The AXL Token & the Interchain Future

Axelar Foundation
6 min readAug 30, 2022

In a few weeks, Axelar will release the AXL token, marking a milestone toward our goal to deliver the most secure and full-featured interchain communication possible for Web3 applications.

Today, Axelar infrastructure already enables dApp users to interact with any asset or application, on any chain, with one click. With the release of the AXL token, the validator set supporting this functionality will become dynamic.

It’s helpful to think of Axelar as a permissionless Stripe for Web3: regardless of the platforms being connected, Axelar makes connections straightforward for developers and seamless for users. For example, users will not need to hold the AXL token in order to transact cross-chain (unless they want to relay their own messages). Instead, network services buy the AXL token and handle fee payments under the hood.

Axelar is a blockchain that connects blockchains, enabling universal Web3 interoperability and specific functionality that other cross-chain networks cannot provide. The network is secured using proof-of-stake consensus, and messages are routed and translated using permissionless protocols.

The AXL token makes this possible, supporting incentive and fee payments to validators and stakers, and governance over the network.

This article provides a high-level introduction to the AXL token. We’ll cover the mechanisms of network functions involving AXL, and the benefits that accrue to AXL holders who support those functions. We’ll also provide some specific instructions for staking and validating on the Axelar network.

Staking rewards and Axelar network security

In Byzantine systems, such as permissionless blockchain-based networks, security is founded on the level of decentralization in the network. Nodes must be diverse, in order to be robust against a network attack.

Network diagrams showing compromised nodes (red) in an m of n multisig using 9 nodes, vs. a more secure and decentralized system using many nodes.

This is why Axelar is built using the battle-tested proof-of-stake consensus with a diverse and dynamic validator set. The AXL token makes this possible. Anyone can join, anyone can participate, anyone can contribute to the security of the network. The token enables that permissionless access and supports alignment of incentives.

Rewards

Axelar network validators produce new blocks, participate in multiparty signing and vote on external chain states. Tokenholders stake the AXL token, delegating tokens to a validator’s staking pool and receiving rewards, minus the validator’s commission. Rewards on the network are inflationary, increasing the total supply of tokens.

In addition to base rewards, for each chain interconnected through the Axelar Network, there is an external chain inflation rate introduced into the system. Details are provided in the rewards and transaction fees post published by the Axelar Foundation.

Governance

The AXL token is used for governance, allowing stakers to exercise governance over proposals, such as a parameter change or protocol upgrade.

Supply

At genesis, 1 billion AXL tokens will be minted. The token supply will be released on linear schedules ranging from 6 months, for community sale participants, to 4 years, for team members.

To learn more about the AXL token supply and circulation schedule, read the Axlear Foundation blog post on AXL token economics.

Deflationary potential

There is potential for AXL token supply to become deflationary. We mentioned above that users do not need to hold AXL in order to transact over the network. Users pay all gas fees in the source-chain token. Services running on Axelar network convert source-chain tokens into:

  • AXL, for Axelar network fees, paid to AXL stakers and validators.
  • Destination-chain tokens, for gas on the destination chain.

These conversions and fee payments may involve some amount of excess payment or “change,” which can be partially returned to the user, or used in AXL token buyback-and-burn mechanisms. Such mechanisms are not in place, today. Once the network is live, if gas refunds occur, it may be possible to begin determining the optimal refund flow.

Transaction-fee mechanism

Every Axelar network transaction will involve AXL fees. Network services will buy the AXL token, in order to make fee payments completely seamless for the user, so they don’t need to explicitly hold it to pay gas [they can, if they want to relay themselves].

This under-the-hood AXL token fee mechanism provides improved UX for interchain dApps. Users need not go to a separate bridge, or acquire a destination-chain gas token, in order to transact.

The Axelar SDK estimates fee payments on the Axelar network and the destination chain, converts tokens and sends payments in AXL and the destination chain’s gas token. (Gas services can be performed by any program or entity.)

In this way, validators and tokenholders are compensated for the services they provide, while users experience cross-chain functionality that is seamless and throws up no barriers to adoption.

To find out more about gas and executor services and how they function on Axelar network, visit Axelar’s technical documentation site.

A blockchain does what bridges can’t

As a blockchain that connects blockchains, Axelar provides superior security guarantees vs. pairwise bridges and networks that rely on federated multisig technology. It also is capable of running smart-contract logic. This enables functionality that other cross-chain networks cannot duplicate. Here are two examples:

  • Compounding network effects: Any newly connected chain can immediately communicate with all existing connected chains — the compounding of network effect described in Metcalfe’s Law.
  • As a blockchain, Axelar can also provide routing that connects any chain to any other chain. This is true at the scale of 1,000s of connected chains, and beyond.

As a third example, Axelar exposes an API that allows dApps to generate a one-time deposit address. These addresses can receive funds cross-chain in any token from any wallet. Using this function, end-users will get the experience of centralized exchanges while interacting with open protocols and networks. Decentralized Web3 projects will be able to build the same onramps as centralized exchanges.

Learn more about how it works: Watch Axelar engineers build an end-to-end example dApp (Axelar Code video).

How to stake AXL token & earn rewards

Axelar is built using Cosmos’ Tendermint SDK. Therefore, AXL token is supported by Cosmos ecosystem wallets such as Keplr and Cosmostation. Both are compatible with Ledger devices, using the Cosmos Ledger app. (A native Axelar ledger app is expected soon.) Both allow the tokenholder to delegate stake to their choice of validator(s).

Wallet & staking tutorials

Visit our page aggregating information for tokenholders. It includes tutorials for setting up Cosmostation and Keplr wallets, and Ledger devices, as well as guides to staking and bridging native AXL to and from other blockchains.

The Axelarscan explorer

In evaluating which validator to use for staking delegation, tokenholders may wish to review data, such as uptime or voting power. Axelar provides a block explorer, axelarscan.io, that includes this information as part of a wide range of network data. Axelarscan was originally built by Axelar community members and is now maintained by the Axelar team.

Recap & conclusion

Axelar network provides secure cross-chain communication and enables features to support dApps that will onboard the next millions of Web3 users.

The AXL token is a linchpin of this capability, supporting the most decentralized and robust security possible, and enabling smart contract logic to run cross-chain.

AXL tokenholders provide decentralized security and governance, and, in exchange, receive rewards and fees.

A unique gas services mechanism buys the AXL token on the back end, enabling users to transact seamlessly, and creating potential refunds that may lead to deflationary mechanisms on the network.

To receive regular updates on Axelar network, the AXL token and the applications and protocol developers building integrations with Axelar, sign up for our weekly email newsletter.

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