Stake Axelar (AXL) with Chorus One

Axelar is a universal interoperability network, secured by delegated Proof-of-Stake using AXL, the native token of Axelar: in short, Axelar is a blockchain that connects blockchains. With Axelar, users will be able to use any network with just one wallet (e.g., use MetaMask to make trades on Osmosis). Axelar facilitates many-to-many connectivity and programmability at the network layer for interoperability by connecting to any blockchain via a ‘Gateway’ installed on the connected chain. Users send messages to a Gateway on a source chain, and validators in Axelar’s network sign those messages on a destination chain. Axelar leverages threshold encryption in tandem with its Proof-of-Stake consensus to deliver secure cross-chain communication. Axelar solves the single point-of-failure risks and user-experience issues that are apparent in pairwise bridges and in other interoperability networks, alike. Axelar’s interoperability network unlocks more than just cross-chain transfers; General Message Passing allows developers to perform cross-chain calls of any kind that sync state securely between dApps on various ecosystems. Essentially, the enhanced functionality of cross-chain dApps enabled by Axelar’s network results in a better user experience for all users on all chains. Axelar is valuable for developers because of how inherently programmable, composable, and flexible the network is and for users given the new use-cases it will unlock across chains. Ultimately, Axelar provides permissionless transactions and validation, decentralised security, many-to-many connectivity, and programmability that other interoperability networks cannot duplicate.

What is Axelar?

Axelar is the first fully permissionless and decentralised interoperability network. Axelar is an interoperability Hub that facilitates many-to-many connectivity and acts as an adaptor for any dApp to leverage in order to communicate securely with any dApp on any other blockchain that has a ‘Gateway’ available for Axelar to plug into. The permissionless aspect of Axelar enables any validator to join the decentralised network; unlike other interoperability networks, it is not gated. Axelar reduces the amount of connections found in existing interoperability solutions by acting as a ‘Hub’, whereby each blockchain only needs to connect to Axelar in order to communicate with any other blockchain connected to it as opposed to opening many connections to many blockchains. The fact that Axelar is a blockchain, itself, enhances interoperability capabilities because programmability is possible at the network layer. To expand, actions such as address routing become much more efficient: new chains are immediately accessible to all connected chains, creating compounding network effects. User experience is also improved: Axelar is able to create one-time deposit addresses on connected blockchains, duplicating the user onramps used by centralized exchanges.

How Axelar Works

A user sends a payload to an Axelar Gateway, which is deployed by Axelar in the native language of the source blockchain (e.g. Solidity in Ethereum). The payload is recognised by a relayer in Axelar’s network, which notifies Axelar validators that there is a payload that is ready to be collectively signed (e.g. a cross-chain transfer from a user). At this point, validators come to consensus on what should be done with the payload sent by the user that has reached the Gateway on the source chain (e.g. Ethereum). Validators unwrap the payload and collectively sign on what should be done with it and where to route it (e.g. what network to send the payload to). Axelar network uses a weighted threshold signature scheme that validators abide by, whereby each validator has a % of the overall shares needed to produce a signature that correlates to the amount of AXL (token of Axelar network) staked with them. For example, a gateway might require a threshold percentage of signatures in order to sign a payload. If validators constituting that threshold percentage of the overall stake in Axelar’s network execute signing on a payload, then consensus is reached that approves the payload to be executed on a destination chain. In this case, if it is a cross-chain transfer, then a payload can be executed on a destination chain that mints tokens representing the tokens locked-up on the source chain. However, Axelar’s network can facilitate interoperability interactions that are far more intricate than this. More on this later.

What problem does Axelar solve?

Axelar has a simple but elegant design. The most important element in a bridge comes down to who the owners are of smart contracts that receive cross-chain intent payloads. These owners are given custodial or execution responsibility. If a bridge is centralised, a user would send a payload to a designated signer or group of signers, which would custody and approve the message on the user’s behalf. This approach is known as “proof of authority,” in contradistinction to “proof of stake.” The problem with Proof-of-Authority systems is that a user has to trust these designated signers to behave appropriately and not maliciously. If a centralised group of signers steals or cheats the user — or mismanages their private keys and is hacked — a user can do nothing about it. Therefore, Axelar has created a decentralised and dynamic set of validators to custody or sign payloads from users in a way that is trust-minimised (i.e. a permissionless protocol and incentives provided by the AXL token enforce that parties are responsible for signing or custodying payloads via mechanisms such as cryptography, consensus and economics). Axelar uses threshold encryption, a decentralised network and slashing economics to ensure that all validators behave honestly and user intent is executed across chains securely, safely and correctly.

