Axelar (AXL): Building Interoperability for the Crypto World

By Rayna Ishihara | Crescent City Capital Market Analyst Intern

What is Axelar Network

The Axelar Network stands as a decentralized framework pivotal in enabling seamless cross-chain transactions. At its core lies the Cross-Chain Gateway Protocol (CGP), a foundational element facilitating interoperability across diverse blockchain networks. Unlike conventional solutions, Axelar’s architecture imposes no limitations on consensus rules, thereby streamlining the process of integrating new chains and transferring data between them.

Initially conceived in 2020, Axelar emerged as more than a mere interoperability hub within the Cosmos ecosystem. Its vision extends far beyond, aiming to revolutionize the landscape of Web3 communication. By leveraging proof-of-stake consensus, Axelar provides a robust infrastructure featuring advanced functionalities such as general message passing and a Turing-complete virtual machine. This sophisticated framework empowers dApp users to seamlessly interact with a myriad of assets and applications, irrespective of the underlying blockchain technology.

In a rapidly evolving blockchain ecosystem characterized by the proliferation of modular chains, Layer-2 rollups, and specialized networks, Axelar fills a crucial gap. The market lacks cost-effective solutions for developers seeking to traverse multiple multichain environments. Axelar steps in as a beacon of innovation, offering developers secure cross-chain development platforms equipped with intuitive APIs and SDKs. These developer-centric resources facilitate easy integration, making Axelar an ideal choice for dApps looking to swiftly incorporate cross-chain capabilities into their projects.

One of Axelar’s primary objectives is to alleviate the friction caused by the fragmentation of liquidity, services, and user bases across disparate blockchain ecosystems. Unlike conventional interoperability solutions focused solely on asset transfer, Axelar adopts a holistic approach. It enables complex cross-chain functions, including permissionless overlay programmability, execution of smart contracts, and deployment of decentralized applications (dApps) across interconnected networks.

The Axelar community remains committed to scaling the network’s reach by employing a multifaceted strategy. This strategy encompasses adjustments to the network’s economic structure, the introduction of the Axelar Virtual Machine to support permissionless connections, and the exploration of efficient solutions like light clients. These initiatives aim to expand Axelar’s connectivity to hundreds of blockchain networks, ensuring its relevance and impact in an increasingly interconnected digital landscape.

Technology

Axelar Network is driven by a sophisticated technological architecture comprising three fundamental components. Firstly, it relies on a decentralized network foundation, predominantly constructed using open-source Cosmos technologies. Secondly, it incorporates a suite of gateway smart contracts facilitating seamless connectivity between the Axelar network and its array of interconnected external chains. Finally, Axelar offers a comprehensive software development kit (SDK) equipped with essential developer tools and APIs, including the Axelarscan block explorer, essential for tracking cross-chain transactions.

In terms of consensus and security mechanisms, Axelar implements a Delegated Proof-of-Stake (DPoS) consensus model. This mechanism empowers validators to produce new blocks, engage in multiparty signing, and participate in the voting process concerning the states of external chains. Token holders play a crucial role by staking AXL tokens through delegation to validator staking pools. However, Axelar adopts a proactive approach to mitigate the potential risks associated with concentration of voting power among a few dominant stakeholders. It achieves this through quadratic voting, where the voting power doesn’t increase linearly with stake. Validators must exponentially increase their delegated stake to enhance their voting power, thus fostering a more decentralized governance model.

Axelar incorporates various network functions designed to bolster security and resilience. These include the ability to suspend traffic from malicious interconnected chains and enforce contract limits that regulate the volume of transfers over specified time intervals. Notably, Axelar’s hub-and-spoke network topology enhances the effectiveness of these security measures. This was evident during the Multichain collapse, where cross-chain swap services built using Axelar remained secure and liquid by isolating compromised connections.

The introduction of the Axelar Virtual Machine (AVM) marks a significant advancement, expanding Axelar’s capabilities beyond mere bridging and message passing. The AVM enables developers to deploy smart contracts on Axelar, facilitating the development of cross-chain developer tooling. This empowers developers to streamline cross-chain tasks such as token conversions, ultimately enhancing user experience. Notably, the AVM operates on a permissionless basis, enabling any developer to leverage its capabilities. The Axelar Foundation actively supports development teams in scaling the ecosystem, enhancing security, and designing interchain orchestration templates on the AVM. Notably, security remains a paramount concern for Axelar, with a robust framework comprising proof-of-stake decentralized design, novel quadratic voting mechanisms, validator security policies, and rigorous auditing and bug bounty programs. These measures collectively ensure the integrity and resilience of the Axelar Network in the face of evolving security challenges.

