Axelar is the latest entrant in the cross-chain field. With competition in the space heating up, does Axelar have an edge?
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Introduction
For the technically oriented investor, the Axelar story holds a lot of promise. Axelar has a strong sales narrative from a technical perspective. The core idea being the ability to seamlessly pass messages to and from different blockchain ecosystems.
To be sure, there are many competitors in the space. Polkadot, Cosmos, and Layer Zero come to mind. From an investing perspective, this is very much like picking a horse in a race of unknown horses. Figuring out which might cross the line first is a doozy of a problem.
The state of cross-chain development
From a development perspective, cross-chain solutions may be closer to cellular network protocols than internet protocols. And much like cellular networks, it’s not crazy to expect rapid changes as connectivity, security, and throughput increase.
In other words, it’s hard to buy in to the idea that one particular cross-chain solution will come to dominate like TCP/IP, FTP, and UDP did for the internet. With the development of cellular network protocols, massive infrastructure expenditures were born all through the nineties right up to the 5G deployments today.
The major cell providers are more than willing to pay those funds in order to stay current and competitive. With blockchain interconnectivity, the infrastructure is code based, so the reasoning goes: if there’s a better, faster, cheaper way, devs are probably going to adopt it.
On the other hand, there is a fair argument that the various blockchains deployed are more akin to operating systems than networks. dApps are decentralised applications after all. Anecdotally speaking, applications run on operating systems.
Much as a Linux machine can communicate with MacOS and Windows via the internet, there is a plausible future where blockchain based dApps communicate in a similar fashion. Moreover, the blockchain space is developing much as the early internet did, which is to say, largely without regulatory clarity or oversight.
Perhaps the safest thing to say is, it’s still anyone’s guess where this is all headed. But if you’ve already missed the Polkadot and Cosmos boats (or at least the really juicy entry prices), Axelar might be worth a look.
A Cross-Chain Comparison
When thinking about an investment in a new project like this, a logical question to ask is: “what makes Axelar stand out?” Let’s break down the rough logic behind protocols mentioned thus far.
Polkadot / Cosmos
Obviously different protocols entirely, but breaking down the underlying logic, they are perhaps more similar than it might seem. At the core of both is the idea that the best way to handle cross-chain communication is through an isomorphic ecosystem.
As in, build one central relay chain and then deploy and connect “new”, but similar (enough) chains as needed. For Polkadot, the end result is a sort of “roll your own” chain design. However, the deployment of the parachain auctions was hampered by delays and only just recently rolled out.
With Cosmos, it was more of a “roll your own” security design. For devs, building a new chain was simplified, but managing security was left to each new entrant. When Cosmos finalised the Inter-Blockchain Communication Protocol, development pivoted to providing shared security through the ATOM token.
In turn, this ties into one of the big complaints about ATOM. While the Cosmos ecosystem is really well developed, with some major name players, the native ATOM token was derided for not capturing value from those deployments. With the shared security arrangement, it seems Cosmos is trying to address the security and value capture issues in one shot.
However, with both Polkadot and Cosmos, cross-chain communication beyond their respective ecosystems is possible, but not the priority. In both instances, bridging is still required to move assets in or out of these ecosystems to other chains such as Fantom, Avalanche, or Ethereum.
Layer Zero
Layer Zero’s approach is quite a bit different. Layer Zero utilises ultra-light endpoints to relay information between sovereign chains. A third-party oracle service (Chainlink) sits between the endpoints and acts as the transactional and messaging security mechanism.
For applications already deployed on the various Layer 1 blockchains, this approach is probably one of the easiest to navigate for the devs. If they’ve already built out a dApp on Fantom, for instance, it’s a relatively simple matter to plug into the endpoint scheme and be moving cross-chain in short-order.
The Stargate deployment demonstrates just how much efficiency can be gained by using the Layer Zero approach. For anyone that hasn’t used Stargate yet, I’d recommend you give it a whirl. Then go try Wormhole, or some other bridging scheme and see which you prefer.
Axelar
Axelar is somewhere in between. The Axelar network has a stand-alone consensus chain that passes information between chains. The overriding goal with Axelar is to provide a standardised protocol for cross-chain messaging.
Axelar provides devs with a software development kit (SDK) and promises a straightforward implementation path. Similar to Layer Zero, devs have the choice of Layer 1 chains for their dApp deployment. Devs can then use the unified Axelar protocol to accomplish cross-chain functionality.
