Axelar belongs to the two major narratives of the full chain and the Cosmos ecosystem. The full chain track will gain more growth space and market attention as the trading volume and the number of public chains increase in the bull market. More direct catalysts may come from the issuance of tokens by Layerzero and Wormhole. The Cosmos ecosystem is developing healthily, and the general rise of the ecosystem at the end of 2023 has also attracted market attention to the Cosmos ecosystem.

Axelar has accumulated profound technical advantages in the full-chain track and will become the core target in the full-chain narrative. Axelar has achieved interoperability between 56 chains, surpassing a number of competitors such as Layerzero; GMP and AVM simplify the multi-chain development process for developers and help developers achieve full-chain contract deployment and liquidity integration.

In this cycle, the only cross-chain protocol that can achieve full cross-chain deployment is an external verification bridge. Compared with similar cross-chain protocols, Axelar has satisfactory performance in terms of security, number of cross-chains, and number of integrated dApps. Compared with direct competitors Layerzero and Wormhole, Axelar is far below its primary valuation.

Axelar is the main channel connecting the Cosmos ecosystem and the EVM chain, especially the connection between Osmosis and the EVM chain. As the liquidity portal between the Cosmos ecosystem and the EVM chain, it will directly benefit from the growth of the Cosmos ecosystem.

1 Fundamental analysis: Axelar unlocks more cross-chain possibilities

1.1 Axelar Cross-chain 101

Axelar is based on Cosmos
SDK development, while being compatible with all EVM chains, is an application chain designed to connect all blockchains, achieve true interoperability, and support bridging any information/assets. From the perspective of implementation, Axelar is an externally verified cross-chain protocol, and is itself a complete PoS public chain with an independent decentralized network and validators.

Axelar is built with a hub-and-spoke topology, similar to the Hub-Zone topology of the Cosmos ecosystem. Each public chain is directly connected to Axelar (the hub) to achieve indirect connection, rather than point-to-point connection, which reduces the number and complexity of connections and improves the scalability of the number of connections.

In December 2023, the community passed a proposal to reduce the inflation rate of AXL. The inflation rate of AXL is mainly composed of three parts: TM (Tendermint) consensus, MSigs inflation and external chain inflation. The first two constitute the basic inflation rate. External chain inflation is the reward for nodes to verify information on public chains outside the Cosmos ecosystem. In 0-1 years, each chain is 1%, 1-2 years is 0.75%, and 2-3 years is 0.5%.

There are two main ways to reduce inflation this time: reducing the inflation rate of external chains and implementing a gas burning mechanism.

First, before the proposal was passed, the external chain inflation rate was 0.75%, and the total inflation rate was 11.5% (1% base inflation rate + 0.75%*14). The proposal decided to change the external chain inflation rate to 0.3%, bringing the total inflation rate down to 5.2%. Considering the 5 EVM chains that will be included, the inflation rate will reach 6.7%. This proposal reduces the overall inflation level and also improves the ability of the Axelar system to accommodate external chain connections.

The second is the gas burning mechanism. When users conduct cross-chain transactions, they need to pay gas to Axelar, and then Axelar redistributes it to stakers. This proposal decides to burn this part of the gas and remove it from the supply.

1.5 Recent Project Progress: High-quality Ecosystem Expansion

Since the second half of 2023, Axelar has entered into partnerships with a number of blue-chip projects, rapidly increasing its share of the interoperability market:

• On June 16, the Uniswap Foundation released a cross-chain bridge evaluation report, and the committee approved Axelar for Uniswap
  Axelar is the only decentralized cross-chain platform with 75
  nodes, strong security practices, and a universal messaging mechanism that allows users to interact with any contract function on any chain with one click.

  
  

• On June 23, Axelar became the official cross-chain bridge on Filecoin. Bringing liquidity to DEX and AMM on FVM: Axelar wrap assets will become the standard cross-chain assets of the Filecoin ecosystem.

• On July 11, Microsoft and Axelar reached a partnership. Axelar provides cross-chain services to Microsoft customers through Azure Marketplace.

  
  

• On September 12, Squid implemented direct token swaps between Ethereum, various EVM-compatible chains, and the Cosmos ecosystem. It currently supports 14 EVM chains and 48 Cosmos chains.