Axelar Token

$AXL serves as the native token underpinning the Axelar Network, functioning within a proof-of-stake ecosystem that supports the smart-contract capabilities pivotal in making Axelar a versatile and programmable interchain layer across Web3. Recently, the Axelar Foundation elucidated the various facets of $AXL in a comprehensive blog post, shedding light on its utility within the network and the advantages it confers upon tokenholders and validators who engage in activities supporting the network’s operations.

Distinguishing itself from conventional cross-chain bridges, Axelar introduces the concept of General Message Passing (GMP), enabling applications to seamlessly interconnect liquidity and computational resources across diverse blockchains. This capability empowers developers to compose functionalities and services across multiple networks securely and seamlessly.

Moreover, $AXL facilitates programmability at the interchain layer itself, fostering an open marketplace of services and advanced developer tooling. This holistic approach, termed full-stack interoperability, is instrumental in catering to the evolving needs of Web3 developers, enabling them to leverage Axelar’s infrastructure to its fullest potential.

Key to the functioning of Axelar’s network is its battle-tested proof-of-stake consensus mechanism. Validators play a pivotal role in producing new blocks, engaging in multiparty signing, and participating in the governance of external chain states. Tokenholders contribute to the network’s security and governance by staking $AXL tokens, delegating them to validator staking pools, and receiving rewards in return, net of the validator’s commission.

$AXL serves multiple purposes within the Axelar ecosystem. Firstly, it facilitates governance, granting stakers the authority to participate in decision-making processes regarding proposals such as parameter changes or protocol upgrades. Additionally, $AXL is utilized to pay network transaction fees to validators and tokenholders. However, users of the Axelar Network are not mandated to hold $AXL tokens directly. The conversion of tokens into $AXL and destination-chain tokens is seamlessly managed through smart-contract logic on the backend, thereby ensuring a frictionless user experience.

The rewards distributed within the Axelar Network are “inflationary” in nature, effectively increasing the total supply of $AXL tokens. However, there exists the potential for the supply to transition towards a deflationary trajectory, primarily driven by the transaction fee mechanics. Any surplus resulting from conversions and fee payments on other chains may be refunded to users or utilized in buyback-and-burn initiatives, thus contributing to a reduction in the token supply over time.

Summary

The Axelar Network represents a decentralized platform engineered to facilitate smooth communication and interoperability across multiple blockchain networks within the Web3 ecosystem. At its core, Axelar employs a suite of innovative technologies, including the Cross-Chain Gateway Protocol (CGP) and a Delegated Proof-of-Stake (DPoS) consensus mechanism, to ensure secure and efficient cross-chain transactions.

Central to the Axelar Network is its decentralized network infrastructure, primarily constructed using open-source Cosmos technologies. This decentralized framework serves as the foundation for enabling communication and data transfer between different blockchain networks, establishing seamless connectivity across disparate ecosystems.

Complementing the decentralized network is a set of gateway smart contracts, a crucial component that bridges the Axelar network with external chains. These gateway smart contracts facilitate the interoperability between Axelar and other blockchain networks, enabling seamless data exchange and transaction processing across various platforms.

In addition to its technical infrastructure, Axelar offers a comprehensive Software Development Kit (SDK) tailored to developers. This SDK comprises a suite of developer tools and APIs, including the Axelarscan block explorer, designed to streamline the integration of cross-chain functionalities into decentralized applications (dApps). By providing developers with the necessary resources, Axelar empowers them to build innovative cross-chain applications and services seamlessly.

One of Axelar’s key innovations lies in its approach to cross-chain communication. Unlike traditional bridges, Axelar introduces General Message Passing (GMP) capabilities, allowing applications to compose liquidity and computational resources across multiple blockchains securely. This full-stack interoperability enables developers to create advanced cross-chain applications and services, thereby enhancing the overall user experience within the Web3 landscape.

Moreover, Axelar’s native token, $AXL, plays a pivotal role within the network’s ecosystem. Tokenholders and validators utilize $AXL for governance, transaction fee payments, and active participation in network operations. The tokenomics of $AXL are designed to incentivize network security, governance participation, and potential deflationary dynamics through mechanisms such as buyback-and-burn programs.

Recent Updates

The live AXL price on March 16th is $2.01 USD with a 24-hour trading volume of $40,259,043 USD. It has a circulating supply of 598,951,841 AXL tokens.

Market Analysis

Axelar distinguishes itself from other cross-chain interoperability solutions through several unique characteristics. Firstly, it operates within a decentralized framework, inviting participation from anyone interested in contributing to its network. This inclusive approach fosters a diverse and robust ecosystem, ensuring the resilience and sustainability of the platform.

