Author: Climber, Golden Finance
"Interoperability is the future" - Vitalik Buterin.
Cross-chain bridges, chain interoperability, account abstraction and other terms can all be attributed to the chain abstraction track, and this concept was proposed by the co-founder of Near. Chain abstraction is to solve interoperability problems such as cross-chain communication, asset transfer, and cross-chain smart contract calls between different chains by building a universal all-purpose smart contract.
The recent LayerZero airdrop detection witch incident has caused a lot of discussion in the community, and the market focus has once again gathered on the chain interoperability track. At present, the projects in this sector generally have a lot of financing and high valuations. This article selects three representative projects, Axelar, Wormhole, and LayerZero, as samples to sort out and analyze their latest progress.
According to Messari's definition, Axelar network (AXL) is a Layer 1 that enables cross-chain interoperability between various crypto ecosystems, i.e. a crypto full coverage network. Axelar has a set of Gateway smart contracts that connect the Axelar network and its interconnected external chains, as well as a software development kit (SDK) that includes developer tools and APIs.
Axelar not only supports the bridging of any information/asset, but also supports the execution of smart contracts and dApps across networks, i.e. full-stack interoperability.
Currently, Axelar has connected more than 60 blockchains, including Arbitrum, Avalanche, Base, BNB Chain, Ethereum, Optimism, Polygon, Scroll and a variety of Cosmos-based chains, which is also ahead of other cross-chain networks. And its interactive, cooperative and integrated smart contracts exceed 600, including leading projects in DeFi, public chains, and second-layer tracks.
Mechanism principle:
Axelar is a cross-chain interoperability project developed with Cosmos SDK with cross-chain as its main core business. On the technical level, the Axelar network consists of three key components distributed in 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 on the Layer1 blockchain.
Secondly, the gateway component is installed on the connected blockchain and exists as a smart contract on the EVM chain. The validator monitors incoming transactions in the gateway, writes data to the gateway of the target chain after reaching consensus, and performs cross-chain transactions. On top of this infrastructure layer, Axelar also provides APIs and SDKs that enable developers to easily perform cross-chain operations between two chains.
In terms of the functional layer, Axelar introduces the General Messaging (GMP) system, which goes beyond traditional bridging functions and allows various payloads such as function calls, data, and packaged assets to be sent and received across chains. Axelar's architecture adopts a hub-and-spoke topology as a central hub to connect various blockchains.
To improve security, Axelar adopts measures such as quadratic voting and frequent key changes. In addition, the Axelar gateway uses rate limiting to limit the number 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 US$113.8 million. Among them, when the B round of financing completed US$35 million in financing, the total valuation of the project reached US$1 billion. Investors include Binance, Polychain Capital, Coinbase Ventures, Dragonfly Capital, Crypto.com Capital, etc.
It should be noted that the latest round of financing was completed in March 2022, which is nearly two years ago. The project has been launched on trading platforms such as Binance, with a maximum coin price of US$2.77 and a current market value of US$724 million.
Key data:
According to Axelar's block browser, the number of cross-chain active transactions on the Axelar network was 1.823 million, with a transaction volume of US$8.62 billion and an average transaction volume of US$4,728.
However, it should be noted that in May this year, Axelar's data dropped sharply, but this is due to both the overall downward trend of the encryption market and the fact that May only started for ten days.
According to the report "Analyzing Cross-Chain Interoperability" released by Binance Research Institute in February this year, Axelar's transaction volume in the past 30 days is twice that of Wormhole and nearly eight times that of Chainlink CCIP.
This growth is mainly due to the implementation of its general message transfer (GMP) function, which supports complex cross-chain function calls and state synchronization. In addition, GMP began to support interactions between Cosmos and EVM chains in May 2023.
Future Plans:
Axelar announced its roadmap at the end of January this year, and its future development will revolve around AVM. Specifically, it will include the following points:
1) Make AVM a development platform for open source tools for the development of various Dapps.
2) Enable permissionless linking of any chain through Interchain Amplifier, extending the potential network effect to hundreds of blockchains such as Ethereum Layer2.
3) Expand the use cases of Interchain Tokens and expand their availability on the native chain on all connected chains.
4) Add a Gas burning mechanism for AXL tokens to achieve deflation to protect the Axelar network.
5) Integrate consensus mechanisms on different chains, including Solana, Stellar, and Move-based chains such as Aptos and Sui.
