Axelar Network - Connecting Applications with Blockchain Ecosystems
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It's now been 6 months since I started this newsletter where the goal has been to educate all of you in crypto and DeFi.
Today is a sponsored deep dive on Axelar Network – and if you’re building a DeFi project or looking for ways to bridge your assets, I hope this gets you to take a look at Axelar Network.
What Is Axelar Network?
A Short TLDR About Axelar Network
Several major platforms such as Ethereum, Monero, EOS, Cardano, Terra, Cosmos, Avalanche, Algorand, Near, Celo, and Polkadot offer distinct features and development environments that make them attractive for different applications, use-cases, and end-users.
However, the useful features of each new platform are currently offered to less than 1% of the ecosystem’s users, namely the holders of the native token on that platform.
Therefore, some of the goals of Axelar are to allow platform developers to plug in their blockchains to other ecosystems easily, enable application builders to build on the best platform for their needs while still communicating across multiple blockchain ecosystems, and allow users to interact with any application on any blockchain directly from their wallets. Today, that means bridges are more secure and seamless. In the future, using what Axelar calls General Message Passing, it can enable a kind of dApp that is cross-chain native, spanning multiple ecosystems’ assets and functionality.
Tell Me More About Axelar Network
Web3 is in its infancy, despite massive growth in demand and usage.
Novel consensus mechanisms and smart contract languages are supporting new decentralized applications that aim to serve the next billion people.
Today, there exists a strong and rapidly growing demand for cross-chain services between these innovative ecosystems.
Axelar network is built to interoperate between Cosmos chains, EVM chains (list of all EVM chains here), Bitcoin, and other PoS (proof-of-stake) and PoW (proof-of-work) chains.
Axelar is built from the ground up using Cosmos SDK (the world's most used framework for building blockchains).
Okay, hang on. This sounds a little advanced, but I'll try to break it down simpler.
Think about Axelar as a decentralized network that sits atop other networks, that facilitates communication between ecosystems that speak different languages.
Let's say you wanted to send $UST from Terra to Ethereum.
With services like 1inch, you first have to convert your $UST from Terra-native to ERC-20 native, then you could use the Terra bridge and send ERC-20 $UST to your ERC-20 wallet.
With Axelar Network you can do this in one 1-click.
The network connects chains like Terra, Algorand, Avax, and ETH and interoperability hubs like Cosmos and Polkadot.
The example above is very much a "today use case" for Axelar: bridging assets. A future use case is that we no longer have to move assets between chains. By using "General Message Passing" (described later in this deep dive) we can bring the program to the asset. This is a vision of a natively cross-chain Web3 ecosystem.
Axelar’s ultimate goal is to build the underlying infrastructure for a new generation of cross-chain applications that will onboard the next billion people onto Web3.
Their mission:
Make sure that users in any ecosystem can interact securely with any asset, any user and any application in any other ecosystem.
In order to achieve this goal, Axelar will:
Make it easy for blockchain developers to plug in and communicate with other chains.
Provide decentralized application (dApp) developers with cross-chain composability.
Allow users to interact seamlessly and securely with functions and assets that span multiple ecosystems.
How Does Axelar Network work?
The Axelar network has 3 key components:
A decentralized network and protocols: This is the dynamic validator set that is responsible for maintaining the network and executing transactions, as well as protocols that handle routing and translation between chains. The validators collectively perform read and write operations to gateway smart contracts deployed on connected external chains, voting and attesting to events on those chains.
Gateway smart contracts: These are the gateways — on-chain installations (smart contracts, in many cases) that provide visibility into connected L1 blockchains.
Developer tools: Sitting on top of the validators and gateways are APIs and protocols that developers use to compose across any two chains in a single hop, adding universal interoperability to their applications. With Axelar, they can lock, unlock and transfer any payload, including assets and function calls, between any two addresses on any two blockchain platforms.
You can use Axelar in several different ways: Build applications using Axelar’s APIs and protocols (docs here), run a node or validator, stake the AXL token with a validator, or use applications built on Axelar, including a demo app, Satellite.
Tokenomics For Axelar Network
The token is called $AXL, and is used for:
- Transaction fees
- Governance
- Staking
- Rewarding ecosystem builders and community contributors
The token economics aims to achieve:
- Security: Incentivized with healthy staking rewards for validators to operate secure nodes.
- Decentralization: Tokens can be delegated to a decentralized set of validators and contribute to governance decisions.
- Longevity: Designed to encourage general maintenance of all critical Axelar-related processes like block validation.
- Ecosystem growth: Axelar’s token functions much like the native tokens of the proof-of-stake networks it connects: it secures the network, and provides incentives for validators, stakers, developers and others to help the network grow. Instead of doing this for a single platform, AXL provides these functions for a cross-chain application ecosystem that spans multiple platforms.
Total supply is 1B $AXL.
