Ben Strack

This is a segment from the Forward Guidance newsletter. To read full editions, <a href="https://blockworks.co/newsletter/forwardguidance">subscribe</a>.



<hr class="wp-block-separator has-alpha-channel-opacity"/>



ETF issuers have, in recent months, plotted US products that would hold solana (SOL), XRP, litecoin (LTC) — even dogecoin (DOGE).



As the SEC mulls them, the pile <a href="https://blockworks.co/news/crypto-etf-plans-abound">keeps growing bigger</a>.



We saw two new assets make it into such proposals Wednesday. Bitwise <a href="https://www.sec.gov/Archives/edgar/data/2059135/000121390025020626/ea0232442-s1_bitwise.htm#a_003">filed</a> for an ETF that would hold Aptos (APT), while Canary Capital has <a href="https://www.sec.gov/Archives/edgar/data/2059208/000183988225013999/canary-s1_030525.htm">plotted</a> one focused on Axelar (AXL).



Developed by Meta’s Diem blockchain engineers, Aptos is a layer-1 blockchain that uses a smart contract programming language called Move.



Canary describes Axelar as a blockchain network that connects blockchains and financial infrastructure by offering interoperability and digital asset tokenization.



The market caps of APT and AXL hover around $3.6 billion and $400 million, respectively — a far cry from the others mentioned.&nbsp;



But size isn’t everything.&nbsp;



When investing in layer-1s, you’re searching for high-quality, differentiated technology, backed by a strong team, Bitwise CIO Matt Hougan told me in an email. “That&#8217;s Aptos to a T,” he added. “You have sub-second transaction finality, heightened security against certain smart contract vulnerabilities and parallel processing that supports giant throughput — all backed by a team that traces its origins to Diem.”



And why does Axelar stand out to Canary?



&#8220;I speak to developers a lot, and the dev team at Axelar is one of the most impressive I have met,” Canary CEO Steven McClurg shared with me. “Most projects build a community and market their coin before launching, but Axelar built real products and shipped [them] first.”



Bitwise also has filings for crypto ETFs holding SOL, XRP and DOGE. Canary has planned SOL and XRP products too — as well as ones focused on LTC and HBAR.



Some investors won’t want to hold a bunch of single-asset crypto ETFs, Bitwise CEO Hunter Horsley <a href="https://blockworks.co/news/bitwise-expansion-funding-regulation">said last week</a>. They could instead opt for crypto index funds (some early forms of those <a href="https://blockworks.co/news/crypto-etf-updates-signal-regulatory-evolution">are live</a>).&nbsp;



Remember <a href="https://blockworks.co/news/litecoin-etf-approval-odds-2025">the odds</a> the Bloomberg Intelligence guys gave for product approvals in this space? McClurg said he expects only two or three new crypto ETFs to launch in the first half of the year, not specifying which.&nbsp;



He added: “We are looking for the rising stars to put on the slate for the end of the year and into 2026.&#8221;



<hr class="wp-block-separator has-alpha-channel-opacity"/>



Get the news in your inbox. Explore Blockworks newsletters:



<ul class="wp-block-list">
<li><a href="https://blockworks.co/newsletter/the-breakdown">The Breakdown</a>: Decoding crypto and the markets. Daily.</li>



<li><a href="https://blockworks.co/newsletter/0xresearch">0xResearch</a>: Alpha in your inbox. Think like an analyst. </li>
</ul>

Axelar

More tokens named in new crypto ETF proposals

Macauley Peterson

Ethereum’s modular scaling roadmap has clear benefits in faster and cheaper transactions, using technology like rollups for execution and dedicated data availability providers.



In practice today, however, this comes at the steep cost of fragmentation in user experience.&nbsp;



This fragmentation is particularly evident on chains that are either too new or too small to have dedicated connections to crypto exchanges or other onramps. Moving funds first to, say, Arbitrum and then to <a href="https://blockworks.co/news/layer-2-adopts-celestia-mainnet">Manta Pacific requires the use</a> of a bridge like Rhino.Fi, which aside from additional steps, introduces a requirement to trust a new central counterparty, if only briefly.