6) Improve the pricing mechanism of Gas and improve the accuracy of cross-chain Gas estimation services on the Axelar network.
Main actions:
In May this year, Axelar announced that it would cross-chain interconnect Bitcoin, Hedera and Polkadot ecosystems. Bitcoin L2 network Stacks, open source proof-of-stake blockchain Hedera, Moonriver Network and privacy network Iron Fish will be the first phase of the Axelar Interchain Amplifier pilot program to achieve one-click programmable interoperability.
It is also worth noting that Solana and Sui will be listed as upcoming projects in this roadmap.
Last November, Axelar implemented a proof-of-concept (POC) project involving business RWA with JPMorgan's digital asset platform Onyx and alternative asset management company Apollo.
In July, Axelar launched its Interchain Token Service (ITS), a product designed to enhance the interoperability of ERC-20 tokens on all Ethereum-compatible chains.
In addition, Microsoft announced a partnership with Axelar to provide blockchain interoperability solutions.
In February, Axelar launched the Axelar Virtual Machine (AVM), which allows developers to build DApps only once and run them on all chains.
Wormhole is a universal messaging protocol that enables App interconnection across multiple blockchain ecosystems. The project was first launched in October 2020 and aims to enable developers to build native cross-chain applications covering multiple chains. Wormhole started out as a hackathon project with the goal of finding a solution that enables blockchains to “communicate with each other.”
Wormhole was originally incubated and supported by Jump, and its first version (Wormhole V1) focused on building a two-way token bridge between Ethereum and Solana.
As the project has evolved, Wormhole has evolved into a general messaging protocol that connects multiple chains in the ecosystem. The project aims to become the base layer for developers to build diverse cross-chain applications, and for this purpose Wormhole V1 was phased out, and the Wormhole protocol was launched in August 2021.
Currently, Wormhole has evolved into a general AMB (Arbitrary-Message-Briage) bridge that supports the transmission of arbitrary messages between 38 heterogeneous public chains, also known as a general cross-chain messaging protocol or interoperability protocol. Each connected blockchain has a Wormhole core contract as the main interface for the cross-chain App. The function of Wormhole's asset cross-chain bridge is undertaken by the front-end application Portal Bridge, which provides services to the outside world.
Wormhole is secured by a network of 19 Guardians, which are nodes responsible for monitoring chain activity and verifying messages. Guardian nodes are operated by reputable entities in the cryptocurrency industry such as Jump Crypto, and because they need to be accountable to the public, they ensure a high level of trust and integrity in operations.
Wormhole Communication Process:
1. Messages sent through the Wormhole Core Contract will be forwarded to the Guardians, who will independently verify and approve the authenticity of the message.
Guardians Verification and Signature: The message is verified and signed off-chain by 19 Guardian nodes. Only messages signed by at least 2/3 (i.e. 13/19) guardian nodes are considered authentic. After verification, the message is encapsulated into a structure called "Verifiable Action Approval" (VAA).
3. Pass to the target chain: The relayer transmits the VAA to the core contract of the target chain for execution.
Financing information:
In November 2023, Wormhole completed a $225 million financing, with a project valuation of $2.5 billion. Investors include Brevan Howard, Coinbase Ventures, Multicoin Capital, ParaFi, Dilectic, Borderless Capital, Arrington Capital, and Jump Trading. This round of financing is also the largest round of financing for cryptocurrency projects in 2023.
Key data:
According to Wormholescan data, Wormhole has transmitted more than 1 billion messages between different chains, ranking first among all interoperability protocols. And its total historical trading volume is about 42.39 billion US dollars.
The current price of Wormhole token W is $0.59, and the market value is about $1.069 billion. Its circulating supply is 1,800,000,000 W, and the maximum supply is 10,000,000,000 W.
Main actions:
In April this year, Wormhole native W tokens were 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) function to retain token characteristics and solve the problem of liquidity fragmentation between different blockchains.
NTT is an open source framework for transferring tokens across blockchains without a liquidity pool. When leveraging NTT, projects have full control over how their tokens behave on each chain, including token standards, metadata, ownership/upgradeability, and custom features. With NTT, projects are also able to retain fine-grained control over their security, such as rate limits, pauses, access controls, and balance accounting.