  
  

• On September 14, Lido selected Axelar and Neutron to launch wstETH on Cosmos. Neutron and Axelar provide liquidity.

  
  

• On November 13, Ondo Finance and Axelar launched the Ondo Bridge. Any chain integrated by Axelar can issue Ondo’s USDY.

  
  

• On November 15, JPMorgan Chase, Apollo and Axelar reached a partnership.

  
  

• On November 21, Frax passed a proposal to use Axelar to expand the new chain.

  
  

• On December 14, it was announced that Vertex would be integrated, making Vertex another leading DEX project to integrate Axelar after dYdX, Uniswap and Pancakeswap.

  
  

1.6 Summary: Axelar has leading technical advantages in the full chain track

"Interoperability is the future." Axelar has accumulated profound technical advantages in the omnichain track and will become the core target in the omnichain narrative. Omnichain actually contains two dimensions. One is to achieve interoperability with as many blockchains as possible and realize the connection between EVM chains and non-EVM chains; the second is to transcend asset cross-chain and realize the transmission of arbitrary messages and data. Based on the Cosmos liquidity center, Axelar has achieved interoperability between 56 chains, which has surpassed a number of competitors such as Layerzero; at the same time, Axelar supports arbitrary message transmission. The establishment of AVM further upgrades the message transmission function, simplifies the multi-chain development process for developers, and helps developers realize omnichain contract deployment and liquidity integration. In summary, the progress of product delivery and the expansion of cooperative relationships fully demonstrate Axelar's technical accumulation in the omnichain track and confirm the solidity of Axelar's fundamentals.

2 Competitive landscape analysis: Why is Axelar the cross-chain protocol that best meets market demand?

2.1 Track analysis: What kind of cross-chain protocol do we need?

Before analyzing Axelar’s ​​competitors, we need to review the entire cross-chain track: Why is the cross-chain protocol still a growing track? What kind of cross-chain protocol do we need? What types of cross-chain protocols are currently on the market?

Why is cross-chain protocol still a growth track?

First, as the demand for blockchain expansion and customization increases, more and more public chains are being developed. Many Dapps, including dYdX, choose to migrate to application chains. The growth of modular blockchains, general rollups, and application chains has led to a rapid expansion in the number and diversity of blockchains. Blockchain operability is particularly important in the multi-chain era, and cross-chain protocols are the most important underlying infrastructure for achieving blockchain interoperability.

Secondly, according to L2beat data, the TVL of the cross-chain bridge track is US$6.7 billion, which has shrunk by nearly 90% from the peak of US$56 billion in the previous round. The arrival of the bull market will bring about an increase in the number of on-chain interactions and cross-chain demand. The increase in the number of blockchains will also increase dependence on cross-chain technology. With the emergence of new technologies and new architectures of cross-chain bridges, the industry scale of the cross-chain track still has extremely high room for growth.

Third, although blockchain interoperability and cross-chain protocols are crucial to the industry, the development of the cross-chain track is actually not satisfactory. On the one hand, cross-chain bridges are still one of the most vulnerable targets to hacker attacks and losses, and their security is worrying; on the other hand, cross-chain protocols in the market are still dominated by asset cross-chain bridges, and cross-chain protocols that enable seamless cross-chain development of applications are still in the early stages of development. Therefore, for such an important underlying technology, cross-chain protocols still have a lot of room for improvement in technology.

What kind of cross-chain protocol do we need?

According to Connext founder Arjun
According to the cross-chain analysis framework proposed by Bhuptani, cross-chain interoperability also faces an impossible triangle: trustlessness, generalizability, and extensibility. These three points just summarize the core market demands for cross-chain protocols.

The first is security. The highest security is to not add any trust assumptions outside the underlying chain and have the same security as the underlying chain. Security is still the most important issue for cross-chain protocols. The most recent cross-chain bridge attack was the hacker attack on Orbit Chain on January 1, with damages of $81.5 million.

The second is universality, that is, supporting the transmission of arbitrary messages between different blockchains. The cross-chain track is still dominated by asset bridges, which support cross-chain asset transmission or asset exchange, but this is far from enough for cross-chain protocols. On the one hand, although cross-chain assets can be transmitted or exchanged, the liquidity (funds, users, traffic, etc.) between different chains is still scattered; on the other hand, this requires users to still need complex cross-chain behaviors when transferring between different blockchains, which increases the user threshold. Therefore, cross-chain protocols are exploring arbitrary message cross-chain, based on which to realize cross-chain contract calls, liquidity aggregation, and build cross-chain applications.