The other alternative is to use native bridges back to <a href="https://blockworks.co/tag/ethereum">Ethereum</a> mainnet, which can be slow and costly.



So, while it is now easy to deploy new chains, tapping into the users and liquidity elsewhere — chiefly Ethereum mainnet and other major <a href="https://blockworks.co/tag/evm">EVM</a>-chains — remains a source of friction and risk.



But it won’t always be so.



Rollkit, spun out of Celestia <a href="https://blog.celestia.org/introducing-rollkit-a-modular-rollup-framework/">last year</a>, was the first sovereign rollup framework to radically simplify the launch of new chains using Celestia for DA. That’s for a <a href="https://l2beat.com/scaling/summary">category</a> of <a href="https://blockworks.co/tag/rollups">rollups</a> known as optimiums or validiums — optimistic or validity proof-based rollups that use offchain DA.



Read more: <a href="https://blockworks.co/news/layer-2-secured-by-ethereum">So your layer-2 is ‘secured by Ethereum’ — what does that mean?</a>



However, you can also build a chain directly on Celestia, which presents additional challenges, according to <a href="https://blockworks.co/tag/axelar">Axelar</a> protocol co-founder and Foundation director Georgios Vlachos.



“If you&#8217;re building directly on Celestia, then it&#8217;s impossible for a user to even onboard from Ethereum,” Vlachos told Blockworks. “Axelar will allow users to move their assets to the chain — a boring use case, but it&#8217;s impossible to use the chain without functionality like this.”



Rollkit is about to get a boost from Axelar’s Interchain Amplifier, which automates token routing across all Axelar-connected chains — more than 60 and growing.



Axelar is not the only solution for cross-chain interoperability, but compared to many bridges, it’s more secure due to its decentralization with a permissionless validator set of 75 operators.



Individual cryptographic private keys are frequently compromised, resulting in millions of dollars in losses, including many incidents involving <a href="https://blockworks.co/tag/bridges">bridges</a>. In Axelar’s case, “it&#8217;s very hard for an attacker to actually steal funds because they would have to steal a majority of the [75] keys,” Vlachos said.



Its hub-and-spoke architecture is a boon for new chains spun up using Rollkit because they will immediately be connected to all other chains in the network. That’s possible because Axelar is itself a smart contract blockchain with its own virtual machine.



A new chain will typically lack native assets, so accessing <a href="https://blockworks.co/tag/liquidity">liquidity</a>, including stablecoins, from elsewhere is critically important.



“Circle doesn&#8217;t launch on a new chain day one,” Vlachos noted. “They have something like 10 chains today, but new rollups will need stablecoins [on] day one.”



USDC is natively issued on 16 chains, but only eight of those have available routes <a href="https://blockworks.co/news/circle-launches-cctp-solana">via its CCTP mint and burn system</a>.



On the asset issuance side, Axelar’s Interchain Amplifier will also support its Interchain Token Service (ITS), a cross-chain application built on top of the Amplifier layer that lets anyone create a cross-chain version of any token connected to Axelar.



Read more: <a href="https://blockworks.co/news/axelar-multichain-tokens">Tokens are going multichain, and it’s getting easier</a>



“As an industry, we need to standardize some of those things,” Vlachos added. “Unfortunately, every chain ends up doing their own thing.”



That shortcoming extends to <a href="https://blockworks.co/tag/wallets">wallet</a> providers, which have thus far tended to specialize within a certain ecosystem. He points to XDEFI as a multichain wallet example. <a href="https://blockworks.co/tag/phantom">Phantom</a>, which started on Solana, is another wallet that has lately been making a push to support other ecosystems.



“Axelar provides the technology to abstract away the chains, but we need the wallet developers to integrate the technology in the long run and make the same wallet available on many different chains,” Vlachos said.



<a href="https://blockworks.co/tag/lido">Lido</a> has made progress in terms of token standardization, working with both Axelar and Wormhole to establish a canonical version of stETH across many chains.



