Axelar Thesis: Enabling the Globalisation of Blockchains

Summary

Axelar is a blockchain connecting other blockchains. It is a generalised messaging passing (GMP) protocol, which facilitates transfer of information and value across different blockchains.
Demand for interoperability is growing as the number of blockchains continues to rise. Currently, cross-chain transactions account for ~0.6% of total blockchain transactions. As cross-chain interactions advance beyond simple token swaps via bridges, we posit that this number could reach levels closer to global trade, which stands at ~70% of global GDP.
Two important facets of a robust GMP protocol design are security and scalability. Axelar stands out from its competitors with its cryptoeconomic security and hub-and-spoke architecture. Further, Axelar Virtual Machine (AVM) provides Turing complete programmability, expanding the possibilities for developers building interchain applications.
AXL is the gas, staking and governance token for the Axelar network. Similar to the Ethereum model, it has the potential to become deflationary with increased network usage and the gas fee burn mechanism.
Base case valuation assumes a 30% CAGR in total blockchain transactions, with the cross-chain market growing to 10% of total. Assuming Axelar’s market share at 25%, gas fees are projected to grow to $309 million. At a 30x earnings multiple, implied network value is $9.3 billion (nearly 8x from today).
Bull case valuation assumes a 50% CAGR in total blockchain transactions, with the cross-chain market growing to 30% of total. Assuming Axelar’s market share reaches 50%, gas fees are projected to grow to $3.8 billion. At a 30x earnings multiple, implied network value is $114 billion (nearly 100x from today).

1. Large addressable market (external forces)

1.1. The emergence of the multi-chain world

Since Bitcoin’s invention 15 years ago, we’ve witnessed a surge in the number of public blockchains. Defillama currently lists 240 blockchains and the list isn’t even exhaustive.

Part of the need for new chains has been for scaling. Blockchains contend with limited capacity for data and transaction throughput. For instance, Bitcoin’s capacity of 4 MB per block, mined every 10-minutes suggests a limit of ~14 transactions per second (TPS) assuming an average transaction size of ~500 bytes. Similarly, Ethereum, with a block limit of 30 million gas and 12-second blocks, has an implied TPS of 120 for a simple transfer using 21k gas. To enable mass adoption, blockchains clearly need to scale further.

In the last cycle, alternative Layer-1 (“L1”) blockchains dubbed "Ethereum Killers" emerged, offering faster and cheaper transactions. Perhaps the most notable was Solana, which leverages parallel execution to enhance throughput.

*Illustration of different blockchain ecosystems*

Ethereum is also improving scalability by modularising (think outsourcing) its tech stack through “rollups”, also known as Layer-2’s (“L2s”). Rollups, a type of blockchain, undertake specific functions for faster and cheaper transactions. Specifically, they host applications and process user transactions off the L1, but eventually batch and settle those transactions on the L1 (i.e. Ethereum). Since their launch in 2021, Ethereum L2’s have been rising in number and usage. Defillama shows there are 22 Ethereum L2s, with more chains soon expected to launch. In 2023, transactions on major L2s (Arbitrum, Optimism and Base) surpassed Ethereum’s own transactions for the first time.

Emerging “data availability” layers like Celestia, will further decouple core blockchain functions. These networks, specialising in efficient data storage for blockchains, empower developers to create custom “sovereign rollups” to post their data more cheaply than Ethereum L2s. Increased experimentation in modular scaling hints at even more chains in the future.

Another driver for multiple chains is the idea of sovereignty. Certain applications seek greater control of their own tech stack to mitigate platform risk. One example of platform risk is elevated gas costs during network congestion; amid high traffic in 2021, Ethereum's gas price spiked roughly 10 times from typical levels to over 200 gwei, significantly degrading the user experience for Ethereum-based applications. Many projects seeking sovereignty have found their home in the Cosmos ecosystem, which is rooted in interconnected "appchains" - applications that are their own independent blockchains that can also communicate seamlessly with other appchains. Currently, there are 85 appchains built with the Cosmos SDK (Software Development Kit), a 70% YoY increase from 50 a year ago.