The third is scalability, which can easily adapt to more blockchains, especially to achieve cross-chain between heterogeneous chains with lower development time and cost. Connecting more blockchains will bring a wider user base, funds and traffic.

As cross-chain protocols evolve, our expectations for cross-chain protocols have evolved from multi-chain to cross-chain, and then to omnichain, interchain, chain abstraction, and so on.
Abstraction) or Chain-Agnostic.

Specifically, Multi-Chain refers to deploying Dapps in multiple blockchains, resulting in multiple instances or versions of the same Dapp in different blockchain ecosystems. The same Dapp is fragmented between different chains. Users use asset bridging to achieve interaction on different chains, which corresponds to the era of cross-chain assets. Cross-Chain represents any process of mutual communication and transactions between blockchains. It is composed of multiple smart contracts deployed on multiple chains to form a unified application. Smart contracts on different chains can perform different tasks and keep in sync, forming a complete Dapp instance, without the need for developers to repeatedly deploy the same function on different networks. Cross-chain Dapps need to rely on the universal information transmission of cross-chain protocols. Omnichain further enhances the scalability and breadth of cross-chain protocols and realizes interoperability between various heterogeneous chains. Inter-chain operations, chain abstraction, and chain independence further hide information such as cross-chain, gas, and native assets from users, further optimizing user experience. Cross-chain protocols will be the core technology for chain abstraction.

（Source: Chainlink）

Therefore, the market expects a cross-chain protocol with security guarantees that can achieve cross-chain deployment and chain abstraction, and expand the depth and breadth of cross-chain as much as possible.

What types of cross-chain protocols are available on the market now?

Of course, ideals are full of hope, but reality is very hard. Cross-chain technology is still in its early stages. Existing technologies cannot break through the impossible triangle of cross-chain interoperability protocols, and can only sacrifice some features to achieve the best possible balance. What types of cross-chain protocols are currently on the market? Which cross-chain protocols are closest to our needs for cross-chain protocols?

According to the trust layer, the existing cross-chain protocols can be divided into three types: native verification, external verification, and local verification. Native verification refers to deploying a light node of the source chain on the target chain to verify the messages of the source chain. The repeater is only responsible for passing the block header of the source chain to the light node contract on the target chain and is not responsible for verification. Native verification has the highest security and does not introduce new trust assumptions, but the verification cost is too high, the development difficulty of establishing a light node is too high, and the scalability is weak.

External verification refers to the introduction of a group of external witnesses to verify cross-chain messages, and the witnesses reach consensus through a certain mechanism. External verifiers may be manifested in various forms, including MPC networks, PoS/PoA networks, TEE networks, multi-signature groups, etc. External verification is highly scalable and can transmit arbitrary messages, but its security has been criticized.

Local verification refers to direct verification of transactions by the counterparty. The typical paradigm is atomic swap based on hash time lock, but it can only be used for cross-chain assets.

In addition, many cross-chain protocols that use new technologies are under development, the most anticipated of which is ZK
Bridge is a cross-chain solution that uses ZK technology for light node expansion. It will generate block verification proofs off-chain and submit them to the target chain to save block verification costs. However, this technology is currently in the research and development stage, with high development difficulty and long development cycle. It is difficult to use directly in the short term, and it still needs to deal with different consensus mechanisms and signature schemes, so its scalability is limited.

In summary, although bridges based on light clients have higher security, they can only be developed for specific chains at present, and external verification is still the main solution for current cross-chain protocols. In this round of cycle, the cross-chain protocol that can achieve full cross-chain deployment can basically only be an external verification bridge. The more decentralized the external verifier network is and the more secure the consensus mechanism is, the more it can meet the market's expectations for cross-chain protocols.

2.2 Comparative Analysis: Axelar is the best cross-chain solution to meet market demand

According to the analysis of the cross-chain track, cross-chain protocols that use external verification and support universal messaging are still the main players in this cycle and direct competitors of Axelar. Representative protocols include Wormhole, Layerzero, Chainlink CCIP, and Celer. After comparison, we believe that Axelar is the cross-chain solution with the strongest comprehensive competitiveness in terms of security, universal messaging, and ecosystem growth.

