Interoperability remains one of the most critical hurdles in the blockchain industry. New blockchain protocols emerge daily, and most of them do not follow the same standards. Some of the encountered problems are liquidity segregation and the lack of proper cross-chain communication, both of which affect every user.

Enter Axelar—a platform designed to unify the fragmented blockchain ecosystem with a secure, scalable, and programmable cross-chain interoperability layer. In this article, we will delve into Axelar’s architecture, technology stack, and the innovations that make it a standout!

What is Axelar Network? 

Axelar aims to be more than just a cross-chain bridge; it seeks to be the connective tissue of the Web3 ecosystem. Similar to how the internet enabled rich interoperability across multiple networks, leading to the rise of new industries, Axelar provides a platform that facilitates the integration of multiple blockchains.

It enables cross-chain logic and arbitrary data transfer, which allows developers to build decentralized applications that can operate across many blockchain networks without being constrained by the limitations of any single chain. This vision is realized through a combination of advanced cryptographic techniques, a decentralized validator set, and an adaptable development environment.

Axelar's Core Components

Key components that work are at the heart of Axelar’s technology stack. Each component is designed to address specific challenges inherent in cross-chain interoperability. The system is both scalable and secure.

Decentralized Network

Axelar's decentralized network is built using the Cosmos SDK, CometBFT, and CosmWasm Virtual Machine (VM). This creates a decentralized state machine responsible for facilitating cross-chain requests.

The Cosmos SDK serves as the foundation for building Axelar’s custom application layer, while CometBFT handles the networking and consensus layers through Tendermint, a Byzantine fault-tolerant consensus algorithm. Axelar can securely replicate the state machine across all nodes in the network, which provides instant finality and resilience against failures.

The CosmWasm VM, on the other hand, is a powerful environment for executing smart contracts. What it does is the deployment of interoperable smart contracts across different blockchains, creating complex cross-chain logic. Hence Axelar is not just a communication layer, but a programmable platform that developers can leverage to build sophisticated cross-chain applications.

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Cross-Chain Gateway Protocol (CGP)

The Cross-Chain Gateway Protocol (CGP) is the backbone of Axelar’s communication system. It enables the onboarding of new blockchains without constraints on their consensus rules and supports the transfer of information across these chains.

Using the same analogy as before, CGP functions similarly to the Internet’s Border Gateway Protocol (BGP), which manages data routing between different networks. In Axelar’s context, CGP synchronizes states between blockchains. It facilitates secure and efficient asset transfers and safeguards that transactions are executed securely and efficiently.

When a new blockchain joins the Axelar network, CGP establishes a secure channel for data transfer, enabling communication with other blockchains. This involves deploying gateway contracts on the new chain, which act as the interface for cross-chain transactions. These contracts are universal and can be easily adapted to different blockchain environments, including EVM-compatible and non-EVM chains.

Axelar Virtual Machine (AVM)

The upcoming Axelar Virtual Machine is set to expand Axelar’s capabilities by enabling the deployment of smart contracts and dApps on a fully programmable cross-chain layer. AVM can run smart contracts written in any language that compiles to WebAssembly, which effectively equips developers with the flexibility to automate complex cross-chain tasks.

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This capability is crucial for reducing developer overhead and streamlining the user experience. For instance, AVM will allow developers to write smart contracts that handle cross-chain token transfers, data synchronization, and even governance functions, all from a single interface. By abstracting away the complexities of cross-chain communication, AVM empowers developers to focus on building innovative applications rather than worrying about the underlying infrastructure.

Threshold Cryptography

Security has always been the key element characterizing blockchain technology and the industry. Axelar addresses this with its implementation of threshold cryptography. In a threshold cryptography system, multiple parties (in this case, validators) collaboratively generate a cryptographic key and must cooperate to perform cryptographic operations, such as signing a transaction.

Simply put, Axelar’s threshold cryptography ensures that a transaction is only approved when a majority of validators agree. This consensus mechanism increases security by making it difficult for a small number of validators to collude and compromise the network.

The specific cryptographic protocol used by Axelar is based on the Elliptic Curve Digital Signature Algorithm (ECDSA), which is also employed by Bitcoin and other major blockchains. ECDSA is known for its efficiency and security, making it an ideal choice for a cross-chain platform like Axelar. Because of using a threshold version of ECDSA, Axelar can guarantee that even if some validators are compromised or acting maliciously, the network remains functioning as long as a majority of validators are honest.

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It is also worth mentioning that the use of threshold cryptography reduces the overhead associated with managing multi-signature transactions. Instead of requiring each validator to individually sign a transaction, the network can produce a single, compact signature that represents the collective agreement of the validators. This not only improves efficiency but also reduces transaction fees.