In short, the industry has already firmly established itself as a multi-chain world. The future landscape will likely feature a few dominant general-purpose chains, such as Ethereum and Solana, and a multitude of specialised rollups and appchains. The question is then, how will these chains communicate?

1.2. Multi-chain to Cross-chain

From the ancient Silk Road to post-war trade liberalisation, societal progress has been intricately linked to cross-community trade. Over time, globalisation has progressed from basic import/export to the establishment of multinational companies to offshoring parts of the supply chain to cost-competitive regions. Accordingly, global trade has consistently risen from 25% of global GDP in the 1970s to >70% today (Source: World Bank).

We think the on-chain world may follow a similar trajectory. The rise of multiple blockchains has fuelled cross-chain demand, initially centred on basic asset swaps between blockchains through token bridges. Following the stages of globalisation, demand for cross-chain could naturally advance to more dynamic interactions. Such activities are uniquely enabled by interoperability solutions called GMP (Generalised Messaging Passing) protocols, of which Axelar is one.

Below are some observations that lead me to believe cross-chain demand will thrive in the coming years:

A trend towards modularisation will create smaller chains. Smaller chains are likely to require greater cross-chain interactions compared to larger chains with a richer ecosystem of applications, assets, and liquidity. We see this pattern in the physical world where smaller countries with fewer resources like Hong Kong and Singapore have a higher reliance on trade (e.g. trade-to-GDP ratios of 384% and 337%) relative to larger countries like the US with greater self-sufficiency (e.g. trade-to-GDP of 25%).
Blue chip DeFi protocols like Uniswap or Aave have become “multinationals” with deployments on multiple networks (stage 3 of globalisation). Uniswap is on 13 different chains, and Aave is on 10. However, the current set up is limited by the inability of the deployments to effectively coordinate with each other.
A primary issue is fragmented liquidity through duplicate liquidity pools on each of the networks. As illustrated below, Uniswap’s ETH/USDC pools are isolated on five different chains. The ability to access liquidity from multiple networks is crucial for capital efficiency.

Another issue has been cross-chain governance. Aave DAO conducts governance on Ethereum, the votes from which must reach other deployments for implementation. A robust messaging mechanism is needed to transmit governance decisions from the Ethereum-based DAO to other chains.

Blockchains have cultures unique to their own ecosystems, such as NFTs. The desire to access certain non-fungible assets of one ecosystem from another is innate, as humans tend to seek out wider cultural experiences.
Different blockchains have distinct specialisations: Filecoin is optimised for storage. Solana for throughput and Ethereum for decentralisation. Therefore, a shift towards efficiency seems inevitable. Seamless chain interoperability could enable a series of cross-chain smart contract calls, such as storing and extracting data from Filecoin, for fast computation on Solana and secure settlement on Ethereum.

1.3. Market Context for Generalised Message Passing (GMP)

In order for blockchains to reach stage 4 globalisation, we need generalised message passing (GMP). GMP protocols are a superset of token bridges; they transfer not just tokens but any arbitrary data cross-chain, including NFTs, governance votes or smart contract calls.

To understand GMPs, it is worth first studying first-generation cross-chain token bridges, which have been subject to various high-profile exploits with over $2.6 billion in losses. Many token bridges employ a mechanism called “Lock & Mint” which 1) locks user tokens on the source chain, and 2) mints on the destination chain brand new tokens (called wrapped assets) that represent the locked assets on the source chain. This is similar to leaving your car in a warehouse in City A and getting an identical car in City B, so long as your car exists in City A (if the car in City A is broken or stolen, consider your car in City B broken or stolen too). Notice this model exposes the car owner to theft risk in the warehouse in City A. The more expensive cars the warehouse keeps, the higher the incentive for thieves to break in. Put another way, in the Lock & Mint model, a smart contracts bug on the source chain could drain the locked funds, leaving the wrapped assets on the destination chain ‘unbacked’ and therefore worthless.

