An Overview of AXL Token Economics

Introducing the native token enabling decentralized interoperability via Axelar network

What is Axelar?

Axelar is the universal overlay network, securely connecting all blockchain ecosystems, applications, assets and users to deliver Web3 interoperability. It is a full-stack decentralized transport layer, meeting growing demand for cross-chain services with maximum blockchain security and composability.

Axelar has three components:

1. A decentralized network.
2. A set of gateway smart contracts that provide the connectivity between the Axelar Network and its interconnected external chains.
3. A software development kit (SDK) of protocols and APIs.

In short, Axelar is blockchain infrastructure that enables users who own assets on one blockchain to use these assets in any application on any other blockchains, securely. It allows developers to build on the best platform for their use case, providing connections to users, assets and data on every other ecosystem, without excessive gas fees, additional development costs or rolling out their own cross-chain infrastructure. Like the overlay networks that provide core internet infrastructure, Axelar provides an ecosystem with services that are otherwise unavailable, expensive or inefficient. It sits on top of other networks, and by virtue of having global “visibility” into other networks, it can provide better quality of service.

What is the AXL Token?

AXL is the native token of the Axelar network. The AXL token supports four critical functions.

1. AXL is a medium for transaction fees and any other fees for network usage, paid by users to the validators that run the network.
2. AXL is used by holders and their proxies to stake and exercise governance over proposals (such as a parameter change or protocol upgrade).
3. AXL enables incentives to support the decentralized Proof-of-Stake consensus that secures the network and validates transactions on chain. Validators receive AXL rewards as incentives to continue to secure the network. These incentive rewards are distributed programmatically, per rules encoded in network protocols, and are inflationary, i.e., each protocol reward increases the total token supply.
4. AXL is used to reward ecosystem builders and community contributors.

AXL Token Economics

The token economics for AXL are geared towards the creation of a token economy that supports Axelar network in achieving the following key outcomes.

1. Security. A proper incentives model with healthy staking rewards that encourages a wide validator set to operate secure nodes.
2. Decentralization. A token distributed across a wide set of holders who will delegate to a decentralized set of validators and contribute to governance decisions.
3. Longevity. The token economics are designed to encourage general maintenance of all critical Axelar-related processes (such as block validation).
4. Ecosystem growth. The token incentivizes dApp builders to use Axelar APIs for cross-chain development.

AXL genesis allocations

At the Axelar genesis block, 1 billion AXL tokens in total will be issued and allocated to the following stakeholders and programs.

• Team: Existing employees and advisors.
• Company: Axelar Inc. operational treasury and future employee incentives.
• Backers: Seed, Series A and Series B investors.
• Community sale: A public sale that will happen after mainnet launch, with the objective of distributing tokens to multiple members of the community.
• Community programs: testnet/dashboard/wallet/developer grants, liquidity rewards and other incentive programs, managed by the Axelar Foundation. At least 5% of the total supply will be set aside from Community programs, to be allocated towards an insurance fund and insurance programs.

Fig. 1: AXL token allocations at genesis

Fig. 1, above, provides a chart showing the allocations of AXL genesis tokens, which are as follows.

• Company: 29.5%.
  – Core team: 17%.
  – Company operations: 12.5%.
• Backers: 29.54%
  – Seed: 13.4%.
  – Series A: 12.64%.
  – Series B: 3.5%.
• Community sale: 5%.
• Community programs (incl. insurance fund): 35.96%.

Table 1: AXL backers’ deal terms

Genesis token release schedule

Most tokens are locked at genesis, they can be staked, but cannot be spent or transferred until they are unlocked, or released. Each stakeholder category has its own release schedule that determines when tokens enter the circulating supply and can therefore be spent. The release schedule start date is targeted for Sept. 27th, but may be adjusted due to technical or other constraints. Backers, community sale participants and core team members all have special start dates:

• Backers and core team members’ release schedule begins three months after Day 1.
• On Day 1, 5/9 of community-sale tokens will be released. The remaining tokens will release linearly over the following four months.

Table 2, below, shows the release schedule. The start date is the same for all segments.

Table 2: AXL genesis allocations and release schedule

The chart in Fig. 2, below, shows the release schedule for AXL genesis tokens.

Fig. 2: AXL release schedule

Transaction fees and rewards

The transaction fees, rewards and slashing structures for AXL have been defined and thoroughly explained in another post. The following section explains how locked genesis tokens, released genesis tokens and reward tokens combine to make up the circulating supply and total supply.

Circulating supply and total supply

The circulating supply is defined by the amount of tokens that are available to be spent, and is equivalent to the number of released genesis tokens plus the number of tokens minted as rewards. The rewards injected in the system are unlocked from the moment they’re minted by the protocol. The rate at which rewards are issued is subject to factors including the amount of stake delegated, the number of connected chains, and governance choices. Some parts of the network fees collected by the network may be used towards burning parts of the supply, in which case it’s possible that the network becomes deflationary.

A sample circulating supply chart in Fig. 3, below, is based on the following assumptions:

1. All tokens (including locked tokens) are staked and earning 15% APY, with token holders running their own validators.
2. Company operations and community programs tokens unlock over exactly four years.

Please note that delegation of locked tokens is currently planned, but this may change due to technical feasibility constraints.

Fig. 3: Sample AXL circulating supply (released tokens + rewards)

The total supply will be greater than the circulating supply, until all genesis tokens are released. The total supply at a given time is equivalent to the total number of genesis tokens (locked and released) plus the total number of rewards tokens that have been minted. The total supply chart in Fig. 3 shows projected growth of the total supply over time, given the same assumptions used in the circulating supply chart, Fig. 2 (sample staking at 15% APY).

Fig. 4: Sample AXL total supply (genesis allocation + rewards), 4y

Conclusion

Successfully building a token economy requires gearing the token economics towards achieving key outcomes from the ground up — from token genesis, to rewards and release, to circulation and total supply. The key outcomes for Axelar and the AXL token are: security, longevity, decentralization and ecosystem growth.

Ensuring that a vast majority of AXL is circulating amongst the community is critical for the long term health of the token economy. It incentivizes community engagement, ensures continued investment in the health, development, and security of the protocol, and provides sufficient liquidity for validators and users. A linear unlocking schedule ensures that the token economy does not have to handle sudden supply shocks before it has had time to mature.

At launch, the Axelar Network governance and the parameters that determine the AXL token economics (such as inflation rates) may be adjusted via the on-chain protocol governance mechanism. Members of the community will be eligible to vote on the upgrades to the protocol and protocol parameters; all agreed-upon changes are subject to validator adoption. The Foundation will use its treasury to keep the AXL token economy and Axelar network growing and operating smoothly.

The AXL token is central to the operation of Axelar’s decentralized network. Successfully creating a fair, sustainable and equitable token economy will be critical for growth and functioning of the Axelar network at genesis, and in the long-term future.

*The Axelar Foundation aims to spend Community programs tokens no faster than the release schedule, but is not restricted from spending tokens ahead of schedule, as needed (for example, by transferring tokens to a community governance pool).

**On Day 1, 1/3 of community-sale tokens will be released. The remaining tokens will release linearly over the following six months.

***The release schedule for the core team and backers begins three months after Day 1.