The blockchain connecting chains: Axelar

Naomi Oba
9 min readJan 15, 2023

While planning my multichain space, I thought back to my terrible experiences bridging coins from one layer-1 to another. Seriously I’d not want any person with heart problems to do that, so we’re not ready for mass adoption before we resolve that. One protocol that’s promising to facilitate the multichain future is Axelar Network.

But let’s start with some background first.

Why is any of that happening?

One explanation is that there is no one chain to rule them all, as much as some maxis might like that version of the future. Chain maximalism still occurs here and there, but I think we’re getting over that.

That leaves us with a fragmented landscape of different blockchain ecosystems, each with a separate value proposition. That’s all fine and good, but if we really want to facilitate mass adoption, we can’t ask people to go through all the friction and risks of moving funds across platforms.

Blockchains are great at verifying what’s happening on their chain, but not so much in talking to each other, kinda like each of them speaks their own language.

The ways to move from one ecosystem to another are many. A straightforward one is going to a CEX and doing it there. Depending on trading fees and confirmation times associated, this can be a relatively quick affair, but it involves a lot of clicks and logging in.

Of course, if you are more of a DeFi purist, you wouldn’t want to use a CEX.

Wrapping

You could opt for wrapped assets, which means locking up your coins, for example, BTC, and then receiving wrappedBTC on another chain like Ethereum. Depending on who manages that locked funds, it’s still a question of trusting a third party or a conglomerate of them — as is the case with wBTC.

Bridges

Bridges, like the London Bridge in the song, can come down. Or be attacked by hackers. In 2022, some of the biggest DeFi hacks were down to bridge exploits. Here are a few numbers:

  • February: Wormhole — $375 million
  • March: Ronin Bridge — $624 million
  • August: Nomad Bridge — $190 million
  • September: Wintermute — $160 million

2022 sure wasn’t a great year for our reputation. However, all these hacks highlight that despite their noble intentions, bridges still have to make trade-offs between speed, cost, and security. Often the trade-off is security, in case you haven’t figured.

Just think about the Ronin Bridge, which was basically just a multi-sig controlled mostly by Sky Mavis (the company behind it), making it that much easier for an attacker to exploit. Making matters worse is that bridge hacks have cascading effects on the ecosystem. Remember how Jump Capital decided to plug the (worm)hole? They weren’t just being charitable — that’d be new for crypto VCs anyway — they were probably just trying to save their own bags in the process.

Long story short, bridging still is risky. It doesn’t help that it’s also a bit of a UI nightmare, as it requires users to create wallets on both chains.

Moving value is great, but what about data?

So far, bridging has mostly focused on transferring one set of data structures: tokens. But if the future is really powered by multiple blockchains, we should broaden the scope of what should move seamlessly between chains.

Why not any data?

Cross-chain messaging

That’s what cross-chain messaging protocols aim to do in general. Instead of exporting tokens, they’ll enable smart contract networks to import execution instructions. That’s a shift in thinking from pushing value to pulling in logic.

If we figure out cross-chain messaging, we might see composable apps that allow things like:

  • governance across multiple chains
  • aggregated Defi services across ecosystems
  • super wallets where one address controls sub-accounts across chains

For any protocol facilitating cross-chain messaging, it’s essential to consider how economic security, safety, and liveness are ensured.

  • Economic security: simply means it’s more expensive to exploit the system than the value gained from doing so, like with Bitcoin. If you need to rent so much computing power, you’ll probably drive up the price of said power while having to spend more than you can make.
  • Safety: refers to systems working as intended without being exploited (aka not having an audit by certik — or maybe I’m being unfair here to certik — but there were a lot of protocols exploited after an audit from them — goes to show smart contract security is nascent)
  • Liveness: pretty much the opposite of downtime. You want any cross-chain messaging protocol to have amazing uptime; how else are things gonna work?

With all of that background, time to introduce Axelar, a network I came across when looking into multichain transfers.

What is Axlear?

In short, it’s a blockchain connecting chains to deliver cross-chain communication for web3. Or how they put it on their website “like stripe for web3.”

The network was founded in early 2020 by team members at Algorand and MIT graduates. In early 2022 Axelar reached unicorn status after completing a $35 million fundraising round. Backers include Lemniscap, Node Capital, Polychain, and Rockaway Blockchain Fund.

Looks like they’re all bullish on a multichain landscape. Bringing us to the next question.

How does Axelar work?

Axelar is built on the Cosmos SDK, giving it native IBC interoperability. It’s made up of the following three main components.

Network of validators

The validators run the cross-chain gateway protocol. It’s similar to the internet border gateway protocol — which you probably have never heard of despite allowing us to route information across computer networks. The protocol can finalize blocks of any chain via a 2nd layer consensus executed by the protocol’s node runners, aka validators.