Vlachos is keeping his eye on the prize: a future in which users can focus on applications and assets, not on the backend wizardry facilitating their desired action.



“The idea is that any application that today is siloed on a single chain — be it decentralized exchange, a money market, an NFT marketplace — a developer should be able to build the same user experiences spanning different chains.”



Updated May 21 at 1:20 pm ET: Clarified Georgios Vlachos&#8217; role as both protocol co-founder and Axelar Foundation director, and 3:55 pm ET clarifying that Rollkit is now independent of Celestia.



<hr class="wp-block-separator has-alpha-channel-opacity"/>



Get the news in your inbox. Explore Blockworks newsletters:



<ul class="wp-block-list">
<li><a href="https://blockworks.co/newsletter/the-breakdown">The Breakdown</a>: Decoding crypto and the markets. Daily.</li>



<li><a href="https://blockworks.co/newsletter/0xresearch">0xResearch</a>: Alpha in your inbox. Think like an analyst. </li>
</ul>

Celestia-built Rollkit gets an interchain boost

Launching a token on any given blockchain is generally not difficult or complicated. But launching a token across multiple chains has been more of a challenge.



Referring to a “native chain” in contrast to a “bridged” or “wrapped” version of a token is the status quo today.



A new service from general message passing protocol Axelar aims to change that, making it trivially easy to launch tokens on any or all of its supported networks with no coding skills required.



Called the Interchain Token Service (ITS), the new tool maintains the fungibility and properties of any ERC-20 token, while allowing them to move across any of the EVM-compatible blockchains in Axelar’s orbit — 15 chains currently, with more on the way.



ITS is permissionless to use and tokens also enjoy trust-minimized bridging using a “mint and burn” mechanism, features which don’t currently exist in the industry according to Axelar’s DeFi head Jason Ma.



“The other alternative solution today on the market is <a href="https://blockworks.co/tag/layerzero">LayerZero</a> OFT, but oft is not a code free solution, and based on the feedback we heard from developers, it can take anywhere between like a week of work to like months of work,” Ma told Blockworks.



Read more: <a href="https://blockworks.co/news/layerzero-lido-dao-wsteth">LayerZero’s wstETH bridge deployment draws Lido DAO ire</a>



Frax, which is about to launch its own Ethereum <a href="https://blockworks.co/tag/rollups">rollup</a>, Fraxtal is among the first to use ITS. Nader Ghazvini, co-founder of Fraxtal, hopes the service will help attract developers to its new chain.



“Integrating Interchain Token Service from the start, the Fraxtal layer-2 enables seamless, no-code interoperability for many builders joining at the ground floor,” Ghazvini said in a statement.



ITS can be used to deploy a new token across multiple chains in one step, but it also encompasses “token manager” which can unify the deployment of native tokens that are already on multiple chains.



That puts it in the same category as <a href="https://blockworks.co/tag/circle">Circle</a>’s cross-chain transfer protocol (CCTP) used to bridge native USDC between chains, only without the centralized counterparty.



“It&#8217;s essentially a decentralized open-source CCTP that any protocol can use and deploy themselves,” Ma said.



Read more: <a href="https://blockworks.co/news/circle-moves-usdc-to-cosmos">Circle moves native USDC offering to Cosmos mainnet</a>



The token manager can be used by teams looking to link native token deployments, for example, to fulfill compliance requirements.



“For the chains that they consider strategically important with lots of liquidity, they want to natively mint,” Ma said, offering Ethereum, Polygon and Arbitrum as examples. For other chains, “they can just use ITS off-the-shelf and use an Axelar-version of that token on the other chains, and it would still be fully interoperable,” he said.



Only <a href="https://blockworks.co/tag/evm">EVM</a>-chains are supported for now, but Axelar — itself a <a href="https://blockworks.co/tag/cosmos">Cosmos</a> chain — plans to expand the service to the Cosmos Interchain later this year.



