Author: Climber, Golden Finance
"Interoperability is the future" - Vitalik Buterin.
Terms such as cross-chain bridges, chain interoperability, and account abstraction all belong to the chain abstraction track, a concept proposed by the co-founder of Near. Chain abstraction aims to solve interoperability issues between different chains, such as cross-chain communication, asset transfer, and cross-chain smart contract invocation, by building universal smart contracts.
The recent LayerZero airdrop detection witch incident has sparked discussions in the community, and the market focus has once again turned to the chain interoperability track. Projects in this sector generally have high financing and valuations. This article selects Axelar, Wormhole, and LayerZero as representative projects to analyze their latest developments.
I. Axelar network
According to Messari's definition, Axelar network (AXL) is a Layer 1 that enables cross-chain interoperability among various crypto ecosystems, creating a comprehensive encrypted network. Axelar has a set of Gateway smart contracts that connect the Axelar network with interconnected external chains, as well as a software development kit (SDK) containing developer tools and APIs.
Axelar not only supports the bridging of any information/assets but also supports cross-network execution of smart contracts and dApps, i.e., full-stack interoperability.
Currently, Axelar has connected to over 60 blockchains, including Arbitrum, Avalanche, Base, BNB Chain, Ethereum, Optimism, Polygon, Scroll, and various Cosmos-based chains, a number that leads other cross-chain networks. It has over 600 interacting, collaborating, and integrated smart contracts, including leading projects in DeFi, public chains, and Layer 2, among other tracks.
Mechanism principle:
Axelar is a cross-chain interoperability project with cross-chain as its core business, developed using the Cosmos SDK. Technically, the Axelar network consists of three key components distributed across two functional layers. The infrastructure layer includes a decentralized dynamic validator network responsible for maintaining the network and executing transactions. These validators run the cross-chain gateway protocol, which is a multi-party encrypted overlay layer above the Layer 1 blockchain.
Secondly, the gateway components are installed on connected blockchains in the form of smart contracts on the EVM chain. Validators monitor incoming transactions in the gateway, achieve consensus, and write data to the gateway of the target chain to execute cross-chain transactions. On top of this infrastructure layer, Axelar also provides APIs and SDKs, enabling developers to easily perform cross-chain operations between two chains.
In terms of functionality, Axelar introduces a General Message Passing (GMP) system, surpassing traditional bridging functions, allowing for the sending and receiving of various payloads across chains, such as function calls, data, and wrapped assets. Axelar's architecture adopts a hub-and-spoke topology, acting as a central hub connecting various blockchains.
To enhance security, Axelar employs measures such as dual voting and frequent key rotation. In addition, the Axelar gateway uses rate limiting to restrict the amount of assets that can be transferred within a certain time interval.
Financing information:
As of March 5, 2024, Axelar has completed 5 rounds of financing, with a total financing amount of $113.8 million. During the completion of Series B financing, raising $35 million, the project's total valuation reached $1 billion. Investors include Binance, Polychain Capital, Coinbase Ventures, Dragonfly Capital, Crypto.com Capital, among others.
It is worth noting that the most recent round of financing was completed in March 2022, nearly two years ago. The project is currently listed on platforms such as Binance, with a highest token price of $2.77 and a current market value of $724 million.
Key data:
According to Axelar's block explorer, the cross-chain activity of the Axelar network includes 1.823 million transactions with a total volume of $86.2 billion, and an average transaction volume of $4,728.
The above bar chart from the Axelar network visually shows that since January 2023, the cross-chain network activity (i.e., transactions and active addresses) of the Axelar network has gradually increased, with General Message Passing (GMP) activity gradually taking the lead in network activity.
However, it is important to note that in May of this year, all data related to Axelar saw a sharp decline, which is influenced by both the overall downturn in the crypto market and the fact that May has only just begun.
According to a report released by Binance Research in February of this year titled "Deciphering Cross-Chain Interoperability," Axelar's trading volume in the past 30 days is twice that of Wormhole and nearly eight times that of Chainlink CCIP.
This growth is mainly attributed to the implementation of its General Message Passing (GMP) functionality, which supports complex cross-chain function calls and state synchronization. In addition, GMP began supporting interactions between Cosmos and EVM chains in May 2023.
Future plans:
In late January, Axelar announced its roadmap, which will focus on the development of AVM. Specifically, it will include the following points:
1) Develop AVM as an open-source tool platform for various Dapps.
2) Use Interchain Amplifier to achieve permissionless connections to any chain, expanding potential network effects to hundreds of blockchains, including Ethereum Layer 2.