In general, Proof-of-Authority setups have resulted in hundreds of millions in funds lost to security breaches. The Axie Infinity (Ronin Bridge) hack is a recent, costly example. More decentralised approaches can solve the problem of risks encountered by entrusting a designated group with our intent to move across chains. However, thoughtful approaches are still needed. Wormhole was hacked due to an operational error: a code vulnerability was exposed on their GitHub before it was patched. LayerZero, a well-known decentralised bridge network, leaves critical security decisions up to the application developer and user. Nomad, another well-known project, puts safety behind liveness (if the network halts, transactions are not safe). Nomad recently suffered a multimillion-dollar hack due to a vulnerability left unaddressed in its codebase. Axelar code is rigorously and regularly reviewed by auditors; audits are published here. Axelar code is open-source; a multi-million-dollar bug-bounty program encourages white-hat developers to search for vulnerabilities. Loss-prevention measures are also enabled, including mandatory key rotations, and the ability to disconnect compromised chains quickly, set rate limits and cap transaction amounts.

Axelar solves the security problems that are apparent in other interoperability networks by leveraging threshold encryption and a Proof-of-Stake network for security and consensus whilst simultaneously solving the usability problems presented by pairwise bridges. The user barely has to lift a finger when an application they are interacting with leverages Axelar.

There are other high-quality solutions that match Axelar in terms of security, safety and usability such as Inter Blockchain Communication (IBC). However, IBC is restricted in that it requires extensive integration work to connect to blockchains outside of the ecosystem it was built for (Cosmos). Ultimately, Axelar is the premier solution that solves all interoperability problems faced by other solutions and is unmatched when it comes to security, usability and interconnectivity as Axelar can seamlessly connect to any type of blockchain, regardless of the underlying technology.

Unlocking new use-cases for the cryptocurrency ecosystem with Axelar

As mentioned earlier, Axelar can facilitate interoperability interactions that are far more intricate than just cross-chain transfers. Axelar opens up a multitude of possibilities for users to engage with different chains without having to leave their source chain. This is powerful to comprehend, given users can take actions cross-chain using tools familiar to them such as native wallets and currencies. Let’s dig in.

One example of what is made possible with Axelar’s network is a Cosmos user instantly being able to receive USDC to use on Osmosis from a centralised exchange such as Coinbase without needing to use Ethereum. As it stands right now, if a user has USDC on a centralised exchange and wants to withdraw it to a decentralised exchange, it is highly likely that a user will only be able to withdraw USDC to a network such as Ethereum. This is a terrible user experience for Cosmos users, who will need to receive USDC on Ethereum first, before bridging it to Osmosis. Not only is this an unnecessary amount of steps but a user will also need to purchase ETH in order to pay gas costs to move across chains. With the advent of Axelar (as well as Interchain Accounts), if a user provides a centralised exchange with an address on Ethereum that is being observed by Axelar validators on Ethereum, it will arrive on Osmosis without a user needing to take any extra actions or pay any extra fees. This is possible because validators in Axelar’s network observe payloads incoming into a Gateway (in this case on Ethereum) and the Axelar network understands how to translate it and route it cross-chain. Once a payload arrives on Ethereum, Axelar can create an address for a user on Osmosis to receive the USDC. As a blockchain connecting blockchains, Axelar can execute logic that enables multiple steps to be assembled into 1 for users to take actions cross-chain. In this example, Osmosis users will be able to withdraw from centralised exchanges in 1-step, even if a centralised exchange does not provide the optionality. This will unleash a new wave of liquidity into deFi apps and other decentralized applications, like Osmosis.

The power of Axelar’s network can also be leveraged by users outside the Cosmos ecosystem. For example, an Ethereum user that does not want to leave the comfort of the network can utilise Axelar to take actions on applications that exist outside of Ethereum. To elaborate, let’s say that a user wants to swap ETH for AVAX and then borrow USDC on Avalanche with AVAX as collateral, in a decentralised manner. Right now, a user would probably send ETH to a centralised exchange using MetaMask and pay fees in ETH, sell ETH for USDT/USDC on an exchange, buy AVAX with USDT/USDC in another transaction on an exchange, send the AVAX to an Avalanche wallet and pay fees in AVAX, navigate to a lending protocol front-end, deposit AVAX and pay AVAX fees with an Avalanche wallet and then borrow USDT on a lending protocol with an Avalanche wallet (paying another AVAX fee).