The core components are the Cross-chain Gateway Protocol (CGP) and the Cross-chain Transfer Protocol (CTP). As the whitepaper explains, CGP can be considered analogous to the internet Border Gateway Protocol (BGP), while CTP is similar in function to internet Hyper-text Transfer Protocol (HTTP) / File Transfer Protocol (FTP).
The end result is native asset transfers and universal messaging with a simple smart contract call. Here’s an overview of the technology stack:
Moreover, Axelar already has a functional beta cross-chain swap, Satellite. Impressively, Satellite can move assets between both Ethereum Virtual Machine (EVM) and non-EVM compatible chains, such as Terra.
Perhaps the biggest issue facing Axelar is whether or not devs are willing to adopt the network. With mass Layer 1 adoption, Axelar would, in essence, become the de facto standard for cross-chain interoperability. That’s a lot of eggs in one basket.
The trade-off between Layer Zero and Axelar boils down to: will devs prefer their intermediary to be a third-party Oracle, like Chainlink? Or will they prefer their intermediary to be a third chain, like Axelar?
At first blush, Layer Zero seems like it might have an edge. The cost to deploy is certainly lower at the outset. But with the in-line oracle function, devs have to consider transactional costs through the Chainlink Market. In turn, Axelar may have a higher up-front deployment cost, but Axelar is directly receiving block data, and will likely have a more predictable fee structure as a result.
Not to mention, of all the protocols mentioned thus far, Cosmos is certainly the best developed. But compared to the number of Solidity based dApps already deployed on EVM-compatible chains, the Cosmos ecosystem represents just a fraction.
However, with Cosmos’ Inter-Blockchain Communication protocol (IBC), Axelar-like functionality may be on the horizon. IBC is rock-solid in Cosmo land. Whether or not they can translate that to chains like Ethereum remains to be seen.
With all that said, at the end of the day, it’s nearly impossible to say which way the cross-chain winds are going to blow.
Axelar Tokenomics
Whether or not Axelar ends up at the top of cross-chain mountain may be a guess. But if one is thinking about investing (and I am), a look at the tokenomics is a necessary step.
And for me, the tokenomics give me a little pause. Axelar’s initial distribution heavily favours early backers. Around 25% of the tokens went to seed and early round investors for dirt cheap.
As you can see from the chart above, the early VCs have basically 10x’d their bags by the time the Series A round dropped. Moreover, they had a fat 35x by the end of Series B. Easy money.
In total, nearly 50% of all tokens went to the core team and early investors. A tiny little chunk went to the Community sale. In defence of this distribution, there is an argument to be made the early investors took more of a “risk” by being early.
My counter is, the DEX buying, wage-earning schlep is pretty “early” too, and is taking on WAY more downside risk, with WAY less capital to cushion the blow if Axelar flops after launch.
The Axelar token is mildly inflationary as well. The inflation rate is variable based on the number of blockchains that join in. While it looks a little screwball, if you take the time to break it all down, it’s not terrible.
The sale to the general public was set to be on May 11, but was pushed to June 1. As with most things crypto, heaven only knows what that sale is going to look like in terms of early price action.
Axelar General Sale
Big question is: is it worth investing in? Probably. The trouble with investing in any crypto is how early we all are in the space. It’s really difficult to figure out which projects will endure and which will fail. The easy answer is most will fail.
With the cross-chain space, one only need look as far as Wanchain. Cross-chain connectivity that is going to revolutionise crypto? Wanchain was there back in 2018. Token topped out around $10 on the hype.
It’s trading at $0.39 today. Basically dead.
Things have changed since then to be sure. What we can say with some clarity is there are thousands of dApps deployed across dozens of sovereign blockchains. Given that depth of deployment, it seems likely a functional cross-chain solution will join those ecosystems together.
Polkadot isn’t there yet. Cosmos isn’t there yet. Layer Zero seems closer. Axelar is right behind. From my vantage point, I’m keeping an eye on Axelar’s June 1 launch. If the token comes out around the Series B price, I’ll probably take a position.
If it pumps hard out of the gate, I’ll sit it out. I think the tech is next level. The devs are solid and definitely have a project with great potential. Will it be the unified cross-chain protocol the Axelar team envisions?
Maybe. But hey, you can’t win if you don’t play.
Of course, these are just my opinions. I’m not a financial advisor, this isn’t financial advice, and always DYOR. Following any of these ideas might cause you to lose all of your money. I am 100% serious about that. I like tinkering with this stuff, but I’m on record acting like a total baboon. Invest accordingly.
Until next time, be safe, be smart and be sure to tie the camel.
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