3) Expand the use cases of Interchain Tokens, extending their usability on all connected chains.
4) Add a gas burning mechanism to the AXL token to achieve monetary tightening to protect the Axelar network.
5) Integrate consensus mechanisms from different chains, including Solana, Stellar, and chains based on Move, such as Aptos and Sui.
6) Improve the pricing mechanism for gas and enhance the accuracy of cross-chain gas estimation services on the Axelar network.
Major actions:
In May of this year, Axelar announced plans to interconnect Bitcoin, Hedera, and the Polkadot ecosystem. The Bitcoin L2 network Stacks, the open-source proof-of-stake blockchain Hedera, the Moonriver Network, and the privacy network Iron Fish will be the first phase of Axelar's Interchain Amplifier pilot program, enabling one-click programmable interoperability.
It is also worth noting that Solana and Sui will be included in this upcoming project roadmap.
In November of last year, Axelar, in collaboration with Onyx, a digital asset platform under JPMorgan, and alternative asset management company Apollo, jointly implemented a proof of concept (POC) project involving RWA business.
In July, Axelar launched its Interchain Token Service (ITS), aimed at enhancing the interoperability of all ERC-20 tokens on Ethereum-compatible chains.
Additionally, Microsoft announced a partnership with Axelar to provide blockchain interoperability solutions.
In February, Axelar launched the Axelar Virtual Machine (AVM), enabling developers to build DApps once and run them on all chains.
II. Wormhole
II. Wormhole
Wormhole is a universal message passing protocol that enables the interconnection of apps across multiple blockchain ecosystems. The project was initially launched in October 2020 with the aim of allowing developers to build native cross-chain applications covering multiple chains. Wormhole started as a hackathon project with the goal of finding a solution to enable blockchains to "communicate with each other."
Initially incubated and supported by Jump, the first version of Wormhole (Wormhole V1) focused on establishing a bidirectional token bridge between Ethereum and Solana.
As the project evolved, Wormhole has transformed into a universal message passing protocol connecting multiple chains within the ecosystem. The project aims to serve as the foundational layer for developers to build diverse cross-chain applications. As a result, Wormhole V1 was gradually phased out, and the Wormhole protocol was launched in August 2021.
Currently, Wormhole has evolved to support a universal Arbitrary Message Bridge (AMB) bridge that enables the transmission of arbitrary messages between 38 heterogeneous public chains. It is also referred to as a universal cross-chain message passing protocol or interoperability protocol. Each connected blockchain has a Wormhole core contract serving as the main interface for cross-chain apps. The functionality of Wormhole's asset cross-chain bridge is handled by the frontend application Portal Bridge, which provides services externally.
Wormhole is protected by a network of 19 guardians, nodes responsible for monitoring chain activity and verifying messages. These guardian nodes are operated by reputable entities in the cryptocurrency industry such as Jump Crypto, ensuring a high level of trust and operational integrity due to their public accountability.
Wormhole Communication Process:
Messages sent through the Wormhole core contract are forwarded to guardians, who independently verify and approve the authenticity of the messages.
Guardians Verification and Signing: The message is verified and signed by 19 guardian nodes (Guardians) off-chain. Only messages signed by at least 2/3 (i.e., 13/19) of the guardian nodes are considered authentic. After verification, the message is encapsulated into a structure called "Verifiable Action Approval" (VAA).
Transmission to the Target Chain: Relayers transmit the VAA to the core contract of the target chain for execution.
Financing Information:
In November 2023, Wormhole completed a $225 million financing round, reaching a valuation of $25 billion. Investors included Brevan Howard, Coinbase Ventures, Multicoin Capital, ParaFi, Dilectic, Borderless Capital, Arrington Capital, and Jump Trading. This financing round was the largest in terms of cryptocurrency project financing in 2023.
Key Data:
According to Wormholescan data, Wormhole has transmitted over 1 billion messages across different chains, ranking first among all interoperability protocols. Its total historical transaction volume is approximately $42.39 billion.
The current price of the Wormhole token W is $0.59, with a market capitalization of approximately $10.69 billion. The circulating supply is 1,800,000,000 W, with a maximum supply of 10,000,000,000 W.
Major Actions:
In April of this year, the native W token of Wormhole became available on Solana, Ethereum, Arbitrum, Optimism, and Base through Wormhole Native Token Transfers (NTT). W became a native multi-chain token, completing the second phase of the W release roadmap. In March, Wormhole conducted a token airdrop.