Axelar completely abstracts away these extra steps and payments by creating a sequence of instructions for the network to execute cross-chain on behalf of a user.

In this scenario, if a user was on Ethereum as a source chain, the user would use MetaMask to send intent to a Gateway connected to Axelar, alongside a payment of ETH that is requested by network services in order to execute the intent cross-chain. Axelar network then abstracts the payment flow: ETH is converted into AXL to pay validators and then into AVAX to pay fees on Avalanche. A user does not have to leave MetaMask, or Ethereum, or purchase any other currencies in order to transact on other chains. (Notably, this process may create deflationary effects in Axelar, as “change” from these conversions is either refunded to the user, or applied toward potential buyback-and-burn programs. More on this from Axelar Foundation, here). At this point, Axelar has done all of the work on behalf of the user and a user has successfully borrowed USDC on a lending protocol in Avalanche. Axelar opens up new possibilities for users to take cross-chain actions without needing to learn new tools or purchase new currencies to pay fees.

AXL — The Token of Axelar Network

Axelar is a Proof-of-Stake network built with Cosmos SDK and Tendermint consensus. The AXL token is used to secure the decentralised network. For a refresher, stake is the value of a token that has been delegated to validators to secure a Byzantine system. The more stake (value) that has been delegated, and the more diverse the pool of token-holders and validators, the harder it is to attack the system. At this point, it is extremely unlikely for a validator to be malicious in any case given it would be explicitly risking a large sum of its own stake and implicitly risking its reputation in the cryptocurrency ecosystem. Even in a scenario where the value at stake in AXL is less than the amount being transferred, validator collusion toward a malicious outcome is unlikely, given the explicit reward for doing so would likely be very low and reputation risk extremely high.

Holders of AXL have a strong incentive to delegate their AXL to a validator(s) to secure the network. Validators earn block rewards for successfully proposing new blocks that are verified by other validators in the network. A validator has more opportunity to propose blocks (and hence earn more rewards) if it has more stake delegated to it. Delegators are the ones that stand to benefit the most from block rewards because delegators earn the majority of it (often >90%), whilst validators take a commission for securing the network on behalf of them (i.e for. running the node that participates in the Axelar’s network consensus). If an AXL holder does not delegate, they risk being diluted as they will miss out on block rewards being received by other AXL stakers and validators.

Token-holders also have an incentive in the form of their long exposure to AXL, to delegate AXL to validators that they believe will secure the network in the best possible fashion. Delegators can review data on the full list of validators via the Axelar block explorer, Axelarscan, at axelarscan.io/validators. The more AXL that is staked with a validator, the more voting power a validator has (i.e. more chance of a validator being chosen to produce the next block) — but this does not lead to concentration of voting power, because Axelar has implemented quadratic voting. In short, quadratic voting means validators’ voting power is equivalent to the square root of their delegated stake. E.g., to get one vote, a validator would need 1 token; but to get 2 votes they would need 4; to get 3 votes, 9 tokens would be needed, and so on. The validator set of Axelar is limited, so AXL token-holders can play a direct role in ensuring the active validator set is performant and available by delegating to high-quality validators. Ideally, Axelar’s network is very decentralised whereby it would take not just a lot of stake to break liveness guarantees of the network but also a lot of validators (e.g. validator diversification).

Aside from securing Axelar’s network, AXL is also used for token-holders to participate in governance. Due to the fact that Axelar is built with Cosmos SDK, this means that all governance proposals are created and voted upon on-chain. The more AXL that a token-holder holds in the network, the more votes a token-holder has on governance proposals. For example, governance proposals might cover connecting new chains or a proposed upgrade that improves the features of Axelar’s network. However, it is not a requirement for AXL token-holders to participate in governance in Axelar. In networks built using Cosmos SDK, token-holders inherit the vote of the validators they delegate to if they do not vote themselves. If a user does not agree with the vote of a validator, the user always has the optionality to change the vote that was inherited from their validator. All in all, on-chain governance in Cosmos SDK chains runs smoother than most and is a great way for token-holders to actively participate and contribute to decentralised networks.

