalities of these protocols.

Axelar Network

Axelar Network is a cross-communication protocol that allows independent blockchains to operate with each other.

It is built on the Cosmos SDK, so it has a set of validators to maintain the network and ensure the security of tokens.

How does it work? It mainly consists of 3 parts:

• A validator network (ensuring the security of the Axelar chain)
• Gateway smart contracts (existing on each chain it is deployed on)
• Developer tools (Axelar SDKs/APIs).

Axelar currently supports over 10 chains.

It recently became the default bridge for Osmosis, which is the main source of liquidity for the entire Cosmos.

It will also become the default bridge for other decentralized exchanges and will be embedded in the Agoric ecosystem, as well as other Cosmos chains.

Axelar enables inter-blockchain communication (IBC) by default, allowing it to serve as an interoperability protocol for any other Cosmos chain on IBC.

When there are thousands of blockchains, inter-blockchain communication can be challenging to scale, but protocols like Axelar can become hubs for interoperability in Cosmos and beyond. Connecting to Axelar allows access to every blockchain it connects to.

*But in a world with ten thousand application chains, it is hard to imagine the initial 10,000 * (10,000 - 1) = 90 million independent relay channels.*
At this point, routing transactions between smaller chains through the Cosmos Hub makes sense, which could be another business model for ATOM holders.

So far, Axelar has facilitated over $129 million in IBC transaction volume in the past 30 days, second only to Osmosis.

Axelar has a first-mover advantage in the Cosmos ecosystem through Osmosis, which is a powerful, substitutable, and normative token with the Lindy effect.

Once a bridge's wrapped tokens are embedded into an ecosystem, it has the potential to become a dominant bridge.

Wormhole

Wormhole is another cross-chain information transmission protocol that currently connects more than 9 blockchains using a proof-of-authority (PoA) multi-signature network, most notably Solana.

Wormhole consists of core contracts deployed on each chain and a network of Guardians.

Any message through the core contracts must be observed and signed by the Guardian network.

Currently, the proof-of-authority has 19 Guardians, who can be considered validators in the proof-of-authority system. The visualization of Wormhole is as follows.

Interesting features (besides the bridge):

• NFT bridge
• Oracle data (e.g., Pyth)
• Cross-chain lending
• ICS integration on top of Wormhole (the inter-chain standard of Cosmos IBC).
• And more features

LayerZero

LayerZero is another cross-chain communication protocol that allows any arbitrary data to be transmitted across any chain.

To ensure the validity of communication between any two chains, it uses two independent entities—relayers and oracles.

Anyone can run their own relayer or use their own oracle, but LayerZero plans to use Chainlink as the default oracle in the future.

Features and Future Possibilities of Cross-Chain Communication

Current features and future integrations of cross-chain communication:

• Cross-chain bridges (e.g., Stargate)
• Omnichain NFTs
• New applications based on LayerZero (e.g., Rage Trade)
• Using Chainlink as the default oracle (as seen on the testnet)
• Integration of ICS standards (inter-blockchain communication standards)

A common feature of all these cross-chain solutions is that they integrate inter-blockchain communication in some way, whether through shared data standards, Cosmos SDK modules (like CosmWasm), or directly built on the Cosmos SDK itself.

From the perspectives of design, user experience, and security, there are more insights into these protocols.

The most important point is that the cross-chain space is still in a very early stage, with significant design space remaining in areas like cross-chain calls.

Other noteworthy cross-chain solutions not mentioned above:

• Composable Finance
• Chainlink
• CCIP