Axelar, which connects 56 chains and processes a transaction volume of over 7 billion dollars, what are its technical advantages in serving Microsoft and Morgan?

Author: DeMan

Since September 2023, a series of well-known Web3 projects have announced deep collaborations with the cross-chain interaction protocol Axelar, which has garnered Axelar a certain level of attention and popularity.

On January 26, Centrifuge integrated with the Celo blockchain via Axelar; on January 25, Immutable completed its integration with Axelar; in December of last year, the hybrid algorithm stablecoin protocol Frax Finance completed integration with Centrifuge through the Axelar Network; around the same time, Axelar (AXL) announced its integration with Vertex, which became another major DEX using Axelar services after dYdX, Uniswap, and Pancakeswap.

Currently, Axelar connects over 56 blockchains, handling a transaction volume of up to $7 billion, and provides services to traditional Web2 giants like Microsoft and JPMorgan. The following text will introduce this high-quality project, Axelar.

The starting point of Axelar's technical design is to provide seamless integration of Web3 for billions of users

Axelar is an advanced cross-chain platform aimed at achieving interoperability in Web3. Through the cross-chain transfer protocol (CCTP) launched in collaboration with Circle, Axelar not only provides developers with powerful tools but also offers billions of users the possibility of seamless access to blockchain technology. This decentralized platform allows decentralized application (dApp) developers to easily implement cross-chain communication through its unique suite of protocols, tools, and APIs.

In terms of security, Axelar has taken three key measures: comprehensive adoption of open-source technology, implementation of a hub-and-spoke linking method instead of traditional peer-to-peer methods, and the establishment of a decentralized network comprising 75 dynamic validators. These measures not only enhance the platform's security but also improve its stability and reliability.

What distinguishes Axelar from other platforms is its security cross-chain communication mechanism based on Proof of Stake (PoS). Unlike projects that rely on optimistic setups or federated multi-signatures, Axelar provides additional security guarantees through a dynamic validator network. Furthermore, Axelar offers convenient tools and APIs for application developers, allowing them to build cross-chain applications without needing to master new programming languages.

Axelar's technology not only supports programmable interoperability but also possesses high scalability, enabling rapid connections to more blockchains and providing a one-stop cross-chain solution for decentralized applications.

The core of the Axelar network includes a decentralized validator network and a set of smart contracts to facilitate cross-chain interactions. Additionally, Axelar's native token AXL plays multiple roles in the network, including paying transaction fees, participating in network consensus, and voting on governance proposals. AXL also supports cross-chain transfers of various mainstream blockchain tokens, such as Ethereum and Avalanche. As of now, the total supply of AXL exceeds 1 billion tokens, with a circulating supply of approximately 300 million tokens.

Understanding Axelar's new economic model: Committed to achieving deflation, lowering the threshold for new chains to connect to the mainnet

In the Axelar network, the AXL token plays three key roles: paying network transaction fees, ensuring network security through staking, and weighted voting in governance through staking. The initial token distribution arrangement aims to support these functions while balancing network usage and participant incentives.

A recently passed new token economics proposal focuses on reducing the inflation rate and implementing a Gas burn mechanism. The original inflation rate for each external verification chain was 0.75%, leading to a total inflation rate of 11.5%. However, the new proposal reduces this rate to 0.3%, thereby lowering the total inflation rate to 6.7%, seeking to balance validator incentives and controlled expansion of network supply.

Axelar proposes to achieve the Gas burn mechanism by removing Gas fees from the circulating supply to combat inflation. Assuming a fixed Gas fee of $0.5 per transaction, along with fees charged for transferring a certain amount of assets, this mechanism could remove approximately 10.4 million AXL annually, effectively offsetting up to 10% of the inflation rate. Although Axelar has not yet reached the expected transaction scale, this mechanism demonstrates a potential trajectory towards deflation.

Axelar is working to simplify the process for new chains to connect to its network and develop more permissionless connection paths. This will allow developers to more easily integrate new chains into the Axelar network through smart contract templates. This strategy, combined with Ethereum-based infrastructure and services such as DApp chain ecosystems and Rollups-as-a-Service tools, is expected to enhance the network's usage and attractiveness, potentially becoming a significant driver of demand for the AXL token.

Through these strategies, Axelar aims to achieve long-term sustainability and growth of its token economics while providing value and incentives to its network participants. As the Axelar network continues to expand and its token economic model is optimized, the platform is expected to occupy a more significant position in the cryptocurrency space.

As a cross-chain solution, what are the key differences between Axelar and LayerZero and Wormhole?