Validators and Consensus

Axelar’s network operates on a Delegated Proof-of-Stake consensus mechanism, where basically elected validators are responsible for producing new blocks, signing transactions, and voting on the state of external chains. The network has 75 delegates.

Many other cross-chain solutions rely on a small number of hand-picked signers. Axelar’s validator set is permissionless and dynamic, which reduces the risk of centralized attacks or censorship. Validators can choose which chains they want to validate requests for, with incentives structured accordingly. The goal is to encourage a diverse set of validators, hence creating a more secure network.

To mitigate the risk of centralization, Axelar employs quadratic voting, where voting power increases at a diminishing rate with an additional stake. This means that the larger the stakeholder, the less voting power they receive per AXL. T More equitable distribution of power among validators prevents dominance by a few large holders.

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Cross-Chain Daemons (Relayers)

Cross-chain daemons, also known as relayers, monitor gateway contracts and forward cross-chain requests to the Axelar network. They act as the communication link between blockchains and the Axelar network, relaying transactions.

Traditional relayers are often trusted entities, similar to DPoS system validators. But Axelar’s daemons do not have any trust requirements for protocol safety. The decentralized protocol executed by the validators verifies each request submitted by the relayers. The system remains secure even if some relayers fail or act maliciously.

This design choice is pivotal for maintaining the network’s security and decentralization. By assuring that relayers are not trusted entities, Axelar eliminates a potential point of failure and reduces the risk of malicious activity. The network is also designed to tolerate multiple relayers' failure, enhancing the resilience even more. 

Axelar's Approach to Cross-Chain Interoperability: Products and Services

Axelar distinguishes itself from traditional cross-chain solutions by offering full-stack interoperability. While most cross-chain bridges are limited to transferring wrapped assets between blockchains, Axelar goes beyond by enabling arbitrary data transfer, smart contract execution, and permissionless overlay programmability across networks.

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General Message Passing (GMP)

General Message Passing (GMP) is an innovation that allows connected applications to move any payload across chains, including function calls and other logic. GMP uses Axelar’s validator set for security and a decentralized protocol for routing and translation.

Several articles describe this capability as a game-changer for developers. It enables the creation of dApps that can interact with multiple blockchains at once. For example, an application could use GMP to bridge tokens while simultaneously executing a swap on a decentralized exchange, all within a single transaction. This simplifies the user experience and opens up new possibilities for cross-chain applications, such as cross-chain DeFi protocols and multi-chain NFT platforms.

The technical foundation of GMP lies in its ability to handle arbitrary data and function calls across blockchains. Unlike traditional cross-chain bridges, which are limited to transferring (wrapped) tokens, GMP allows developers to transfer complex data structures, execute smart contract logic, and even trigger events on remote chains.

Interchain Token Service (ITS)

The Interchain Token Service (ITS) is a feature that supports the cross-chain transfer of native tokens rather than wrapped ones. ITS preserves tokens' fungibility and custom functionality across different blockchains, which enables one-click deployments and cross-chain interactions.

ITS operates by using a canonical wrapper model, where each token retains its native properties and functionality across all connected chains. This is in contrast to traditional wrapped tokens, which often lose their original features and are subject to additional security risks. With ITS, developers can safeguard that their tokens behave consistently across all blockchains, regardless of the underlying consensus mechanism or virtual machine.

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ITS is designed to be highly customizable. One can define custom token properties, such as governance rules, yield generation, and access controls. These customizations are preserved across all chains, making ITS a solid tool for managing complex token economies in a multi-chain environment.

Interchain Amplifier and Maestro

Interchain Amplifier and Interchain Maestro are two of Axelar's upcoming services. The Interchain Amplifier will enable developers to connect new blockchains to the Axelar network permissionlessly, reducing the technical overhead of adding new chains.

The Interchain Amplifier works by automating the process of deploying gateway contracts and configuring validator incentives for new chains. This lets developers focus on building their applications rather than worrying about the intricacies of cross-chain integration. The Amplifier is designed to scale with the network, supporting hundreds or even thousands of connected blockchains.

Meanwhile, Interchain Maestro will provide a set of orchestration contracts and templates to assist in designing, deploying, and managing dApps across multiple chains. These tools are similar to Kubernetes in the Web2 world, offering a framework for managing complex multi-chain deployments.

Interchain Amplifier and Maestro

Interchain Amplifier and Interchain Maestro are two of Axelar's upcoming services. The Interchain Amplifier will enable developers to connect new blockchains to the Axelar network permissionlessly, reducing the technical overhead of adding new chains.

