Axelar Q1 2024 Brief

Key Insights

• The Axelar network’s number of connected chains increased from 55 to 64 throughout Q1. The Interchain Amplifier is being built to increase this number via permissionless connections to new networks.
• Interchain Token Service (ITS) and Axelar Virtual Machine (AVM) were enabled on mainnet. ITS preserves the fungibility and custom functionality of native tokens across multiple networks, and AVM enables arbitrary programmability on an open cross-chain layer.
• Interchain transactions and active addresses increased 66% and 49% QoQ, respectively, with help from services such as the Squid liquidity router. Squid is frequently the most active contract by interchain transactions and volume.
• Revenue denominated in AXL increased 35% QoQ, while AXL’s price increased by 69%, culminating in Axelar’s revenue in USD increasing 208% QoQ.

Primer

The Axelar network (AXL) is a Layer-1 network that enables cross-chain interoperability between various crypto ecosystems, i.e., a crypto overlay network. Axelar consists of a decentralized network; a set of Gateway smart contracts that connect the Axelar network and its interconnected external chains; and a software development kit (SDK) of developer tools and APIs.

The Axelar network began as a project in 2020, built with various Cosmos technologies to provide interoperability across Ethereum and other networks. The Axelar network is much more than just a Cosmos interoperability hub or a cross-chain bridge: it supports the ability to program cross-chain logic and pass arbitrary data across an open network.

The Axelar network’s technology aims to allow cross-chain functions that are more complex than simply transferring wrapped assets to different networks. To avoid cross-network friction, Axelar focuses on programmable interoperability — supporting not only the bridging of any information/asset but also permissionless overlay programmability, executing smart contracts and dapps across networks. For a full primer on the Axelar network, refer to our Initiation of Coverage report.

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Key Metrics

Financial Analysis

In Q1 2024, AXL’s circulating market cap increased 98% QoQ to $1.23 billion. Its market cap rank among all cryptocurrencies increased from 96th to 89th through Q1. As with other networks, Axelar’s higher market cap creates a higher limit for the economic security provided by its validators.

While AXL’s market cap grew 98% QoQ, AXL’s price only grew 69% QoQ. The difference was due to AXL’s circulating supply increasing 18% QoQ. AXL’s initial supply of 1 billion tokens is more than halfway through a four-year vesting schedule.

Validators are rewarded with inflationary AXL. However, as AXL connects to more networks, the hardware requirements and costs of running an Axelar validator also increase. For this reason, rewards for validators increase as more non-native networks are connected. This rate of reward increase is known as the per-chain reward.

AXL’s total inflation rate was 11.5% as of the end of Q3’23 (comprising a base rate plus a per-chain reward multiplied by the number of connected non-native networks). However, in October 2023, new AXL tokenomics were proposed to gradually reduce the per-chain reward from 0.75% to 0.3%. In March 2024, the rate again decreased, to 0.2%. The per-chain reward is only relevant for non-natively connected chains, such as EVM networks. The proposal was approved via an onchain vote and effected incrementally, with the final leg locked in on Dec. 8, 2023. This brought annual inflation down from 11.5% to 5.2%, based on an equivalent number of chains (14 at the time of implementation). Axelar’s new inflation rate with the decrease to 0.2% per EVM chain was 4.8% at quarter end (1% base inflation plus 0.2% for each of the 19 EVM chains).

Revenue generated by the Axelar network (in AXL) increased 35% QoQ, due to increased transaction fees. Denominated in USD, it increased 208% over Q1, driven by AXL’s price appreciation and increased transaction activity, which hit an all-time high in March. Fees generated on the Axelar network are paid to validators and stakers, but a current proposal would replace that system with a gas-burning mechanism (which burns 100% of fees).

Network Analysis

Crosschain network activity on Axelar, i.e., transactions and active addresses, set new highs in Q1. General Message Passing (GMP) activity, which involves more complex logic than simple asset transfers, dominated in terms of network activity, making up 92% of the total transactions and active addresses in Q1 2024. Overall, crosschain transactions and active addresses increased 66% and 49% QoQ, respectively.

Crosschain transactions set a yearly high of 169,000 in March and Interchain active addresses reached a yearly high of 118,000 in January.

In Q3 2023, an upgrade to V0.34 enabled the inclusion of a refund for GMP events. This release also included a new call-contracts proposal type and smart contract governance.