An arguably safer model is the ‘Burn & Mint’ alternative, where bridges destroy the assets on the source chain and mint an equivalent amount of new assets on the destination chain. This model doesn’t require users to lock up assets in a smart contract, which reduces the risk of theft.

Currently, most cross-chain value transfers - including those enabled by bridges built using GMP protocols - follow the Lock & Mint model. This is because tokens that are already deployed on one chain need to be wrapped to go multi-chain. However, GMP protocols like Axelar provide the infrastructure necessary for the industry to shift towards the safer Burn & Mint model.

Despite the safety concerns of cross-chain bridges, bridge-enabled token transfers surged from negligible levels in 2020 to $76 billion in 2023. This figure constitutes approximately 8% of the total $960 billion in DEX transaction volumes in 2023. The healthy demand for bridge transactions is likely a precursor to the inevitable growth of GMPs.

GMPs are relatively new innovations, with the four main players (Axelar, Chainlink CCIP, LayerZero and Wormhole) having launched between 2021 and 2023. In 2023, GMP protocols facilitated 93 million cross-chain transactions, representing a modest 0.6% of the 15.7 billion transactions enabled by top blockchains.

The potential for GMPs appears significant with dual drivers: 1) the growth in blockchain transactions and 2) the expanding share of cross-chain activities in the broader blockchain ecosystem. As demands for cross-chain progress beyond ‘Stage 2’, we believe GMP transactions could conceivably achieve market share comparable to cross-chain token transfers relative to DEX volumes (~8%) or perhaps even approach levels closer to the global trade/GDP ratio (~70%).

2. Competitive Advantage (Internal Execution)

2.1. Important attributes for GMP protocols from first principles: security and scalability

Say you had to use a third-party messenger to transfer money and information to family in another city. What are the non-negotiable attributes you’d need in that messenger?

At a minimum, the messenger must be honest (i.e. won’t steal the money or relay inaccurate information) and secure from attack. Depending on how much trust you are willing to place in your messenger, you might select different messengers. For instance:

Reputational security: The messenger is a known person who has a reputation to uphold. Picking this messenger requires a high level of trust – that the messenger will remain honest and reliable because he doesn’t want to damage his reputation.
Distributed security: Here, the messenger is not an individual but instead, a democratic group of independent decision-makers. Dishonesty necessitates collusion among members, with larger groups making collusion more difficult. Choosing this group as your messenger demands less trust compared to an individual messenger.
Crypto-economic security: Here, the messenger is a democratic group of independent decision-makers who each pledge collateral to show their commitment to honesty. If dishonest, their collateral gets taken away. The set-up provides stronger security guarantees with lower trust requirements than the first two. This mechanism, employed in Proof-of-Stake blockchains, assures users of safety through game-theoretic mechanisms.

Above, we observe an inverse correlation between security and trust. That is, higher security systems reduce the need for trust.

Let’s also say the messenger has clients in a growing number of cities and her job is to create an efficient pathway between them. How would she need to scale?

The answer lies in the hub-and-spoke model which is far more efficient than point-to-point connections. Connecting N cities through a central hub requires only N-1 connections (i.e. linear scaling), while connecting them point-to-point requires N*(N-1)/2 connections (i.e. quadratic scaling). Hub-and-spoke’s efficiency becomes more pronounced as N increases: connecting 2 cities requires 1 connection for both models. However, connecting 100 cities requires 99 connections for hub-and-spoke but 4,950 connections for point-to-point!

An added benefit of the hub-and-spoke model is enhanced security in an attack scenario. In the below diagram, if Chain F becomes under attack, the hub-and-spoke topology allows the problem on the compromised chain to be isolated more easily. In contrast, a point-to-point model poses a higher risk of contagion spreading to all other chains that are directly connected to Chain F.