Secondly, Axelar adopts a universal approach to connectivity, allowing for seamless interoperability across a wide range of blockchain networks, including Layer 1 (L1), Layer 2 (L2), Proof of Work (PoW), and Proof of Stake (PoS) chains. This versatility enables Axelar to scale effectively and adapt to the evolving landscape of blockchain technologies.

Another distinguishing feature of Axelar is its ability to perform cross-ecosystem message routing and translation functionalities. This capability allows for efficient and secure communication between different blockchain ecosystems, facilitating the seamless exchange of data and assets across disparate platforms.

Moreover, Axelar stands out for its commitment to openness and accessibility. The platform welcomes any developer who wishes to integrate with its network, offering a suite of protocols, APIs, and developer tools to streamline the cross-chain development process. This approach empowers developers to build cross-chain applications without the need to learn a new programming language, thereby lowering barriers to entry and fostering innovation within the ecosystem.

One of Axelar’s most notable distinctions lies in its implementation of secure cross-chain communication over a dynamic validator. While some projects rely on optimistic setups or federated multi-signature schemes, Axelar sets itself apart by building these capabilities on a Proof-of-Stake consensus mechanism. This ensures the integrity and security of cross-chain transactions, bolstering trust and confidence in the platform’s capabilities.

In essence, Axelar offers a unique combination of decentralization, universality, cross-ecosystem functionality, and developer-friendly tools, making it a standout player in the realm of cross-chain interoperability. By prioritizing openness, scalability, and security, Axelar aims to empower developers and users alike to seamlessly navigate the decentralized web with ease and confidence.

In early March, Axelar reached its all-time high price, experiencing a one-day growth of over 80%, attributed to two significant events. Firstly, on February 27th, Ripple and Axelar announced a strategic partnership aimed at ensuring seamless interoperability on the XRP Ledger (XRPL) across various blockchain networks.

This collaboration seeks to enhance the utility and accessibility of XRPL, leveraging Axelar’s network to foster a more interconnected blockchain ecosystem. XRPL, known for its reliability and stability over its decade-long existence, is trusted globally by businesses and developers for its efficient tokenization and exchange of both crypto-native and real-world assets.

The second major event contributing to Axelar’s price surge was the announcement of its listing on Binance, the world’s largest cryptocurrency exchange. The listing on Binance, with its large user base, significantly boosted Axelar’s trading activity, resulting in an 80% increase following the announcement. Binance announced the listing of Axelar (AXL) and the commencement of trading for several spot trading pairs on March 1, 2024, at 11:30 (UTC).

The listing announcement directly from Binance sparked significant trading activity, leading to a surge in AXL’s price to $2.73 per token, marking a substantial increase from its pre-announcement level of $1.49. Such rapid price movements are commonly observed with Binance listings, as traders anticipate enhanced liquidity and exposure.

Notably, one trader managed to capitalize on the news, achieving a remarkable profit of $56,028 within just eight minutes of the listing announcement. This highlights the potential for significant gains associated with timely trading decisions following major exchange listings.

Analyzing Axelar’s price movements, it is evident that it has experienced fluctuations since its introduction to the market in September 2022. Initially valued at $0.8516, Axelar saw a decline throughout 2022, closing at $0.4943 by the year’s end. However, in December 2023, there was a sudden spike in AXL’s value, leading it to end the year at $1.1937. This upward trajectory continued into the first two months of 2024, with AXL reaching $1.56 on March 1, 2024.

During this period, the circulating supply of AXL stood at 582.2 million out of a total supply of 1.14 billion. Consequently, Axelar boasted a market capitalization of approximately $1116 million, positioning it as the 92nd largest cryptocurrency by market cap.

Currently, the price of Axelar presents an ideal entry point for several reasons. Using trading view, resistance lines were drawn at price levels of $2.69 and $2.32 respectively. The first resistance line coincided with Axelar’s all-time high price following the major announcements in early March. After a strong retracement movement, Axelar’s price fell to a lower resistance level of about $2.32, as indicated on the chart.

Presently, the price has reached a value of approximately $1.86, entering a strong support area ranging from $1.79 to $1.89. Therefore, the current price level represents a favorable entry point to await the next price increase.

Furthermore, the Relative Strength Index (RSI) value is currently around 35, indicating oversold conditions and generating a potential buy signal.

Attached is a screenshot showing the auto Fibonacci retracement for Axelar using trading view.

References

https://www.tradingview.com/symbols/AXLUSD/

https://axelar.network/blog/ripple-and-axelar-foundation

https://www.coinlive.com/news/why-is-axelar-a-dark-horse-in-the-cross-chain-track

https://medium.com/axelar/a-technical-introduction-to-the-axelar-network-3c4bf9fe4dc3

https://messari.io/report/understanding-axelar-a-comprehensive-overview

https://coinmarketcap.com/currencies/axelar/#News