In the same month, Wormhole announced that it would adopt AMD's FPGA hardware accelerator chips to expand the ability to use zero-knowledge proofs (ZKP) for cross-chain messaging. The project plans to integrate ZKP for cross-chain secure transfers through a "light client" implementation, aiming to create a secure "channel" for messaging between different blockchains.
In addition, the Wormhole Foundation is working with the Succinct team to build an Ethereum "ZK light client" to further advance decentralized message verification within the Wormhole platform.
Last December, Wormhole launched a $50 million cross-chain ecosystem fund and a cross-chain instant data retrieval method, Wormhole Queries, which allows application developers to extract any on-chain data on demand.
In August, Wormhole established the Wormhole Foundation to support people who are passionate about the research and development of blockchain interoperability technology. In July, Wormhole released the v0.0.7 version of Wormhole Connect, a cross-chain integration solution.
Roadmap:
Wormhole announced that W has become a native multi-chain token, leveraging the unique advantages of Solana and EVM chains while introducing a multi-chain governance system.
Plans for W include: it will be launched as the native SPL token on Solana; it will be scaled on the EVM chain using Wormhole Native Token Transfer (NTT); W holders will be able to lock and delegate their tokens on both Solana and the EVM chain. The Wormhole DAO, comprised of W token holders, will operate through a multi-chain governance system.
The system will be available on Solana, Ethereum mainnet, and EVM L2 at launch. Multi-chain governance will allow token holders to create, vote, and execute governance proposals across different chains.
Roadmap for ZK: By integrating zero-knowledge proofs, the Wormhole protocol will make significant progress in terms of trust assumptions and overall blockchain interoperability.
Roadmap content includes:
Bringing cryptography expertise: The Wormhole Foundation has provided contributor grants to four new engineering teams specializing in zero-knowledge cryptography, and will make these announcements in the coming weeks.
Unlocking hardware resources: Wormhole contributors will work with strategic hardware providers to accelerate light client implementations and procure hardware accelerators for Wormhole contributors as the number of ZK-enabled channels and ZK-verified messages continues to expand.
Introducing light clients: Light clients allow users and applications to quickly and efficiently verify the state of a blockchain network (e.g., current account balances, smart contract data, etc.).
In the future, ZK light clients for blockchains (including Ethereum, Sui, Aptos, Near, and Cosmos) will be deployed and integrated with Wormhole, enabling trustless bidirectional data transfer.
LayerZero is a full-chain interoperability protocol designed for cross-chain lightweight message delivery. LayerZero provides real and guaranteed message delivery through configurable trustlessness. It is a "blockchain of blockchains" that allows other blockchain networks to communicate directly in a non-permissioned manner.
LayerZero supports any blockchain that can run smart contracts, such as Ethereum, BNB Chain, Avalanche, Polygon, Arbitrum, Optimism, Fantom and other chains. LayerZero also supports non-EVM chains such as Aptos.
LayerZero users can achieve cross-chain communication in a single trustless and secure transaction by deploying "LayerZero Endpoints" (they are lightweight clients composed of smart contracts with communication, verification and network functions) on the corresponding chain.
LayerZero uses Oracle (currently Chainlink) and Relayer to communicate information between LayerZero Endpoints on the target chain. It is worth noting that any subject can assume the role of Oracle and Relayer. Oracle publishes the block header on the source chain to the target chain, and Relayer publishes transaction data and verifies transaction proofs. Oracle and Relayer remain independent.
It should be noted that LayerZero only focuses on message transmission between chains and can send messages to any smart contract on any supported chain, that is, a message transmission layer for smart contract communication between blockchains, and is not responsible for cross-chain assets.
The key function of LayerZero is the ultra-light node (ULN). Its essence is to use the technical principle of light nodes and design the mechanism of ultra-light nodes. Through relayers and oracles, the intermediate trust link is divided into two, thereby exchanging lower fees for better security.
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 to ensure security and efficiency.
The communication between cross-chains is mainly completed through external verification or light nodes on the chain. Light nodes are a node operation mode, in addition to full nodes (Full Node) and archive nodes (Archive Node). Different nodes on the same chain are abridged versions of the chain information. Light nodes only save all historical block headers and do not store specific transaction information within the block.
The benefit of running verification on the chain through light nodes is that the external role interference of notaries is completely eliminated, and a high degree of decentralization is achieved based on the security of the chain itself, making it safer. However, this will make the cross-chain cost extremely high, and will eventually be dispersed to users with cross-chain needs.