The above exercise highlights security and scalability as crucial elements of a well-designed GMP protocol. Ranking the four main GMP projects on these axes, Axelar stands out as the superior interoperability solution due to its crypto-economic security and hub-and-spoke design. For completeness, we include a simplified overview of GMP and the specific implementations by the key players in the next section.

2.2. GMP Tech Stack and Implementations (skip if already bored)

Broadly, a cross-chain messaging system performs three basic functions:

Connect: Observe the source chain for message requests to send information to the destination chain.
Validate: Confirm the validity of the message being sent.
Transport: Relay the message to the destination chain.

The specific implementations of these functions determine the cross-chain network’s characteristics, such as security and scalability.

LayerZero

(LayerZero is currently testing its upgraded V2 architecture. This section primarily focuses on V1).

LayerZero establishes chain connections through LayerZero Endpoints and relies on two off-chain entities - the oracle and the relayer - for validation and transport.

The oracle’s job is to read the block header (a summary of a specific block on the blockchain) from Chain A and send it to Chain B, such that the two chains can verify the other’s state.
The relayer’s job is to provide the proof that a particular transaction occurred on Chain A so that Chain B can respond accordingly.

LayerZero’s design assumes that cross-chain messages can be transmitted securely if the oracle and relayer are independent. LayerZero has provided the default option for both (Google Cloud for oracle and LayerZero Labs for relayer), but believes that applications should be able to pick their preferred oracle and relayer to configure the right amount of security for their cross-chain activities.

In practice, LayerZero’s modular bet has not paid off. Most application developers appear to lack the interest and expertise in configuring lower-level systems. But more importantly, LayerZero had limited oracle and relayer options available. Building a robust decentralised oracle network is challenging and takes time, as demonstrated by Chainlink’s efforts since 2017. Similarly, running a LayerZero relayer is said to be highly operationally-intensive, and no alternative relayers emerged beyond the one operated by the core team at Layer Zero Labs.

Despite the team’s assertions of developing a trustless “TCP/IP” for blockchains, LayerZero in its current form does not live up to the claim of being “trustless.” Users essentially rely on a 2-of-2 multisig (Google Cloud and LayerZero Labs) for security. Further, with no central hub that connects all chains, scaling is pairwise and therefore inefficient.

Fortunately, Stargate bridge, which was built by the LayerZero team using the LayerZero protocol, was the most used token bridge in 2023 with no security breaches to date. Currently ~$340m is locked with the bridge, relying on the above trust assumptions. The design inadequacies may have been acknowledged by the team, as they plan an overhaul to the design for V2. For more on LayerZero, I found the recent write-up by Packy McCormick to be informative.

Wormhole

Wormhole, incubated by Jump Trading, is a GMP protocol notable for its early cross-chain connection to non-EVM chains like Solana and Sui. Unfortunately, it was exploited for 120,000 wrapped ETH ($320 million) in 2022 from a bug in the smart contracts. The hacked funds were made whole by Jump. Since then, the project has gained independence from Jump and raised fresh funding to continue its growth.

The core components of its architecture include 1) the Wormhole core contract on the connected chains, 2) the off-chain Guardian network that observes and validates the messages emitted by the core contract, and 3) the relayer that delivers the validated message to the destination chain to be executed.

The Guardian network consists of 19 independent validators that contribute to supermajority consensus (i.e. 13-of-19 multisig) to issue a VAA (Verified Action Approvals). The VAAs are then delivered to the destination chain by the relayers. While not trustless, the structure is more decentralised and robust than LayerZero’s default settings.

Wormhole also incorporates certain customisable features, such as allowing applications to select from three types of relayers (client-side, specialised, standard). However, an important distinction versus LayerZero is that Wormhole relayers cannot compromise security (i.e. don’t have the capacity to tamper with verification outcomes), only liveness (i.e. whether the message is delivered in a timely manner).

The central hub consisting of the Guardian network allows for linear scaling like Axelar.