Crosschain volume and fees also saw quarterly increases. Volume and fees increased 12% and 30% QoQ, respectively. These crosschain metrics are specifically for transactions involving connected external networks. Part of this fee increase was due to AXL’s price appreciation, which drives the fee metric upward as fees are ultimately paid in AXL. From a user perspective, fees can be paid in any currency, but the Axelar Gas Receiver converts those native tokens to AXL in the backend, as well as any other necessary conversions (e.g., destination-chain gas).

The Axelar ecosystem grew in Q1, with nine new chains added. Axelar’s number of connected chains has grown from 34 in Q1 2023 to 64 in Q1 2024. The nine newly connected chains in Q1 2024 include:

• Bitsong
• Blast
• C4E
• Dymension
• Fraxtal
• Jackal
• Nolus
• Ojo
• Dymension

Ecosystem Analysis

Notable ecosystem developments and integrations from Q1 include:

• Interchain Token Service (ITS) launched on mainnet, allowing any ERC-20 token issuer to create Interchain Tokens. ITS is designed to preserve the fungibility and custom functionality of native tokens across multiple networks. These preserved tokens are known as Interchain Tokens. ITS is a similar feature to LayerZero's Omnichain Fungible Tokens and IBC-connected networks that use Interchain Accounts (ICA) and Interchain Queries (ICQ). However, ITS also supports canonical wrappers, standardized tokens, and arbitrary data — as well as a no-code portal for token creation and registration.
• CosmWasm was enabled on Axelar after Proposal 195 passed, bringing Axelar Virtual Machine (AVM) to mainnet. It was activated in V0.35.
• Ripple collaborated with Axelar Foundation to support interoperability between XRP Ledger and the broader crypto ecosystem.
• The Axelator Program launched; it’s a community funding operation that leverages Galxe to distribute AXL (and other rewards) to active users.
• Lido DAO approved Axelar as one of two bridging providers for wsETH on BNB.
• Immutable zkEVM announced that Axelar will be used for the canonical Ethereum bridge.
• The continued adoption of Squid Router, a liquidity router that uses GMP to enable cross-chain swaps and bridging. Squid Router is frequently the most active contract by transactions and volume, with more integrations on the way — such as dYdX’s plan to use Squid for its V4.
• A budget was approved for regional community moderators.

Other network and ecosystem developments are detailed in the 2024 roadmap, including:

• A gas-burning mechanism similar to EIP-1559, which would burn fees rather than pay them to validators and stakers.
• The Axelar Virtual Machine (AVM), which would expand the Axelar network’s capabilities from bridging and message passing to a fully programmable cross-chain layer. It enables developers to deploy smart contracts on Axelar and build natively cross-chain logic and developer tooling.
• The Interchain Amplifier, which will enable developers to permissionlessly connect new blockchains to the Axelar network. This development would make Axelar available as a solution to potentially hundreds of Ethereum L2s (and L3s).
• The Interchain Maestro, which is a set of orchestration contracts and templates to assist in designing, deploying, and managing dApps across multiple chains – like a Kubernetes for Web3. ITS is a single component of the broader Interchain Maestro.
• Integrating additional networks with unique consensus architectures, including Aptos, Sui, and Solana.

Closing Summary

Axelar’s Interchain Token Service (ITS) launched on mainnet in Q1, allowing builders to maintain the fungibility and customized functionality of tokens across chains. ITS is the first of four major technologies that are expanding the Axelar network’s scope from message passing to a fully programmable cross-chain layer. The other three major technologies, the Axelar Virtual Machine, Interchain Amplifier, and Interchain Maestro, are in development.

Interchain activity increased across the board in terms of volume, fees, transactions, and active addresses. This, coupled with AXL’s 69% QoQ price increase, drove revenue (USD) up 208% QoQ. The jump is partially due to new networks being connected, as connected chains grew from 55 to 64 in Q1. It also came from increased usage on existing networks and through services such as the Squid liquidity router.

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This report was commissioned by Axelar Foundation. All content was produced independently by the author(s) and does not necessarily reflect the opinions of Messari, Inc. or the organization that requested the report. The commissioning organization does not influence editorial decision or content. Author(s) may hold cryptocurrencies named in this report. This report is meant for informational purposes only. It is not meant to serve as investment advice. You should conduct your own research, and consult an independent financial, tax, or legal advisor before making any investment decisions. Past performance of any asset is not indicative of future results. Please see our Terms of Service for more information.

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