From the perspective of products and technologies, LayerZero focuses on achieving "lightweight" data transmission, so it chooses to use oracles and relay networks to complete data transmission. After the user completes the operation on the endpoint of the LayerZero source chain, the oracle, as an external component, will forward the block header of the transaction on the source chain to the target chain, and the relay will obtain the transaction proof on the source chain and transmit it to the target chain.
Mechanism features:
Ultra-light node (ULN): LayerZero uses on-chain ULN, which is a smart contract that 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 to ensure security and efficiency.
Universal messaging: LayerZero supports any type of cross-chain communication, not just asset transfers. LayerZero can support any type of payload, such as function calls, data exchanges, governance votes, NFT transfers, and more. This enables developers to create full-chain applications that can leverage the capabilities and advantages of multiple blockchains simultaneously.
State Sharing: LayerZero allows applications to share state across chains, meaning they can synchronize data and logic without relying on centralized servers or databases. This enables applications to run 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 as soon as they are included in a block on the source chain. This eliminates the need to wait or confirm on the target chain, improving speed and usability.
Financing information:
LayerZero has completed multiple rounds of financing, with a total financing amount of US$293.3 million. Investors include Binance Labs, Delphi Digital, a16z, Sequoia Capital, Coinbase Ventures and other star capitals.
In April 2023, LayerZero Labs completed a US$120 million Series B financing with a valuation of US$3 billion; in March 2022, LayerZero Labs completed a US$135 million Series A+ financing, with a post-investment valuation of US$1 billion; in September 2021, the project completed a US$6 million Series A financing, which was led by Multicoin and Binance Labs.
Key data:
According to LayerZero's official website, LayerZero has connected more than 50 blockchains and is still increasing, with a total of approximately 132 million communication messages and a transfer value of over US$50 billion.
Main actions:
The timetable for airdrops and TGE is getting closer. LayerZero releases a self-reporting process for witches, with a deadline of 14 days
On May 11, LayerZero Labs released the "Protocol RFP" proposal in the community. The proposal shows that all projects that deployed OApp, OFT or ONFT contracts on the mainnet before Snapshot #1 and declared them on LayerZero Scan are eligible to submit proposals.
An example of project allocation is: 50% to users of cross-chain OFT, 20% to LP, 15% to token holders, and 15% to community members. At the same time, the LayerZero Foundation will screen according to the final witch report, and the witch address will be automatically disqualified from the allocation.
At the same time, the project party stated that the Protocol RFP is only one aspect of the TGE, and more information about token allocation (including single user allocation and future protocol allocation) will be announced soon.
On May 4, LayerZero released the Sybil self-reporting process, with a deadline of 14 days. On May 2, LayerZero Labs announced the completion of the first phase of the network snapshot.
In April, LayerZero announced that weETH has adopted the OFT standard and will soon launch weETH on Blast, Optimism, Base, Linea, Mode and BNB Chain.
In January, the LayerZero mainnet was launched, and LayerZero V2 was launched at the same time. New features include: universal messaging, modular security, permissionless execution, unified semantics, and V1 compatibility.
Last November, ayerZero Labs launched ColorTrace, a value attribution solution that attributes (colors) fungible tokens to the original entity (coiner) to track any form of fair contribution to the success of the protocol, helping to achieve fair distribution of revenue, affiliate programs, referral links, and many other common real-world applications.
In October, LayerZero launched the encapsulated stETH (wstETH) function for transferring the liquidity pledge protocol Lido Finance on Ethereum, Avalanche, and BNB Chain. wstETH has been integrated with the LayerZero full-chain fungible token standard (OFT standard).
With the development of the blockchain ecosystem, there are hundreds of blockchains of all kinds, and the interaction between chains is an inevitable trend. Chain interoperability can improve the liquidity of digital assets, enrich the blockchain ecosystem, and simplify the threshold for cross-chain interaction. Based on this, major exchanges including Binance have listed Axelar and Wormhole this year, and LayerZero is likely to follow suit.
However, the chain abstraction track also faces the security issues of previous cross-chain bridges, that is, it is easy to become a target for hackers. Moreover, the chain interoperability protocol is still in its early stages and faces the risk of centralization. Therefore, for such high-value projects with large institutional investments, investors may wish to take a long-term view.
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