Feb 13, 2024 ⋅ 8 min read
The Axelar network (AXL) is a Layer-1 (L1) 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.
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 full-stack interoperability — not only supporting the bridging of any information/asset but also permissionless overlay programmability, executing smart contracts and dapps across networks. The Axelar community has a three-pronged approach to ultimately scaling to hundreds of connected networks: adjusting the network’s economic structure, releasing the Axelar Virtual Machine to support permissionless connections, and exploring more efficient solutions like light clients. For a full primer on the Axelar network, refer to our Initiation of Coverage report.
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In Q4 2023, the total crypto market cap experienced a sharp increase, largely driven by anticipation surrounding spot BTC ETFs. AXL’s circulating market cap increased 344% QoQ to $621 million, outpacing the overall crypto market’s growth of 54%. Thanks to this Q4 growth, AXL’s market cap grew 1,076% YoY. Its market cap rank among all cryptocurrencies moved up from 170th to 96th through Q4. 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 344% QoQ and 1,076% YoY, AXL’s price only grew 252% QoQ and 131% YoY. While this price growth considerably outpaced the overall market, the difference was due to AXL’s circulating supply increasing 25% QoQ and 385% YoY. AXL did not have anywhere near a 385% annual inflation rate in 2023, but a large number of tokens unlocked from the initial supply and entered circulation. AXL’s initial supply of 1 billion tokens is halfway through a four-year vesting schedule.
AXL’s inflation rate was 11.5% as of the end of Q3’23. However in October, new AXL tokenomics were proposed to gradually reduce the per-chain reward from 0.75% to 0.3%. 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 would bring annual inflation down from 11.5% to 5.2%, based on an equivalent number of chains (14). However, three chains have since been added (Scroll, Centrifuge, and ImmutableX). Axelar’s new inflation rate with the decrease to 0.3% per EVM chain is now 6.1% (1% base inflation plus 0.3% for each of the 17 EVM chains).
Revenue generated by the Axelar network (in AXL) increased 5% QoQ and 511% YoY, due to increased transaction fees. Denominated in USD, it increased 78% over Q4, driven by AXL’s price appreciation. 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.
Interchain network activity, i.e., transactions and active addresses, increased steadily throughout Q4. General Message Passing (GMP) activity, which involves more complex logic than simple asset transfers, dominated in terms of network activity, making up 75% and 74% of the total transactions and active addresses in 2023, respectively. Overall, interchain transactions increased 5% QoQ and 478% YoY. Interchain active addresses increased 3% QoQ and 430% YoY.
In Q3, the ability to include a refund for GMP events was enabled via an upgrade to V0.34. This release also included a new call-contracts proposal type and smart contract governance.
Interchain volume and fees also saw both quarterly and yearly growth. Volume increased 50% QoQ and 171% YoY. Fees increased 103% QoQ and 546% YoY, having the greatest Q4 and 2023 increase of any interchain metric. Part of this increase is due to AXL’s 2023 price appreciation, which drives the fee metric upward as fees are ultimately paid in AXL. Fees can be paid in any currency from a user perspective, but the Axelar Gas Receiver converts those native tokens to AXL in the backend.
The Axelar ecosystem continued to grow in Q4’23 and 2023 as a whole. As of the end of Q4, Axelar had 55 connected chains, up from 30 at the start of the year.
Notable ecosystem developments and integrations include:
Other network and ecosystem developments are detailed in the 2024 roadmap, including:
In Q4, the Axelar network began its expansion from message passing to a fully programmable cross-chain layer, such as maintaining the fungibility and customized functionality of tokens across chains. The Axelar Virtual Machine, Interchain Token Service, and Interchain Amplifier are the key technologies enabling this growth.
Even without these technologies being fully rolled out, the Axelar network has been growing. AXL’s price increased 131% YoY, with inflation rates decreasing ~5% QoQ. Interchain transactions and active addresses increased 478% and 430% YoY, respectively, with help from services such as the Squid liquidity router. This activity growth and these tokenomics changes, along with the upcoming releases/updates, will likely position Axelar well in the cross-chain programmability space.
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Red is a researcher, educator, and developer in the web3 space. Red's background is in electrical and software engineering. His main interest is privacy technology, through zero-knowledge proofs and general cryptography.
About the author
Red is a researcher, educator, and developer in the web3 space. Red's background is in electrical and software engineering. His main interest is privacy technology, through zero-knowledge proofs and general cryptography.