The Axelar network’s number of connected chains increased to 65 throughout Q2. 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 mints Interchain Tokens that preserve the fungibility and custom functionality of native tokens across multiple networks. AVM enables programmable interoperability: smart contracts on an open cross-chain layer.
Cross-chain transactions (-1%) and active addresses (+2.7%) plateaued after an ATH in March, roughly in line with QoQ activity on benchmarks like Ethereum. Compared with a year ago (2023 Q2), Axelar's active addresses were up 124%, and transactions were up 152%.
Revenue denominated in AXL increased by 10% QoQ, while AXL’s price decreased by 69%, resulting in Axelar’s revenue in USD decreasing by 20% QoQ. Dollar-denominated revenue was up 408% compared to Q2 2023.
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; a smart contract layer (Axelar Virtual Machine); 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.
In Q2 2024, AXL’s circulating market cap decreased 64.5% QoQ to $450.1 million. Its market cap rank among all cryptocurrencies decreased from 89th to 133rd through Q2.
While AXL’s market cap dropped by 64.5% QoQ, AXL’s price fell by 69.1% to $0.64. The difference was due to AXL’s circulating supply increasing by 15% QoQ and overall market downtrend. AXL’s initial supply of 1 billion tokens is more than two-thirds of the way through a four-year vesting schedule.
In Q2, Axelar's AXL token got two category comparables to benchmark against: Wormhole launched the W token in April, two days after the quarter started, and LayerZero launched the ZERO token a week before the quarter's end. These launches were a watershed moment for the interoperability category.
Validators on Axelar are rewarded with inflationary AXL. However, the hardware requirements and costs of running an Axelar validator increase as AXL connects to more networks. 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. A current proposal would replace that system with a gas-burning mechanism (which burns 100% of fees).
Axelar's total inflation dropped by half over the year ending June 30, 2024, despite adding new connected chains. AXL’s total inflation rate was 11.5% at 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 inflation rate stayed flat this quarter at 4.8% since no new EVM chains joined the network in Q2 (1% base inflation plus 0.2% for each of the 19 EVM chains) – as developer teams working on Axelar focus on the launch of Interchain Amplifier, designed to simplify connections with new chains and make them self-service.
Revenue generated by the Axelar network increased by 10% QoQ to 709,200 AXL; however, when denominated in USD, it decreased by 19.9% to $737,800 for the quarter. The USD decrease was driven by AXL’s price depreciation and flat transaction activity compared to Q1, which hit an all-time high in March. Dollar-denominated revenue was up 408% compared to Q2 2023. Fees generated on the Axelar network are paid to validators and stakers.
Cross-chain network activity on Axelar, i.e., transactions and active addresses, stayed relatively flat in Q2 compared with Q1. Average daily cross-chain transactions decreased by 0.9% QoQ to 5,000; transaction count was up 152% compared to 2023. General Message Passing (GMP) activity, which involves more complex logic than simple asset transfers, once again dominated total transactions, making up 97% of them in Q2 2024.
Active addresses increased by 2.7% QoQ to 3,200. GMP also dominated total active addresses by making up 96% in Q2 2024. In Q2, active addresses were up 124% over the same period in 2023.
The average daily cross-chain volume decreased by 8.8% QoQ to $9.6 million. Compared to last year's period, Q2 average daily cross-chain volume was up 233%. GMP accounted for 84% of the volume, totaling $732.7 million for the quarter. Twenty percent of this came on June 12, when Aethir launched its token, ATH. Aethir specializes in decentralized cloud infrastructure, primarily aimed at gaming and AI-based applications. Of this volume, $127.6 million went from Ethereum Mainnet to Arbitrum since the token launched on mainnet. The token can be used on Arbitrum for checking node and compute rewards.
The network saw total staked AXL fall by 7.1% QoQ to 691.9 million, while active validators remained constant at 75.
Axelar’s number of connected chains grew by one this quarter, Lava Network, reaching 65 by the end of Q2 2024. This is a 91% increase from 34 chains connected at the end of Q1 2023.
Ecosystem Analysis
Notable ecosystem developments and integrations from Q2 include:
Axelar announced that their developer kit allows for applications to deploy smart contracts cross-chain with the same address.
Axelar was selected by the Kava community to bridge any remaining assets after its migration to BSC. Users are now able to bridge any BEP3 assets to BSC for BEP20 assets.
Interchain Token Service (ITS) went live on over 15 chains. VOLS, AI, UNV, and$YUP were the tokens to launch as ITS tokens this quarter. 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). Unlike these alternatives, ITS supports canonical wrappers, standardized tokens, and arbitrary data — as well as a no-code portal for token creation and registration.
Immutable added Squid, the Axelar-based cross-chain liquidity router, to its toolkit interface for Web3 game users, making it easy to bridge and swap from the wallet.
Other network and ecosystem developments are detailed in the 2024 roadmap, including:
A gas-burning mechanism similar to EIP-1559 would burn fees rather than pay them to validators and stakers.
The Interchain Amplifier will enable developers to connect new blockchains to the Axelar network permissionlessly. This development would make Axelar available as a solution to potentially hundreds of Ethereum L2s (and L3s).
The Interchain Maestro is a set of orchestration contracts and templates that 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.
Institutional Adoption
The Axelar Foundation, in collaboration with Metrika, partnered with Citi, Deutsche Bank, Mastercard, Northern Trust, and Centrifuge to release its whitepaper on Institutional Interoperability. The paper highlights the importance of tokenized assets, which will need robust interlinked network models to power the tokenized future.
Axelar will join Deutsche Bank and Onyx by J.P. Morgan in Project Guardian, which will explore asset tokenization applications. Project Guardian is the Monetary Authority of Singapore’s (MAS) collaborative initiative with the financial industry to test the feasibility of asset tokenization and DeFi, aiming to enhance liquidity and efficiency of current markets.
Closing Summary
Axelar’s Interchain Token Service (ITS) launched on mainnet in Q1 and continued onboarding multiple projects/tokens in Q2, allowing builders to maintain the fungibility and customized functionality of tokens across chains. ITS is the first of four major technologies 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.
Average daily cross-chain activity stayed relatively flat this quarter, with transactions decreasing by 1%, addresses increasing by 2.7%, and volume decreasing by 9.4%. These movements and AXL’s 69% QoQ price decrease drove fees and revenue down 59% and 20%, respectively.
Axelar also made institutional partnerships with Citi, Deutsche Bank, Mastercard, Northern Trust, and Centrifuge to release a whitepaper on institutional interoperability and tokenized assets.
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Matthew is a Research Analyst in Protocol Research. He graduated from MIT with a Master's and Bachelor's in Comp Sci, Economics, and Data Science where he wrote his thesis on DeSoc. Matthew also has previous experience as an Analyst at Goldentree's crypto fund.
Matthew is a Research Analyst in Protocol Research. He graduated from MIT with a Master's and Bachelor's in Comp Sci, Economics, and Data Science where he wrote his thesis on DeSoc. Matthew also has previous experience as an Analyst at Goldentree's crypto fund.