Chainlink CCIP (Cross-Chain Interoperability Protocol)

Chainlink CCIP is the latest to join the interoperability game, having launched in July 2023. Chainlink is a decentralized oracle network, providing real-world data to blockchains. Data can range from asset price feeds to weather to sports scores, etc. Chainlink’s data integrity relies on independent data providers (called Chainlink nodes) who are reputationally and economically incentivised to provide accurate data. The network also filters out any anomalies before supplying the feeds to the on-chain smart contracts.

To make it more concrete, Chainlink provides real-time Bitcoin price to the Ethereum blockchain by aggregating data from the 31 different data providers that make up this specific decentralised oracle network. The public data dashboard provides transparency around the oracle networks.

CCIP is leveraging Chainlink’s near 1000 decentralised oracles networks (DONs) to also provide cross-chain messaging services. CCIP’s system components are 1) the Router and on/offramp contracts on each chain that initiate/finalise cross-chain transactions and authenticate outgoing/incoming messages and 2) three separate off-chain decentralised networks (committing DON, execution DON and the risk management network) that together monitor, validate and transport cross-chain messages.

Committing DON is much like LayerZero’s “oracle” in its role. It monitors events from the source chain, confirms transactions, bundles them into secure code (Merkle root) and records it on the destination chain.
The Risk Management Network checks for any issues and ‘blesses’ the Merkle root if no anomalies are spotted. This network serves as an additional layer of protection.
Execution DON is much like LayerZero’s “relayer.” It verifies the transaction consistency with the Merkle root that the Committing DON posted on the destination chain, creates a proof of transaction validity for the OffRamp contract to complete the transaction on the destination chain.

Security is offered by three different decentralised networks, each of which requires a quorum of independent node operators to agree on observed data values. Each point-to-point connection or “lane” can have different combinations of the decentralised networks, providing flexibility but succumbing to inefficient quadratic scaling. The presence of multiple independent decentralised networks provides distributed security on top of reputational security, requiring lower trust assumptions when it comes to messaging validation.

However, Chainlink has limited transparency in specific components of the system, which increases risks. The public dashboard provides scant information regarding the composition of the DONs for each lane. Of greater concern is the ability for the core Chainlink team to effectuate upgrades or modifications to the contracts through a 4-8 multisig mechanism. As such, users are beholden to the integrity and good intentions of Chainlink’s multisig keyholders.

As a bluechip oracle network, Chainlink has brand recognition that could be harnessed to attract partnerships. Recent examples are the partnership announcements with Aave and Synthetix in DeFi but also SWIFT. However, given the complexity of cross-chain protocols and the past exploits, CCIP would benefit from time in the market.

Axelar

Axelar is a blockchain connecting other blockchains. It is a delegated Proof-of-Stake (PoS) chain developed using the Cosmos SDK. Its blockchain architecture ensures full on-chain transparency and enhanced security through crypto-economic mechanisms (i.e. staking). These elements distinguish Axelar from competitors.

The components of the network are the 1) the gateway contracts and 2) the dPoS chain

Gateway contracts interface with applications and contain the logic that passes messages between the connected chains and the Axelar network.
dPoS network relies on 75 independent validators that operate light clients on connected chains to monitor the state of the network, authenticate transactions and manage cross-chain communication. The AXL holders stake their tokens with chosen validators, giving validators voting power for both cross-chain messaging validation and gateway contract upgrades.
Axelar has implemented two additional security features in the dPoS network: quadratic voting and key rotation. Quadratic voting allocates votes to each validator based on the square root of his/her stake, reducing voting power concentration and enhancing decentralisation. The top validator at the time of writing holds 7.0% of staked AXL tokens, but wields only 3.4% voting power with quadratic voting. Validators must also periodically rotate the cryptographic keys that allow them to co-authorise cross-chain requests. This provides another layer of protection from attackers.

Beyond its superior network design, Axelar is further setting itself apart from its competitors by expanding its tech stack. In 2023, Axelar introduced the Axelar Virtual Machine (AVM), which turns the network into a fully programmable interoperability layer. Leveraging the AVM and Axelar’s hub-and-spoke architecture, application developers can better design and manage cross-chain functionalities. The concept is somewhat difficult to grasp for non-developers, so we help our understanding with concrete examples.