Finally, AXL is used to pay transaction fees to validators in Axelar’s network. For example, a user active on source-chain Ethereum that signals intent to take actions on destination-chain Avalanche would pay fees in ETH to Axelar’s Gateway on Ethereum. Axelar’s SDK provides services that observe the Gateways and then convert the ETH fee into AXL to pay Axelar validators and AVAX to pay Avalanche validators (all-the-while taking a cut for doing so). In essence, AXL is the fuel for validators to come to consensus on cross-chain intent. Demand for AXL comes from services such as Axelar SDK, which convert other currencies into AXL in order to pay validators for their work. Anyone can provide these services; they can even be handled manually by the user, if desired. The more usage Axelar’s network gets, the more currencies that are converted into AXL to pay validators, the more demand for AXL.

What makes Axelar valuable?

There are many reasons why Axelar is a valuable network. The network is valuable for developers, users and token-holders.

For developers, Axelar is useful due to the Turing-complete programmability the network facilitates, as well as the ability to compose functions cross-chain. Starting with composability, developers that build on top of Axelar can build one-click user experiences consisting of multiple components that interact with each other cross-chain. (Read more for an introduction to architecture approaches, when composing cross-chain.) For example, a developer might choose to build a yield optimiser, whereby a financial strategy reads yield of a certain asset across multiple chains and deploys more or less capital (rebalancing) on a connected chain in order to optimise yield for the next block. Axelar is also entirely programmable, which means that validators in Axelar’s network can take any action on behalf of a user cross-chain, no matter what it is. For example, a developer could choose to build a governance aggregator application whereby a validator set can vote on behalf of a user in a DAO, cross-chain, in the same direction as the majority vote (e.g. vote YES if majority vote is already YES). Related to programmability, Axelar network is Turing-complete, meaning any program that is created by developers can be run by the network, given enough memory and time. These features are possible because Axelar is a blockchain that connects blockchains, and cannot be duplicated by other interoperability networks. All in all, Axelar is the most customisable, flexible, programmable and composable interoperability network.

Users of Axelar can look forward to greater liquidity in their respective ecosystems, a better user experience, less transaction costs and new use-cases. Greater liquidity will be able to freely flow across blockchains that are connected to Axelar and as a result, users will have new assets to trade that were not available previously on their blockchains. There will be a better experience for users moving cross-chain as users will not need to hold multiple tokens across chains to take actions and not need to make separate transactions for each transaction. Any cross-chain transaction can be paid for with one token and instructions can be bundled by validators to execute atomically. Users will also be able to access new types of applications that exist on chains that are not native to the chain they currently interact with. For example, a user on Ethereum might be able to utilise a cross-chain AMM built on Axelar to swap Ethereum assets with assets on Avalanche. Axelar and its partners are already working with the largest dexes on multiple chains (Osmosis, a Cosmos project, is a notable example), who are building these cross-chain liquidity networks. Moreover, many of these projects are using Axelar’s unique functionality to build user onramps (such as one-time deposit addresses) that can rival centralised exchanges for ease-of-use, and welcome users seamlessly, regardless of what tokens they hold.

AXL is the fuel to the Axelar economy. The value of AXL comes from how it is used to secure the network, govern the network and pay node operators in the network to execute cross-chain intent. Holding AXL gives users a way to directly contribute to the sustainability and security of the network.

Axelar Overview

To conclude, Axelar is a decentralised and permissionless interoperability network built with Cosmos SDK that has a mixture of properties such as many-to-many connectivity, programmability, composability and Proof-of-Stake security that constitutes the most robust interoperability network available for users. Axelar will be secured by AXL, which is used to secure the Proof-of-Stake network, as well as for governance and payment for validators to execute cross-chain intent. Axelar will unlock a variety of use-cases that have not yet been seen, such as interacting cross-chain with other blockchains that might not speak the same language as the user’s source blockchain. For the first time, cross-chain user experience will be seamless as a flux of applications are being built on top of Axelar currently to leverage the profound properties of the interoperability network. Users who enter Web3 via one blockchain will easily access applications and assets on other blockchains, perhaps without even knowing they are doing so. Axelar solves problems of centralised bridges and interoperability networks to produce what can ultimately be argued as the safest, most secure and best cross-chain user experience that is available for users.

Acknowledgements: Thanks to Galen Moore from Axelar for his review of this article.

About the Author

Xavier Meegan is Research and Ventures Lead at Chorus One.

Medium: https://medium.com/@xave.meegan
Twitter: https://twitter.com/0xave

About Chorus One

Chorus One is one of the largest staking providers globally. We provide node infrastructure and closely work with over 30 Proof-of-Stake networks.

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About Axelar

Axelar delivers secure cross-chain communication for Web3, enabling dApp users to interact with any asset or application, on any chain, with 1 click.

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