This is distributed this way:
Company: 29.5%.
- Core team: 17%.
- Company operations: 12.5%
Backers: 29.54%
- Seed: 13.4%.
- Series A: 12.64%.
- Series B: 3.5%.
Community sale: 5%.
Community programs (incl. insurance fund): 36%
The token will be distributed across the team and operating company (~29.5%), backers (~29.5%), and for community, incentives and other programs (41%). The team token allocation is unlocked over four years. Backers’ tokens are unlocked over two years.
Fees And Security
Fees
Gas costs: Source and destination chains may charge fees, and Axelar itself charges transfer fees. Axelar provides developers with optional microservices that coordinate fee payment so application users only pay once, in the source-chain token. If gas costs on the destination chain increase before the transaction is complete, Axelar will subsidize transfer costs.
All transactions are batched, so many transactions may be submitted to interconnected chains at once, reducing the gas costs for the users.
Security
Achieving strong robustness and security guarantees requires the right design, implementation, and thoughtful processes in case of emergencies.
The Axelar network isolates functionalities in modules at the Cosmos SDK level, e.g., one module for bitcoin, another for EVM chains, another for IBC transfers, etc. Each module is responsible for parsing incoming transactions from a given source chain, and generating transactions for the destination chains. They’re isolated from each other and messages from one to another can only be passed through a “router” module between them that has a well-defined command set for pushing messages to outgoing queues.
If there is an issue with one or all chains, there is a special “freeze” transfers command that can be supplied by the governance contract on chain to pause processing requests to/from a specific chain.
Smart contracts on the bridged chains are pretty minimal: they’re used for key rotations, approval of messages arriving from different chains (e.g., mint/burn), and expose an API to send messages to destination chains.
The governance contracts may be completely eliminated overtime or decentralized to larger communities as the system goes through more tests of time.
Axelar's on-chain contracts also have a rate-limit functionality that allows minimizing how much funds may be stolen in case of an attack. This is not enabled on the mainnet at the moment, but can be considered along with other “access control” policies to minimize attacks.
It's also worth mentioning that at least 5% of the AXL supply will be allocated towards an insurance fund and insurance programs.
Axelar is audited several times. You can find all the information here.
General Message Passing
General Message Passing is functionality built atop the Axelar network’s permissionless validator set that provides the routing, translation and security to enable cross-chain contract calls over a decentralized network.
What does that mean?
This means a dApp on any chain can now call a function on any other chain, as long as both chains are connected to Axelar network.
Examples:
NFT + DeFi: A wallet with universal borrow-lend; NFTs on Ethereum can be used as collateral in DeFi apps on any IBC or EVM-compatible chain.
Universal AMM: Pool liquidity from any user, in any asset, on any chain.
Cross-chain synthetics: Call data from dApps on other chains, to index derivatives on the chain that fits your use-case best.
Open gaming: Any asset, anywhere, becomes currency or credential.
What Makes Axelar Different From Competitors?
Existing solutions are either centralized bridging solutions or are only interoperable in their own ecosystems (think Cosmos or Polkadot).
Cosmos IBC is kind of a gold standard. However, its adoption is limited outside Cosmos Ecosystem. In a way, you might think of Axelar as an expedient to that.
Axelar is different because they provide a uniform solution to cross-chain communication that’s designed to be interoperable with any chain, satisfy plug-and-play connectivity with almost no work to integrate a new chain (10 min), and is decentralized by design.
Axelar is the only cross-chain network that authenticates using a permissionless validator set (proof-of-stake) and that provides a full-stack service (think of it as an overlay network) that includes security, routing, and translation.
It's perfect to repeat Axelar's mission here: they want to make sure that users in any ecosystem can interact with any asset, any user, and any application in any other ecosystem.
Team
Currently, Axelar has 27 team members. The founders are Sergey Gorbunov and Georgios Vlachos who also were some of the founding members of Algorand. The team has lots of experience and are taking cryptography and security very seriously.
Summary Of Why Axelar Network Is Interesting
Multiple blockchain ecosystems are emerging that provide unique and distinct features attractive to users and application developers.
However, communication across the ecosystems is very sparse and fragmented. To enable applications to communicate across blockchain ecosystems frictionlessly, Axelar is a good solution. Beyond that today use case, Axelar is building infrastructure to support a new kind of application that is cross-chain native, composing functions and assets spanning multiple ecosystems.
Axelar Network provides a decentralized network, protocols, tools, and APIs that allow simple cross-chain communication. Axelar protocol suite consists of cross-border routing and transfer protocols.
A decentralized open network of validators powers the network; anyone can join, use it, and participate.
Byzantine consensus, cryptography, and incentive mechanisms are designed to achieve high safety and liveness requirements unique for cross-chain requests.
If you want to check out Axelar Network yourself, take a look at their website: Axelar Network
And follow them on Twitter here: Axelar Twitter page