For applications integrating with point-to-point GMPs like LayerZero or Chainlink, cross-chain interactions will resemble below left, where multiple deployments send multiple messages to multiple connected chains. This can become complex very quickly, with messages at a greater risk of being executed out of order. On the other hand, building on Axelar with an interchain focus will resemble below right, where global logic programmed on the “Homebase chain” can orchestrate cross-chain calls in a more orderly and secure way.

For example, consider an application seeking to launch a token across 10 EVM chains with some safety rules. The Axelar VM allows developers to encode custom rules like rate limits by chain, such as: “Enforce every 12 hours, a $10 million limit on Ethereum, a $5 million limit on Avalanche and a $1 million limit on Polygon.” When a message is passed from Ethereum to Avalanche, the program on Axelar ensures that the message doesn’t violate the rate limits. On non-programmable, point-to-point GMPs like Chainlink, implementing such global custom logic is not possible; developers have to define rate limits per individual connection, which adds overheads.

2.3. GMP Comparison Summary

The deep dive into each protocol can be distilled into the evaluation summary in the RAG chart below.

As articulated above, a quality messenger is both secure (trust-minimised) and scalable. A comparative analysis of the critical factors underscores Axelar’s robust fundamentals relative to its competitors.

2.4. Team & Integrations

Axelar was developed by a highly technical team with a background in distributed systems design and cryptography. The co-founders Sergey Gorbunov and Georgios Vlachos, both MIT alumni, were previously part of Algorand’s founding team. It was while building Algorand that they recognised that the future would be multi-chain and foresaw the need for a robust interoperability standard.

In 2023, the team achieved noteworthy integration milestones, broadening the ecosystem to prominent DeFi and enterprise partners such as dYdX, Lido, Ondo, Microsoft, JP Morgan and Mastercard. The team suggests that its robust architecture appears to be showing signs of recognition among application developers. Despite being in the initial stages, these partnerships serve as a leading indicator for Axelar’s exciting growth ahead.

Early evidence from Axelar’s network usage shows that generalised messages (depicted in orange) constitute a substantially larger market than token transfers (depicted in blue).

3. Path to Sustainable Value Transmission to Token Holders

3.1. Tokenomics

AXL is the native token of the Axelar blockchain. It is used for:

Payment for gas on Axelar
Staking to provide security to the network and earn rewards
Governance for stake-weighted voting

Axelar’s Gas Receiver enables users to prepay the full estimated cost of the cross-chain transactions with just one click on the source chain. On the backend, the gas receiver converts source chain tokens into AXL and destination chain tokens to cover corresponding network gas fees.

Given the above, Axelar’s theoretical “income statement” can be delineated as:

Revenue: Total amount of upfront user gas fees
Costs: Source chain and destination chain gas fees that Axelar gas receiver has to pay out
Profit: Axelar’s own gas fees. Gas is said to be approximately 0.2 AXL per transaction (~$0.21 based on today’s price).

Meanwhile, the AXL supply dynamics are shaped by the following:

Two types of token inflation incentivise stakers and validators:
- Base inflation: Fixed at 1% p.a
- External chain inflation: Paid per chain to encourage validators to connect to specific chains. Inflation per chain is intended to decline as network usage grows. In December, a governance vote reduced Axelar’s external chain inflation from 0.75% per EVM chain to 0.3%. Consequently, total inflation has reduced from 11.5% to 6.7%.
A gas burning mechanism could be implemented in the future, which would align AXL tokenomics closer to the Ethereum model. With enough transaction volumes, gas fee burn could more than offset inflation and set AXL on a deflationary trajectory. Initial discussions can be found here.
41% of tokens are unlocked. Unlocks for the core team and early investors continue in a linear fashion until 2027.

It is worth bearing in mind that Axelar’s unit economics and token inflation will likely evolve with network scaling and technology improvements.