2.2.1 The most important factor: safety

The security of the cross-chain protocol first depends on the consensus mechanism of the trust layer, that is, how to verify the information. Among the above projects, Axelar adopts the DPoS mechanism, Wormhole adopts the PoA mechanism, Layerzero adopts the dual guarantee mechanism of Oracle and Relayer separation, CCIP adopts its own oracle network verification, and Celer adopts the dual guarantee mechanism of DPoS and optimistic verification.

Wormhole：

Cross-chain protocols that use the PoA mechanism are the main subjects of theft incidents: in July 2023, the Multichain security incident caused more than $265 million in capital outflows, and it has basically lost its competitiveness. Wormhole was hacked in February 2022, and the amount of losses was about $226 million. Under the PoA mechanism, inter-chain messages are verified by a group of trusted entities, but the number of validators is small, and no staking is required. There is a lack of economic incentives. Many verification nodes are controlled by entities with strong interests, or even the same entity, and the cost of doing evil and security are low.

Layerzero：

Layerzero
V1 uses a double verification mechanism. The protocol consists of three core components: Oracle, Relayer, and Endpoint. Relayer is responsible for delivering messages and message proofs. Oracle is responsible for obtaining and delivering block headers based on the block where the message is located. The Endpoint of the target chain will verify the message based on the block header. Its core design is the separation of Relayer and Oracle to prevent the two from colluding to do evil. The security of Layerzero depends on trust in Oracle and Relayer to ensure that the two do not collude, but Layerzero allows project parties to configure and run their own Relayer and Oracle. In this case, it is still necessary to trust the project party entity, which has made Layerzero's security criticized.

Recently, Layerzero released a technical white paper for V2. The verification of messages is completed by DVN (decentralized verification network). Executor is responsible for delivering verified messages and triggering transactions on the target chain.
of Y of N mechanism, such as 1 of 3 of
5, means selecting 5 DVNs for verification, 1 DVN that must complete the verification, and each message verification requires 1 required DVN and any 2 other DVNs to complete the verification together. Currently, the entities that can run DVN are major industry entities, including Blockdaemon,
Google Cloud, Animoca, Delegate, Gitcoin, Nethermind, P2P, StableLab,
Switchboard, Tapioca, LayerZero Labs,
and Polyhedra, but still requires trust in these entities, especially when the number of DVNs is small. In fact, like the PoA mechanism, it introduces more trust assumptions than the PoS mechanism. It is worth mentioning that Layerzero introduced Axelar and CCIP as DVN
Adapter is also a proof of Axelar's security.

Chainlink CCIP：

Chainlink CCIP information delivery is provided by Chainlink
DONs monitor and sign, and then the Relayer passes it to the target chain to complete the transaction execution.
CCIP also introduces a risk management system, which is independent of the oracle network and serves as a new verification layer. The risk management node monitors all Merkle roots of messages submitted on each target chain, obtains all messages on the source chain and independently reconstructs the Merkle tree, checks whether the Merkle root submitted by DON matches the root of the reconstructed Merkle tree, and after detecting anomalies, the risk management node can vote to stop CCIP. The security of CCIP is mainly guaranteed by DON, which has secured tens of billions of dollars in assets and achieved trillions of dollars in on-chain transaction value, so its security is trustworthy, but the overall development progress of CCIP is relatively slow. After its launch in 2021, it will not enter the mainnet early access stage until mid-2023.

Celer IM：

Celer IM listens, routes and verifies transactions through SGN (State Guardian Network), which is based on Cosmos.
The PoS blockchain built by SDK becomes a validator by staking $CELR. In addition, Celer also provides a second security model, namely optimistic verification. Before the transaction is executed, SGN submits the transmitted message to the chain and enters the "isolation zone". After a period of time, the message is confirmed before it is finally executed. During the isolation period, Dapp can run App
Guardian service to verify the authenticity of the submitted message.