In February, Wormhole introduced the Native Token Transfer (NTT) feature to preserve token characteristics and address the fragmentation of liquidity between different blockchains.
NTT is an open-source framework for transferring tokens across blockchains without liquidity pools. When using NTT, projects can fully control the behavior of their tokens on each chain, including token standards, metadata, ownership/upgradability, and custom functionality. With NTT, projects can also retain fine-grained control over their security, such as rate limiting, pausing, access control, and balance accounting.
In the same month, Wormhole announced the adoption of AMD's FPGA hardware accelerator chip to expand the use of zero-knowledge proofs (ZKP) for cross-chain message passing. The project plans to integrate ZKP for secure transfer across different blockchains through "light clients."
Additionally, the Wormhole Foundation collaborated with the Succinct team to build an Ethereum "ZK light client" to further advance decentralized message verification within the Wormhole platform.
In December of last year, Wormhole launched a $50 million cross-chain ecosystem fund and a cross-chain instant data retrieval method called Wormhole Queries, allowing application developers to retrieve on-chain data as needed.
In August, Wormhole established the Wormhole Foundation to support individuals passionate about researching and developing blockchain interoperability technology. In July, Wormhole released version 0.0.7 of Wormhole Connect, a cross-chain integration solution.
Roadmap:
Wormhole announced plans for W to become a native multi-chain token, leveraging the unique advantages of Solana and EVM chains while introducing a multi-chain governance system.
The plans for W include: launching as a native SPL token on Solana; expanding usage on EVM chains using Wormhole Native Token Transfers (NTT); enabling W holders to lock and delegate their tokens on Solana and EVM chains. The Wormhole DAO, composed of W token holders, will be operated through a multi-chain governance system.
The system will be available at launch on Solana, the Ethereum mainnet, and EVM L2. Multi-chain governance will allow token holders to create, vote on, and execute governance proposals across different chains.
Regarding the ZK roadmap: Significant progress will be made in the trust assumptions and overall blockchain interoperability of the Wormhole protocol through the integration of zero-knowledge proofs.
The roadmap includes:
Introducing cryptographic expertise: The Wormhole Foundation has provided contributor funding to four new engineering teams specializing in zero-knowledge cryptography and will announce these contributions in the coming weeks.
Unlocking hardware resources: Wormhole contributors will collaborate with strategic hardware providers to accelerate the implementation of light clients and purchase hardware accelerators as the number of channels and ZK-verified messages supporting ZK expands.
Launching light clients: Light clients allow users and applications to efficiently verify the state of blockchain networks (e.g., account balances, smart contract data, etc.).
In the future, ZK light clients for blockchain (including Ethereum, Sui, Aptos, Near, and Cosmos) will be deployed and integrated with Wormhole, enabling trustless bidirectional data transfer across different blockchains.
II. LayerZero
LayerZero supports any blockchain capable of running smart contracts, such as Ethereum, BNB Chain, Avalanche, Polygon, Arbitrum, Optimism, Fantom, and non-EVM chains like Aptos.
By deploying "LayerZero Endpoints" on the respective chains (lightweight clients consisting of smart contracts with communication, validation, and networking capabilities), users can achieve cross-chain communication in a single trustless and secure transaction.
LayerZero uses Oracles (currently Chainlink) and Relayers to convey information between LayerZero Endpoints on the target chain. It's important to note that any entity can take on the roles of Oracle and Relayer. The Oracle publishes block headers from the source chain to the target chain, while the Relayer publishes transaction data and verifies transaction proofs. Both the Oracle and Relayer operate independently.
It's important to note that LayerZero focuses solely on message passing between chains and can send messages to any smart contract on any supported chain. It serves as a message transport layer for smart contract communication between blockchains and is not responsible for cross-chain asset transfers.
Key features of LayerZero include Ultra-Light Nodes (ULN), which utilize the principles of light nodes to design a mechanism for enhanced security at lower costs through relayers and oracles.
This smart contract runs on each blockchain and acts as an endpoint for cross-chain communication. ULN uses block headers and transaction proofs to verify the validity of transactions and messages from other chains, ensuring security and efficiency.
The communication link between blockchains is primarily completed through external validation or on-chain light nodes. Light nodes are a node operation mode, alongside full nodes and archive nodes. Different nodes of the same chain represent a reduced version of the chain's information, with light nodes only storing historical block headers and not specific transaction information within blocks.
The benefit of running validation on-chain through light nodes is the complete elimination of external role interference, achieving a highly decentralized and secure environment based on the chain's own security. However, this results in high cross-chain costs, ultimately distributed to users with cross-chain demands.