LayerZero and Wormhole, two major cross-chain solutions, have also made significant strides in the industry over the past two years, but Axelar has a series of differences compared to them, which will be introduced one by one for users.

1. Differences in trust mechanisms and security: Axelar is more centralized

In terms of trust and security mechanisms, Axelar has significant differences from LayerZero and Wormhole. LayerZero relies on two roles, "Oracle" and "Relayer," to verify transactions, while Wormhole uses a limited set of "Guardians" for authoritative proof. In contrast, Axelar employs a delegated Proof of Stake (PoS) mechanism based on the Cosmos SDK, securing the network through a permissionless validator set of 75 validators. This mechanism, based on economic incentives and penalties, provides a higher degree of decentralization and security, reducing reliance on a single or few entities.

2. Axelar's Hub & Spoke model is more efficient than LayerZero's network

Axelar's Hub & Spoke model is superior to LayerZero's peer-to-peer model. This structure resembles a centralized airline network, improving network efficiency and manageability by reducing the number of necessary connections and simplifying monitoring processes. In contrast, while LayerZero's peer-to-peer model theoretically requires no permission, it often relies on specific entities, such as Google Oracle, in practice, leading to limitations in security and activity.

3. Axelar's Virtual Machine (AVM) simplifies cross-chain tasks and provides tools for developers

Another significant advantage of Axelar is its Virtual Machine (AVM), developed based on Cosmwasm, which provides the ability to connect new chains without permission and flexibility in cross-chain dApp development. This aspect is not prominently reflected in LayerZero and Wormhole. The AVM not only simplifies cross-chain tasks but also provides developers with powerful tools to more effectively scale and manage their multi-chain dApps.

4. The essential difference between LayerZero and Axelar is that the latter leans more towards a centralized communication protocol

Although LayerZero's name suggests a Layer 0 protocol, its functionality is more reflected in application-level interoperability. In contrast, Axelar, with its structured consensus framework and centralized communication protocol, is closer to the essence of a Layer 0 protocol. The latest update of LayerZero v2, while introducing a decentralized validator network and executors, has already provided a solid foundation for messaging through Axelar's intermediate consensus layer.

5. Wormhole Gateway's architectural choices are increasingly aligned with Axelar, which will bring more challenges to the latter

The launch of Wormhole Gateway reflects the correctness of Axelar's architectural choices. Wormhole's new design uses Cosmos SDK and IBC light clients, which is very similar to Axelar's approach. This indicates a strong market demand and recognition for Axelar's adopted methods, while also signaling that competition in this field is intensifying for Axelar.

Overall, Axelar stands at the forefront of cross-chain technology with its unique security mechanisms, efficient network structure, advanced virtual machine technology, and sensitive insights into market demand. While LayerZero and Wormhole each have their advantages, Axelar has demonstrated its uniqueness in many key aspects, providing strong support for the future interoperability of the cryptocurrency world.

Axelar is showing stronger potential, but the challenges of the broader environment make the future development path uncertain

The Axelar network is being widely adopted by top decentralized exchanges (DEXs) such as dYdX and Uniswap, serving as backend technology to support liquidity pools for multi-chain asset pairs. For example, dYdX utilizes Axelar to support one-click deposits for users, while Uniswap deploys on Filecoin through Axelar. These application cases not only showcase Axelar's technical strength but also reflect its potential in providing seamless cross-chain interactions.

Despite the significant potential demonstrated by the Axelar network in the field of cross-chain communication, it also faces common security challenges associated with cross-chain protocols, such as the risks of fund loss and unauthorized token minting. The locking and minting mechanisms employed by Axelar, while offering a certain level of security, have also attracted the attention of hackers. However, by implementing measures such as allowing validator sets to collectively approve smart contract upgrades, Axelar is working to enhance the decentralization and security of its network.

Axelar has successfully connected 55 major chains, including Arbitrum, Avalanche, and BNB Chain, with its technology's strength lying in its ability to connect to networks with unique VMs and consensus mechanisms. This extensive connectivity not only provides users with access to the entire ecosystem but also brings tremendous potential growth to the Axelar network itself.

With the integration of important platforms like Immutable and Vertex Protocol, Axelar is gradually becoming a key component of multi-chain interoperability. Axelar's technology not only makes products more versatile and adaptable but also provides a smooth user experience for DEXs aimed at large-scale adoption. In the future, as the Ethereum ecosystem develops and more L2 networks emerge, Axelar's full-stack interoperability will be a key driver of its growth, expected to bring broader and deeper impacts to the world of Web3.