However, it should be noted that Celer’s validator network currently has only 22 validators, including authoritative entities in the industry such as IOSG, Hashkey, Binance, Ankr, and InfStones. Uniswap’s cross-chain bridge evaluation expressed concerns about the same entity operating multiple validators. Currently, it is impossible to determine the conditions for becoming a validator based on official documents. The optimistic verification mechanism mainly relies on Dapp to run the App itself.
Guardian verifies transactions, which requires spontaneous maintenance by Dapp and relies on trust in Dapp, but does not actually reduce the trust assumption to the 1/N level.

In summary, in terms of security, we have reason to believe that Axelar stands out among a number of solutions. Axelar’s ​​security was recognized by Uniswap in June, which believed that it “has a complete crypto-economic mechanism to ensure the security of the protocol.”

From a mechanism design perspective, relying on a dynamic, decentralized, permissionless PoS network for verification is the solution with the lowest trust assumptions.

From the specific data, we can further compare the validator data of Axelar and Celer, which also uses the PoS mechanism. The comparative data can be divided into two categories: (1) related to validators; (2) related to the value of token lock-up.

(1) Validator related: The number of Axelar validators (75) is more than three times that of Celer (22). The decentralization of validators is evaluated by the sum of the voting weights of the top 10% of validators. The lower the value, the more dispersed it is. The more dispersed it is, the easier it is to avoid a small number of individuals concentrating a large amount of voting power and colluding to do evil, thereby reducing the risk of centralization. Axelar's validators are more dispersed than Celer.

(2) Token lock-up value: The value of Axelar's locked tokens is as high as $795,420,281, which is about 15 times that of Celer. From the perspective of pledged token value/TVL, Celer's ratio is less than 1, which means that the value of the pledged assets used to ensure security is lower than the value of the assets being guaranteed, which has a higher risk of malicious behavior. Axelar's ratio is 3.72, which is at a relatively healthy level.

2.2.2 Scalability and Ecosystem Development

First of all, for Dapp, choosing a protocol that connects more public chains to develop native cross-chain applications means having more funds, users and markets. Currently, Axelar connects the most public chains, and is promoting the integration of L1 such as Solana, Ripple, and Sui, and has developed the function of automatically integrating L2. The Hub-Spoke architecture is also more scalable than the point-to-point architecture; Layerzero, Celer and Wormhole have relatively high scalability, and CCIP is also in its infancy, currently only supporting the interoperability of a small number of public chains within the Ethereum ecosystem.

Secondly, judging from the number of integrated Dapps, Axelar’s ​​ecosystem is expanding rapidly and is in a leading position in capturing the interoperability market. Nearly 100 Dapps are integrating Axelar, integrating more blue-chip projects than any other cross-chain bridge, and cooperating with Microsoft, JP Morgan, and others.

Morgan and other companies. In terms of integrated Dapp, Axelar covers a wide range of business areas and has a particularly outstanding performance in cross-chain DEX. dYdX, Uniswap, Pancakeswap and Vertex all use Axelar as a cross-chain solution.
DEX’s market share has exceeded 50% (calculated by market trading volume).

2.2.3 Summary: Axelar is the most comprehensive and mature cross-chain solution

Based on the above analysis, Axelar is the best solution on the market that can meet the security, scalability and arbitrary messaging requirements.Wormhole and Layerzero are currently becoming the two most anticipated projects in the cross-chain track due to the expected airdrop. Axelar's fundamentals are comparable to those of Wormhole and Layerzero, but FDV is currently less than half of their primary valuations, which is at an undervalued level in the cross-chain field.

3 Axelar is the key gateway to the Cosmos ecosystem

Another reason why Axelar deserves attention is the Cosmos ecosystem narrative. We focus on two issues: one is why the Cosmos ecosystem deserves attention; the other is why Axelar is a target that cannot be missed if the Cosmos ecosystem is deployed.

The first question is, why is the Cosmos ecosystem worth paying attention to?