Axelar validators have to run a light client or a full node on at least one external chain. Let’s say you wanted to be a validator, and you really like Polygon, maybe you run a full node on Polygon and your Axelar node then. By doing so, validators can provide local records of the state of the chains and collectively vote on relayed requests to then enact any transitions.

Axelarscan

Currently, the validator set is 60.

Consensus: the consensus mechanism is based on bonded Proof-of-Stake in combination with a threshold signature scheme. That means validators have to bond AXL tokens and also have to sign for transactions. Each transaction requires a minimum value of signing power before being approved. Depending on the destination chain, the value can differ.

What’s interesting is that private keys are assembled before signing to form a single signature, allowing the validator set to scale without increasing the overhead cost of verification compared to multisig systems.

Secure gateway contracts

The gateway contracts are what connect the Axelar Network with other L1 chains. The validators monitor the gateways for transactions and then come to a consensus on it to execute write operations on the destination chain. Together with the validators, the gateway contracts form the core infrastructure of Axelar.

SDK/API

Like every protocol that wants others to build on it, Axelar provides a holistic set of tools for devs to enable composability. With the Axelar SDK and API, devs can allow their users to jump between any two supported chains in one hop, lock, transfer and unlock assets between platforms and execute cross-chain app triggers.

That means devs gain access to a uniform code base and governance structure without having to deal with cross-chain bridges for each of the ecosystems they want to connect to. Overall, by turning cross-chain interoperability into a set of API requests, Axelar creates a more web2-like development experience while abstracting away the complexity of the underlying network infrastructure.

One thing I found out that’s pretty cool is that Axelar has a gas and executor service that provides the logic to enable users to pay fees once using the source-chain token. So that means you won’t need any AXL or tokens on the destination chain to execute cross-chain transactions.

The flow of a message through Axelar

  1. Someone decides to make a cross-chain operation (Let’s say move some USDC from Ethereum to Osmosis — because that’s what I did)
  2. Message requests arrive at the gateway and are relayed to validators in the Axelar hub.
  3. Validators all now check the state they have and the validity of the message request received to come to a consensus.
  4. Once the threshold of signatures has been reached, the result is delivered to the destination gateway.
  5. Now the operation is written to the destination chain, and the USDC is moved from Ethereum to Osmosis.
A cool graphic I found on Messari.

Another thing worth mentioning is that Axelar stores only the information associated with its gateway contracts and cross-chain transactions. So it doesn’t really matter how many chains it connects to for the state size, only how many requests go through the system.

Some stats

  • 30 connected chains, among them Cosmos, Arbitrum, Ethereum, Celo, Osmosis, and for those in the NEAR ecosystem: Aurora.
  • 126 cross-chain contracts
  • 316,842 total transactions
  • Nearly 70% of native token supply staked

Axelar Token

Speaking of which, the native token of the Axelar network, AXL, is designed to enhance

  • security by incentivizing validators'
  • decentralization by distributing tokens and encouraging delegating through quadratic voting (making sure that power isn’t just accumulating in the hands of a few)
  • longevity by encouraging maintenance of the network
  • ecosystem growth by supporting builders in the ecosystem. Just last month, they announced a $60 million fund, so if you have a cross-chain idea, go get it 🔥

The initial token supply was 1 billion tokens created at genesis, distributed in the following way. Ngl, that is a lot of tokens going to backers and internal teams, but I guess they gotta eat too.

Source

A few closing thoughts

First of all, as a noob, I think it’s an amazing technology. I also tried it using Satellite money to bridge funds from Ethereum to Osmosis (a DeFi-focused appchain in the Cosmos ecosystem), and it worked like a charm. It wasn’t as nerve-racking as the usual bridging experience and also cost me less money.

Great stuff. I can see how Axelar, in the backend, can create some really powerful apps and services. Pretty sure they will continue expanding the chains they natively support into 2023.

One potential risk that might come with the broader adoption of Axelar is the question, what if it becomes the main way to connect chains, and then is attacked?

The hub exists as one instance and, therefore, can be attacked potentially or turn into a potential point of failure. I reckon further decentralizing validation might be one way to mitigate that risk.

Anyhow, Axelar looks like one of those protocols worth watching. 👀

I’ll definitely invite them to speak on a future iteration of my multichain space.

Don’t use any of the things said here as financial advice. I’ve not bought the AXL token (for disclosure); this post is for educational purposes only.

Images in this post, unless indicated otherwise, are generated with nijijourney, my favorite midjourney collaboration. Try it out at your own discretion. I’d warn you it’s a bit addictive. 😺

So long, enjoy experimenting in the web3 space (but better safe than sorry).

Nao

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