The Interchain Amplifier works by automating the process of deploying gateway contracts and configuring validator incentives for new chains. This lets developers focus on building their applications rather than worrying about the intricacies of cross-chain integration. The Amplifier is designed to scale with the network, supporting hundreds or even thousands of connected blockchains.

Meanwhile, Interchain Maestro will provide a set of orchestration contracts and templates to assist in designing, deploying, and managing dApps across multiple chains. These tools are similar to Kubernetes in the Web2 world, offering a framework for managing complex multi-chain deployments.

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Interchain Maestro on the other hand simplifies managing cross-chain applications. It does this by providing a unified interface for monitoring, debugging, and scaling dApps. Developers can use Maestro to automate routine tasks, such as rebalancing liquidity across chains, updating smart contracts, and maintaining cross-chain governance. This reduces the operational overhead of maintaining multi-chain applications and allows developers to focus on innovation.

The AXL Token and New Tokenomics

The AXL token is central to the Axelar ecosystem. It serves multiple functions, including paying transaction fees, staking for consensus participation, and voting on governance proposals. Initially launched in 2022, the AXL token has a total supply of 1 billion, with a vesting schedule that will be completed by 2026.

New Tokenomics and Deflationary Pressure

Axelar recently proposed a new tokenomics model to support the network’s scalability as it connects to more blockchains. One of the fundamental changes is the reduction of the inflation rate per added chain, which was previously linear. This has resulted in inflationary pressure on the markets. Under the new model, the per-chain reward for validators decreases over time, which will reduce overall inflation.

This change is significant because it aligns the network’s economic incentives with its growth. As more chains are added to the network, the inflation reduction helps maintain the value of the AXL token, making it more attractive to long-term investors and validators. Additionally, the new tokenomics introduces a gas-burning mechanism where fees paid in AXL are burned instead of being distributed to validators, further improving the market dynamics.

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Increased Demand from New-Chain Connections

As Axelar continues to expand its network by connecting new blockchains, the demand for AXL tokens is expected to grow. The upcoming Interchain Amplifier will simplify adding new chains. Developers will be able to pool AXL tokens to bootstrap validator incentives for these chains.

This approach is particularly relevant for the growing Ethereum Layer 2 ecosystem, where Axelar is positioning itself as the primary connectivity layer for the expected proliferation of L2 and L3 networks. Each new chain adds value to the network.

The Amplifier’s ability to automate the configuration of validator incentives makes it easier for new chains to attract the necessary support from the validator community. This reduces the barriers to entry for new projects and accelerates the adoption of Axelar as the go-to solution for cross-chain interoperability.

Technical Deep Dive: How Axelar Works

It’s essential to understand how its components interact to facilitate cross-chain interoperability.

Onboarding New Chains

When a new blockchain is added to the Axelar network, a distributed threshold protocol is executed among validators to generate the master key pair for that chain. This key pair is crucial for managing cross-chain transactions, as it allows the Axelar network to sign and verify transactions on the new chain securely.

Once the key pair is generated, gateway contracts are deployed to the new chain, allowing it to interconnect with the rest of the Axelar network. These gateway contracts act as the entry and exit points for cross-chain transactions, like a border checkpoint of sorts, ensuring that assets and data can move seamlessly between chains.

Validators running nodes or light clients of the new chain verify cross-chain requests. They monitor the gateway contracts for incoming transactions, validate them, and trigger the necessary state transitions on both the source and destination chains. This results in minimal latency.

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Processing Cross-Chain Transactions

Cross-chain transactions in the Axelar network follow a multi-step procedure. When a transaction on one chain arrives at the gateway contract, it is first relayed to the Axelar network by a cross-chain daemon. The daemon monitors the gateway contract for incoming transactions and forwards them to the appropriate validators.

Validators then query their RPC endpoints for the source chain to verify the transaction. They check the transaction’s validity and the necessary criteria (e.g., sufficient confirmations for PoW chains, instant finality for PoS chains). Once the transaction is verified, validators vote on it, and the network triggers an internal state transition to process the transaction.

This state transition involves updating the gateway contract’s state, recording the transaction in the Axelar ledger, and preparing it for execution on the destination chain. Multiple cross-chain transactions can be processed in batches, which reduces the overall load on the network and improves efficiency. This batch-processing capability is particularly important for scaling, as it allows Axelar to handle a high volume of cross-chain interactions without bottlenecks.

Threshold Cryptography in Action

We have already talked about Axelar’s use of threshold cryptography. This consensus approach secures the network and streamlines the transaction process by producing a single signature that authorizes the transaction.

