The Key to Multichain Interoperability: Axelar

10 min readSep 28, 2024

I remembered the first time I tried to move funds between two different blockchain ecosystems – it was stressful, to say the least.

I had to trust a centralized service to handle my assets, and every step felt like a gamble.

That anxiety, coupled with high fees, made me question whether blockchain really lived up to its promise of being decentralized and seamless.

The Axelar Network shows potential in enabling a better multichain future.

Here's why I think so

The Interoperability Problem: Why Existing Solutions Fall Short

A possible explanation to this is that as much as we have several blockchains popping up every day, there are limited ways to connect all of them to interact with each other.

Blockchains are excellent at confirming events on their chain, but they struggle to communicate with one another — almost as if they don’t understand one another.

This presents us with a fragmented blockchain space, which is a really big problem for a concept that always yearns for mass adoption, like what is the need of onboarding people into a platform they can’t seamlessly use without going through complex processes.

If you’ve ever tried to move assets between blockchains or connect different decentralized applications (dApps), you’ve likely encountered one of the four main types of interoperability solutions:

Centralized Systems:

Think of centralized exchanges like Binance or Coinbase. They offer interoperability between blockchains, but the problem is clear — security and transparency.

Pause. Lets talk about our favorite guy right now, Malone Lam, who is currently accused of stealing and laundering $230 million, even after using several crypto mixers. So wait a minute. Who do you think snitched? Definitely not his CEX exchange.

Maybe we also forgot how FTX almost crashed the world economy because of its lack of transparency.

2.Interoperability Hubs:

Projects like Cosmos and Polkadot attempt to address this by creating ecosystems of sidechains.

But the problem is, these hubs often struggle to connect with external blockchains that aren’t built on their specific frameworks.

3.Wrapped Assets:

Wrapped assets are an alternative that entails locking up your money (like Ethereum) and getting wrapped ETH on another chain (like Bitcoin).

It still comes down to trusting a third party or group of third parties, depending on who is in charge of managing those locked funds, much like with wETH.

4.Bridges

Bridges are used to enable cross-chain communication, increase transaction flexibility, reduce fees, improve scalability and network congestion.

However, they also present security challenges, as they are critical points of communication between the two networks and can be targeted by malicious actors.

Ronin Bridge (March 2022)| loses — $624m | exploit — Private Key Compromised (Social Engineering):
Poly Network (August 2021)| loses — $612m | exploit — Access Control
BNB Bridge (October 2022)| loses — $566m | exploit — Proof Verifier
Wormhole Bridge (February 2022)| loses — $326m | exploit — Signature
Nomad Bridge (August 2022)| loses — $190m | exploit — Trusted Root

Surely 2022 was really bad for the bridge market, but a close look at the cause of exploits highlights the problem here: Security and Centralization

For example, the Ronin Network hack happened when attackers got hold of private keys, taking control of four validators from Sky Mavis (the company behind it) and one from Axie DAO. This let them authorize fake transactions.

The breach was possible because Sky Mavis focused more on performance than safety and didn’t properly limit access or monitor activity.

For me, as I’ve experienced firsthand some of the problems with these solutions, the real issue with these solutions is that they all require extensive engineering or come with a high degree of risk.
There’s a need for something simpler, something that lets developers and users move assets and data between blockchains without a headache. That’s where Axelar comes in, but first let’s introduce cross-chain messaging, which is the key to achieving this.

Cross-chain messaging

Cross-chain messaging protocols aim to do more than just move tokens between blockchains. Instead, they’ll allow smart contract networks to receive and execute instructions from both chains. This shifts the focus from transferring only value like tokens to sharing contracts across chains.

If cross-chain messaging is fully realized, we could see apps that allow:

Governance over multiple blockchains
Aggregated DeFi services from different ecosystems
Super wallets where one address manages accounts across various chains

Now lets look at a product pioneering this approach, AXELAR.

Axelar: Scaling the Internet of Blockchains

Axelar takes a fundamentally different approach by offering a hub-and-spoke model that connects any blockchain ecosystem, whether it’s Bitcoin, Ethereum, or even Cosmos. It’s like the glue that binds the blockchain universe together.

Axelar uses a hub-and-spoke architecture, where it acts as a central hub connecting various blockchains (the spokes).

The enhances security; if an issue arises on one blockchain, it can be isolated without affecting the others. This containment is not possible in pairwise networks, where problems can spread more easily.

Axelar Makeup

The Axelar network is an open platform that allows anyone to join and participate in cross-chain communication. It has two main parts:

1.Cross-Chain Gateway Protocol (CGP)

This protocol serve as the interface for the application contracts on any chain to interact with contracts on other chains. They are responsible for facilitating the request and response flow between different chains.. It uses a group of decentralized node-runners to manage and deliver data packets.

2. Cross-Chain Transfer Protocol (CTP)

This part allows decentralized applications (dApps) to communicate across different blockchains using a simple API. It enables users to transfer assets and update information between blockchains easily.

How does Axelar Work ?

Axelar works by connecting different blockchains, making it easier for them to communicate. Here’s a breakdown of how it operates:

Network of Validators:

Validators manage the system by sending information between blockchains. They monitor at least one other blockchain to verify its transactions and vote on them.

2. Secure Gateway Contracts:

These contracts are what we discussed earlier which act as bridges between Axelar and other blockchains. Validators watch these gateways and agree on how to execute actions on the target blockchain.

3. SDK/API:

Axelar offers tools for developers to build dApps that work across multiple blockchains. This allows users to transfer assets and perform actions without needing different tokens for each blockchain.