<hr class="wp-block-separator has-alpha-channel-opacity"/>



Get the news in your inbox. Explore Blockworks newsletters:



<ul class="wp-block-list">
<li><a href="https://blockworks.co/newsletter/the-breakdown">The Breakdown</a>: Decoding crypto and the markets. Daily.</li>



<li><a href="https://blockworks.co/newsletter/0xresearch">0xResearch</a>: Alpha in your inbox. Think like an analyst. </li>
</ul>

Tokens are going multichain, and it’s getting easier

Bessie Liu

Cross-chain communication platform Axelar is looking to revamp the tokenomics of its native token AXL and simplify the blockchain integration process.



According to Axelarscan, since its genesis the network has processed over $6 billion in cross-chain transactions. It currently has a total value locked (TVL) of $95.3 million and a market cap of $143.3 million, as shown on DeFiLlama.&nbsp;



As it currently stands, Axelar’s native token (<a href="https://blockworks.co/price/axl">AXL</a>) is inflationary. Its existing inflationary design is intentional, as it incentivises validators to offer connections to external chains. But the Axelar Foundation, the team behind the Axelar network, has proposed to modify the inflation parameters and introduce a gas burning mechanism.



In an interview with Blockworks, Axelar Foundation Chairman Georgios Vlachos noted that existing inflation parameters add rewards for each connected external chain that does not have light clients.



&#8220;We cannot support hundreds or thousands of chains in this model without inflating the network substantially. So in the short-term, these parameters should be reduced to allow us to support more chains, while the community is working on launching the Virtual Machine and new connectivity models that do not have these inflationary properties,&#8221; Vlachos said.&nbsp;&nbsp;



The culminated total inflation rate of Axelar is currently around 11.5%, with each externally verified chain adding an inflation rate of 0.75%. The proposal suggests lowering the inflation to 0.3% for each external chain, which will reduce total <a href="https://blockworks.co/tag/inflation">inflation</a> to around 5.2%. Then, with the addition of five other chains which will join the network, the new model would bring inflation up to around 6.7%.&nbsp;



Addressing the <a href="https://community.axelar.network/t/adjusting-axelar-network-incentives-a-proposal-to-scale-to-thousands-of-chains-call-for-comments/2515/2">feedback</a> from community members that inflation should be gradually adjusted, Valchos notes that it is relatively straightforward to submit governance proposals that will gradually adjust the inflation if the community believes that it is the best approach.&nbsp;



Beyond revamping its tokenomics, the Axelar Foundation is also hoping to streamline the process of integrating <a href="https://blockworks.co/tag/layer-2-2">layer-2s</a> onto its network.



Read more: <a href="https://blockworks.co/news/microsoft-axelar-team-up">Microsoft, Axelar team up to ‘further advance’ adoption of blockchain technologies</a>



In the medium term, this means transitioning to using the Axelar Virtual Machine (AVM) and the Interchain Amplifier — a set of <a href="https://blockworks.co/tag/smart-contracts">smart contracts</a> built on top of the AVM, both which are currently under development.&nbsp;



The Interchain Amplifier will be able to automate new-chain connections across <a href="https://blockworks.co/tag/evm">EVM</a> and other consensus mechanisms, said Sergey Gorbunov, CEO of Axelar Inc.&nbsp;



&#8220;The AVM is a combination of Axelar network&#8217;s <a href="https://blockworks.co/tag/interoperability">interoperability</a> with CosmWasm smart-contract logic — enabling what we like to think of as a programmable interoperability layer,” Gorbunov said.



Programmability at the interoperability layer will enable Axelar to automate integrations with thousands of different chains and also explore new interoperability use cases that will enable developers to quickly deploy and manage multi-chain applications from a single environment, Gorbunov explains.



In the long term, the Axelar Foundation is hoping to employ light clients.



Light clients in blockchains are nodes that run a “light” client software that proves blockchain data from providers rather than keeping it and verifying it on the blockchain itself. These light client connections would be supported by relayers, instead of external validators.