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The process begins with a distributed key generation protocol, where validators collaboratively generate a master key pair for the network. This key pair is then used to sign transactions on behalf of the network. When a cross-chain transaction is initiated, validators must come to a consensus on its validity. If a majority of validators agree, they collectively sign the transaction using the master key pair.

The result is a single, compact signature that represents the collective agreement of the validators. This signature is then included in the transaction, which is broadcast to the destination chain for execution.

Monitoring and Security

Axelar provides various tools for monitoring the health of its network, including logs, ledger queries, and events emitted by nodes and gateway contracts. This allows developers to monitor network operators and detect and respond to issues in real-time.

One of the primary tools for monitoring the Axelar network is the Prometheus metrics exporter, which provides detailed insights into the performance of individual validators and the network as a whole. Prometheus tracks metrics such as block production rates, transaction throughput, and validator uptime, all of which are critical if you are trying to do anything with the network.

In addition to Prometheus, Axelar nodes emit a variety of logs and events that can be used to track the status of cross-chain transactions and other network activities. These logs include information about multi-party key-generation ceremonies, transaction validation, and gateway contract updates. Developers can gain a deep understanding of how the network operates and identify potential issues before they escalate.

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Axelar uses rate-limiting functions. They limit the amount of assets that can be transferred over a certain period. This helps prevent large-scale attacks and keeps the network stable even under heavy load. Moreover, Axelar’s validators must periodically rotate their cryptographic keys, reducing the risk of persistent attacks and ensuring the network’s security posture remains safe.

Axelar Compared to Other Solutions: Advantages & Disadvantages

Axelar operates in a highly competitive space, with several other protocols also focused on blockchain interoperability. However, Axelar’s approach to full-stack interoperability sets it apart from other solutions like LayerZero and Chainlink.

Comparison with LayerZero and Chainlink

LayerZero and Chainlink are two prominent cross-chain interoperability protocols, but they differ significantly from Axelar regarding architecture and security. LayerZero, for instance, relies on a 2-of-2 multisig setup involving off-chain entities like oracles and relayers. This approach, while flexible, introduces additional trust assumptions, as the security of the cross-chain transaction depends on the integrity of the off-chain entities. And those, like anything else, can be compromised or act maliciously.

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Chainlink’s Cross-Chain Interoperability Protocol (CCIP) also relies on a similar multisig setup, where a small group of trusted entities validates cross-chain transactions. While this approach is sufficient for certain use cases, it may not provide the same level of decentralization and security as Axelar’s permissionless validator set.

In contrast, Axelar uses a fully decentralized validator set to secure interchain messages. Each validator operates independently, and the network’s security is derived from the collective agreement of a large number of validators. This reduces the risk of collusion and ensures that cross-chain transactions are validated in a decentralized and trustless manner.

We also have to mention Axelar’s use of threshold cryptography and quadratic voting. They provide additional layers of security and fairness, making it a more robust solution for developers who require high levels of security and decentralization in their cross-chain applications.

The Road Ahead for Axelar

Axelar has ambitious plans for the future, with a roadmap that includes scaling the network to support hundreds or even thousands of blockchains—almost like a “blockchain universe.” The introduction of the Axelar Virtual Machine and the continued development of Interchain services will play a pivotal role in achieving this vision.

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Future Challenges and Opportunities

While Axelar is well-positioned to become a leading cross-chain interoperability solution, it faces several challenges as it scales. One of the primary challenges is making sure that the network remains secure and decentralized as it grows. This will require continuous improvements to the validator selection process, cryptographic protocols, and network governance.

Additionally, Axelar will need to navigate the competitive landscape, where new interoperability solutions are constantly emerging. To maintain its edge, Axelar must continue innovating, particularly in areas such as cross-chain governance, smart contract execution, and developer tooling.

Despite these challenges, Axelar is positioned well to capitalize on the growing demand for cross-chain solutions. As the blockchain ecosystem continues to evolve, Axelar’s commitment to full-stack interoperability will enable developers to build dApps that transcend the limitations of individual blockchains.

Some Success Stories to Conclude With

• dYdX: The decentralized exchange dYdX uses Axelar to facilitate cross-chain deposits and withdrawals, enabling users to trade assets across multiple blockchains with minimal friction.
• Uniswap: Uniswap has integrated Axelar to deploy its protocol on multiple blockchains. This provides users access to the same liquidity and trading features regardless of the chain they are on.
• Microsoft Azure Marketplace: In the enterprise space, Axelar has partnered with Microsoft to integrate its interoperability services into Microsoft’s Azure Marketplace.

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