First, the application chain narrative will be an important narrative in this cycle. Cosmos itself is built around the application chain topic. Each chain is specially designed to host applications, and all chains are seamlessly connected through shared communication standards. Of course, the Cosmos ecosystem faces challenges from the Ethereum Rollup ecosystem, but the technical standards of Cosmos itself give it unique advantages: first, Cosmos allows developers to build a Layer1 with higher sovereignty, which has higher autonomy in token economy and technology, rather than relying on Ethereum's L2/L3; second, Cosmos achieves interoperability between multiple chains through the inter-chain communication standard IBC protocol, and realizes the seamless transfer of assets and data between different blockchains, which has advantages in cross-chain that other ecosystems cannot achieve. In addition, dYdX's transfer from the Ethereum ecosystem to the Cosmos ecosystem to build an application chain can be said to have attracted enough attention for Cosmos' narrative on the application chain. Therefore, whether in terms of technology or market attention, Cosmos will occupy a place under the application chain narrative.

Secondly, the recent upgrades of Cosmos will enable the Cosmos ecosystem to develop more healthily. Two important upgrades are: the Replication
Security, allowing blockchains in the Cosmos ecosystem to abandon their own validator sets and adopt Cosmos
The Hub’s validators ensure security, improve ATOM’s capabilities, and reduce the difficulty of developing application chains. Second, Noble announced a partnership with Circle to introduce native USDC into the Cosmos ecosystem. After the collapse of UST, the Cosmos ecosystem has been lacking native stablecoins, and can only use cross-chain mapped stablecoins, which increases systemic risks.

Finally, the Cosmos ecosystem is thriving. The Cosmos ecosystem is growing rapidly, and many projects have extremely high growth in 2023, including Celestia, Injective, Osmosis, Kujira, and Neutron. The general rise in the ecosystem has made the Cosmos ecosystem regain market attention, and the market sentiment towards Cosmos is generally positive.

The second question is, when it comes to building the Cosmos ecosystem, why is Axelar one of the best targets?

Axelar is the main channel connecting the Cosmos ecosystem with the EVM chain, especially the connection between Osmosis and the EVM chain. In the past 30 days, the total cross-chain volume between Osmosis and Ethereum achieved through Axelar was 106.63M. Axelar is the main path for Osmosis to cross the chain to the EVM ecosystem. As more applications are built on the Cosmos ecosystem, the demand for connecting the Cosmos ecosystem with other ecosystems will gradually increase. Axelar is the most important channel connecting the Cosmos ecosystem with other ecosystems, and will directly capture the value of the expansion of the Cosmos ecosystem.

4 Conclusion: Solid fundamentals and appropriate timing for layout

Based on the above analysis, we believe that Axelar is a target worthy of investment at this stage. The reasons can be summarized into two points: mature fundamentals and right timing.

First of all, from a fundamental point of view, Axelar has obvious technical advantages in the full-chain track, profound technical accumulation, and significant advantages in cross-chain quantity, message and data transmission, and full-chain application development. It is currently the most in line with market demand. Cross-chain protocol, as a general information cross-chain protocol, Axelar has satisfactory performance in both security and scalability.

In terms of security, Axelar uses a dynamic, permissionless validator set for message passing for verification, a quadratic voting mechanism, a sufficient number of validators, token lock value, and validator decentralization, making it one of the most secure solutions in external verification protocols.

In terms of scalability, Axelar currently has the highest number of integrated public chains and is the most important channel for connecting the Cosmos ecosystem and the EVM chain. The Hub-Spoke architecture saves the cost of connecting to more public chains, and AVM reduces the time it takes for developers to access Axelar.

Recently, Axelar has reached cooperation with many blue chip projects and enterprises, and its ecological development is thriving, which verifies its ability and potential in ecological expansion.

Secondly, from a timing perspective, the track and narrative that Axelar is in are expected to have significant growth potential and attention potential in the future.

Axelar belongs to the two major narratives of the full chain and the Cosmos ecology. The full-chain track will gain more room for growth and market attention as the bull market transaction volume increases and the number of public chains increases. A more direct catalyst may come from the issuance of tokens by Layerzero and Wormhole, which will bring market growth to the entire full-chain track. Recently, Layerzero has made it clear that it expects to complete token distribution in the first half of 2024. As a direct competitor of the two, Axelar's current FDV is significantly lower than the first-level valuation of the two, and may complete value discovery with this incident. The Cosmos ecosystem is developing healthily. The general ecological growth at the end of 2023 has attracted the market's attention to the Cosmos ecosystem. Axelar is the liquidity portal of the Cosmos ecosystem and the EVM chain and will directly benefit from the growth of the Cosmos ecosystem.

#AXL $AXL