In terms of product and technology, LayerZero focuses on achieving "lightweight" data transmission, hence its choice to use oracles and relay networks for data transmission. After users complete operations at the LayerZero source chain endpoint, the oracle, as an external component, forwards the block headers of transactions on the source chain to the target chain, while the relayer obtains transaction proofs from the source chain and transmits them to the target chain.
Mechanism Characteristics:
Ultra-Light Nodes (ULN): LayerZero uses on-chain ULN, which are smart contracts running on each blockchain and acting as endpoints for cross-chain communication. ULN uses block headers and transaction proofs to verify the validity of transactions and messages from other chains, ensuring security and efficiency.
Universal Message Passing: LayerZero supports any type of cross-chain communication, not just asset transfers. LayerZero can support any type of payload, such as function calls, data exchange, governance voting, NFT transfers, etc. This allows developers to create applications that can leverage the functionality and advantages of multiple blockchains simultaneously.
State Sharing: LayerZero allows applications to share states across chains, enabling them to synchronize data and logic without relying on centralized servers or databases. This allows applications to operate as a single entity across multiple chains, creating a seamless user experience and reducing complexity.
Instant Finality: LayerZero guarantees instant finality for cross-chain transactions, meaning they are confirmed once included in a block on the source chain. This eliminates the need to wait for or confirm transactions on the target chain, improving speed and availability.
Financing Information:
LayerZero has completed multiple rounds of financing, with a total funding amount of $293.3 million. Investors include Binance Labs, Delphi Digital, a16z, Sequoia Capital, Coinbase Ventures, and other prominent capital firms.
In April 2023, LayerZero Labs completed a $120 million Series B financing round at a valuation of $3 billion. In March 2022, LayerZero Labs completed a $135 million Series A+ financing round at a post-money valuation of $1 billion. In September 2021, the project completed a $6 million Series A financing round, led by Multicoin and Binance Labs.
Key Data:
According to data from the LayerZero official website, LayerZero has connected over 50 blockchains and continues to increase, with a total of approximately 132 million communication messages and a transfer value exceeding $50 billion.
Major Actions:
Airdrops and TGE schedules are approaching. LayerZero released the Witch Self-Reporting Process, with a 14-day deadline.
On May 11th, LayerZero Labs posted a "Protocol RFP" proposal in the community. The proposal indicates that all projects that have deployed OApp, OFT, or ONFT contracts on the mainnet and declared them on LayerZero Scan before Snapshot #1 are eligible to submit proposals.
The allocation of the project is as follows: 50% allocated to cross-chain OFT users, 20% to LP, 15% to token holders, and 15% to community members. The LayerZero Foundation will select based on the final witch report, and witch addresses will automatically lose their allocation eligibility.
The project also stated that the Protocol RFP is just one aspect of the TGE, and more information about token distribution (including single-user distribution and future protocol distribution) will be announced soon.
On May 4th, LayerZero released the Witch Self-Reporting Process with a 14-day deadline. On May 2nd, LayerZero Labs announced the completion of the first phase network snapshot.
In April, LayerZero announced that weETH has adopted the OFT standard and will be launched on Blast, Optimism, Base, Linea, Mode, and BNB Chain.
In January, the LayerZero mainnet was launched, and LayerZero V2 was released, introducing new features including universal message passing, modular security, permissionless execution, unified semantics, and V1 compatibility.
In November of last year, LayerZero Labs launched the value attribution solution ColorTrace, which can attribute (color) alternative tokens to the original entity (minter) to fairly track contributions to protocol success, facilitating fair distribution of rewards, affiliate programs, referral links, and many other common real-world applications.
In October, LayerZero introduced the wrapped staking protocol Lido Finance on Ethereum, Avalanche, and BNB Chain, with the functionality of wstETH (wrapped stETH).
Summary
With the development of the blockchain ecosystem, there are now hundreds of different blockchains, and inter-chain interaction is becoming a major trend. Chain interoperability enhances the liquidity of digital assets, enriches the blockchain ecosystem, and simplifies the threshold for cross-chain interactions. Based on this, major exchanges including Binance have successively listed Axelar and Wormhole, and LayerZero is likely to follow suit.
However, the chain abstraction track also faces the security issues of previous cross-chain bridges, making it an easy target for hackers. Additionally, chain interoperability protocols are still in the early stages and face centralization risks. Therefore, for high-value projects like these with significant institutional investment, investors may consider taking a long-term view.
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