In the medium-term, network usage is expected to shift towards Axelar Virtual Machine (AVM) connections, enabling applications to connect to new chains and directly incentivise validators running those connections. This shift could eliminate the need for external chain inflation (i.e. inflation reduction).
Longer-term, validity proofs may allow Axelar to utilise light clients with zero-knowledge proofs, potentially rendering external validators and associated incentives unnecessary. AXL would then be used to compensate relayers (i.e. increased token utility).

3.2. Valuation

We attempt a 5-year base and bull case valuation for the Axelar network below.

Base: Total blockchain transactions grow 30% CAGR from 16 billion to 58 billion. We assume cross-chain market share grows to 10% of all blockchain transactions and Axelar’s market share reaches 25% - an even distribution between the 4 major players. Assuming gas fees of 0.2 AXL ($0.21 based on today’s price), we see Axelar’s transaction count growing to ~1.5 billion and its gas fees reaching $309 million. Fair value at 30x earnings implies a network value of $9.3 billion (nearly 8x from today).

Bull: Total blockchain transactions grow 50% CAGR to 119 billion. We assume cross-chain market share grows to 30% of all blockchain transactions and Axelar’s market share reaches 50% as it emerges as the leader in the GMP space. Assuming gas fees of 0.2 AXL ($0.21 based on today’s price), Axelar’s transaction count grows to ~18 billion and its gas fees reach $3.8 billion. Fair value at 30x earnings implies network value of $114 billion (nearly 100x from today).

3.3. Risk Considerations & Monitoring Criteria

Bugs in the Gateway smart contracts can lead to exploits. Axelar’s proactivity with recurring audits and bounties helps mitigate this risk. Furthermore, its hub-and-spoke topology can efficiently isolate compromised chains.
Developers may not readily adapt to the interchain development framework. Developer education is key. Axelar has been conducting online workshops to showcase the possibilities enabled by its technology stack. Indicators such as number of interchain applications or interchain tokens launched will evidence progress.
CCIP could gain market share by leveraging its existing oracle relationships. While we believe that Axelar’s differentiation - particularly with the AVM and on-chain transparency - could help limit the potential distributional advantage of Chainlink, we will be closely monitoring CCIP’s progress.
LayerZero’s V2 upgrade proposes replacing the verification responsibilities of the oracle and the relayer with DVNs (Decentralised Verifier Networks). DVNs will leverage multiple networks (including Axelar and CCIP) to essentially create a trust-minimised wrapper for cross-chain messaging verification. The debate revolves around the extent to which applications will necessitate LayerZero over directly configuring customisable security themselves.
Light clients with direct verification. Projects like Polymer are attempting to extend IBC to the Ethereum ecosystem. The current challenge for this approach is scalability for chains with different consensus mechanisms. In the future, advancements in zero-knowledge (zk) proofs may facilitate direct state verification among chains without the need for external validation. When the time comes, Axelar’s architecture could integrate new validation methods, allowing applications to choose their preferred validation pathways. We plan to stay abreast of the technological developments and potential disruptors.

Special thanks to Georgios Vlachos (Co-Founder of Axelar), Mark (LayerZero Labs), Yussef Robinson (Baillie Gifford), Eric Siu and Zion Schum (TFL) for their review, challenge and input.

LEGAL DISCLAIMERS:

This content serves solely for informational purposes and should not be considered as investment advice. It is not designed, nor should it be utilised, as legal, tax, investment, accounting, or any other form of advice. This content is not an offer to sell or a solicitation to purchase any securities, investment product, or engage in any investment advisory service.
This content does not constitute a recommendation for any security or investment. No part of this content should be construed or employed in any manner as investment advice. The details presented regarding these portfolio investments are for informational purposes only and are not indicative of the current or future performance of Progrmd Capital’s portfolio investments.

Axelar Thesis: Enabling the Globalisation of Blockchains

Radworks Thesis: Powering the “Read Write Own” Revolution for Developers

Progrmd’s Analysis Framework