Why Axelar Matters to Users

Axelar doesn’t just make interoperability possible; it makes it easy for mass adoption. Here’s why this matters to you as a user:

Cross-Chain Swaps: You can swap native tokens across different blockchains with a single click, thanks to protocols like Squid that leverage Axelar’s infrastructure. This beats having to rely on centralized exchanges that often have high fees and slower transactions.
NFTs and DeFi: Axelar opens up a world of possibilities by allowing you to use NFTs as collateral in DeFi applications on any blockchain. Imagine locking up your Ethereum-based NFT to borrow funds on a DeFi app on another chain.
Universal AMM & Lending: Axelar supports liquidity pooling from any asset, across all chains. For instance, Prime Protocol uses Axelar to offer cross-chain collateralized loans, combining the best of traditional finance with DeFi’s flexibility.
Open Gaming: Axelar also makes it possible to turn assets from any blockchain into in-game currencies, revolutionizing the way we think about gaming on blockchain platforms.

Why Developers Love Axelar: The Axelar Virtual Machine (AVM)

As a developer, I’m sure you’ve felt the frustration of trying to make your dApp work across multiple chains. The Axelar Virtual Machine (AVM), built on Cosmwasm, allows developers to run smart contracts across multiple blockchains securely.

Key features include:

Interchain Token Service (ITS): Developers can issue tokens that function seamlessly across blockchains, retaining all of their unique properties.
Interchain Maestro: Think of it as the DevOps for blockchain — it helps you manage your dApp across multiple chains with ease.
Interchain Amplifier: A toolkit that allows developers to quickly and securely connect new blockchains to the Axelar network.

In short, the AVM makes it easier to build apps that span the entire blockchain world without being bogged down by the technical challenges of interoperability.

Axelar vs. Other Interoperability Protocols

Here’s how Axelar stacks up against other big names in the interoperability space:

Polkadot: While Polkadot uses parachains, they’re limited to the Polkadot ecosystem. Axelar, being blockchain-agnostic, can connect any blockchain, allowing for true cross-chain function calls.
Cosmos: Cosmos uses IBC, but it requires extensive engineering work to integrate. Axelar simplifies the process with plug-and-play functionality, allowing developers to connect blockchains with minimal effort.
Wormhole: Wormhole uses proof-of-authority, which lacks decentralization. Axelar’s proof-of-stake model ensures a more decentralized and secure system, reducing the risk of central points of failure.Axelar’s hub-and-spoke model also gives it an edge in scalability and security, preventing the cascading failures that can happen in pairwise systems like Wormhole’s.

Axelar’s Approach to Chain Abstraction

What really excites me about Axelar is its approach to chain abstraction. For developers and users alike, interacting with multiple blockchains can be a pain, especially when you have to manage different gas fees and architectures. But Axelar simplifies this through:

Axelar Gas Services: Automating gas token conversions, so you can pay fees in your native token without needing destination-chain tokens.
One-Time Deposit Addresses: These make cross-chain transactions as easy as sending tokens to a single address, just like a centralized exchange, but fully decentralized.

This kind of abstraction hides the complexity and lets developers focus on building amazing apps rather than wrestling with cross-chain challenges.

AXL Token

Axelar’s security relies on a proof-of-stake system using the AXL token, allowing anyone to become a validator and help secure the network.It also plays a vital role in;

Staking: Validators stake $AXL to participate in the network and secure it. This incentivizes them to act honestly and perform their duties efficiently.
Transaction Fees: Although $AXL is used to pay fees, users don’t need to hold it directly, as Axelar’s smart contracts handle gas conversions.
Governance: $AXL holders have a say in how the network evolves, voting on protocol upgrades and other key decisions.

What’s even more interesting is Axelar’s quadratic voting system, which ensures that large stakers don’t dominate governance. This keeps the network more decentralized and fair.

axlUSDC

axlUSDC is a wrapped, multi-chain version of USDC, a stablecoin pegged to the dollar. For every axlUSDC created, an equivalent amount of USDC is locked in an Axelar Gateway on Ethereum.

The security of axlUSDC comes from a dynamic group of validators using delegated proof-of-stake, who hold key shares in the Axelar Gateways through multi-party cryptography.

Security

Axelar offers several security features to protect its cross-chain operations:

IBC Security: Axelar uses the Inter-Blockchain Communication (IBC) protocol, known for secure cross-chain communication, to interact with other IBC-compatible chains.
Isolated Module Functionalities: Functions are divided into separate modules, isolating different blockchains to prevent risks from spreading between networks (e.g., separate modules for EVM and IBC-enabled chains).
Transfer Freezing: Axelar can halt transfers from specific or all chains in response to attacks or critical events, ensuring security during emergencies.
Rate-Limit Protection: Axelar’s ERC-20 contracts have rate limits to minimize the impact of attacks, restricting the amount of funds that can be stolen.
AXL Token Economics: The AXL token incentivizes validator honesty and decentralization by offering staking rewards, encouraging broad participation in governance.
Unlimited Validators: Axelar’s decentralized proof-of-stake consensus can support an unlimited number of validators. Currently, it has a cap of 50 validators, which can be expanded through governance.

Personal closing thoughts

First off, as someone new to exploring Axelar, I’m really impressed by its potential. The technology seems poised to revolutionize how blockchains communicate, offering a seamless way to connect different ecosystems. The simplicity and ease of use stand out, which is a refreshing change compared to the complexity of most cross-chain solutions.

It’s clear that Axelar is set to power some innovative applications, and I’m excited to see how it evolves, especially as they expand support for more chains. However, one concern that comes to mind is the risk of centralization. If Axelar becomes the primary hub for cross-chain interactions, it could also become a target for attacks or a potential bottleneck. Increasing validator decentralization could be key to addressing this.

Overall, Axelar is definitely a project to keep an eye on. Its approach to cross-chain communication has the potential to drive a lot of growth in the blockchain space. Looking forward to seeing where they go from here!