Read more: <a href="https://blockworks.co/news/zerosync-starkware-zero-knowledge-proofs-bitcoin">Bitcoin’s first zero-knowledge light client seeks to drive innovation</a>



&#8220;Light-client connections would mean a new EVM chain could get full-service interoperability via Axelar network without requiring Axelar network validators to run a node on the new chain,” Gorbunov said. “This reduces onboarding overhead substantially, and can scale to thousands of chains.&#8221;&nbsp;



If the proposal is approved by community governance, the token economics proposal will be implemented before the end of year. Meanwhile, the Interchain Amplifier and any other new-chain activities will not be until 2024.



<hr class="wp-block-separator has-alpha-channel-opacity"/>



Get the news in your inbox. Explore Blockworks newsletters:



<ul class="wp-block-list">
<li><a href="https://blockworks.co/newsletter/the-breakdown">The Breakdown</a>: Decoding crypto and the markets. Daily.</li>



<li><a href="https://blockworks.co/newsletter/0xresearch">0xResearch</a>: Alpha in your inbox. Think like an analyst. </li>
</ul>

Axelar prepares tokenomic overhaul for AXL

Cross-chain swap and liquidity routing protocol Squid today launched Boost — a tool that is intended to reduce transaction speeds across different blockchains to as little as two seconds.



The protocol itself is built on top of cross-chain communication network Axelar. It uses Axelar’s General Messaging Passing (GMP) to enable one-click swaps across chains.&nbsp;



Squid said it supports over 43 different blockchains, including Ethereum virtual machine (EVM) chains such as Ethereum, Arbitrum, Polygon and Avalanche, and many Cosmos chains such as Cosmos Hub, Crescent and Injective.



Squid launched in February and has since seen $93 million in transaction volumes, co-founder Christina Rud told Blockworks.



<h2 class="wp-block-heading">How does Squid swap tokens?</h2>



Squid co-founder Fig told Blockworks that instead of needing to transfer funds to an application, then convert it to a different token to use it, Squid’s router enables users to directly transfer across blockchains and into the token they wish to receive in just one click.&nbsp;



This means that users can swap any-to-any token across all blockchain networks that Squid supports.



Squid said it achieves this functionality by utilizing existing liquidity on different automated market makers (AMMs) — such as Uniswap or Curve.&nbsp;



All its transactions are routed through Axelar Wrapped USDC (axIUSDC)/USDC stable swap pools and USDC/native token pools on AMMs.



“If you have USDC on Avalanche and you want to stake Ethereum on a liquid staking contract, what Squid would do is we would swap USDC on Avalanche into Axelar Wrapped USDC, we would do that on Stellaswap, and transfer that across to Ethereum where the USDC gets unlocked by the Axelar bridge, and then stake it in the Lido contract, for example,” Fig said. “All of that happens in one click.”



<figure class="wp-block-image"><img decoding="async" src="https://lh4.googleusercontent.com/PGxDj0CULBtR_7oJ5inVGC8oNnwnPwfKADYPzhk9ecP4l8wST1bzvHpxAteuSDjL73zFB_028e0wxURzuSK-voyMHJYH0DxOur4VLXzgXW8qYdVWodh830kFTWSg8-A3WVWpGSBuZzETrdH4xTE_hug" alt=""/><figcaption class="wp-element-caption">Source: Squid</figcaption></figure>



<h2 class="wp-block-heading">The latest Boost feature</h2>



Squid’s new Boost feature will now improve the cross-chain swap process, the protocol said.



Although the Squid router has simplified the cross-chain swapping experience down to one click, the time to execute these transactions is still slow — ranging anywhere from 20 to 60 minutes.



Boost’s goal is to enable all swaps to occur in under one minute — and as little as two seconds — with the caveat that it is only available for transactions under $20,000.



“Boost is a layer which allows service providers to provide that bridge out of their own inventory almost as a loan, execute the swap immediately, and then when the bridge comes through 20 minutes later, it pays back the service provider instead of now sending to the user again,” Fig said.



Boost itself has received over five audits, and the Axelar bridge has more than 50 audits, Fig noted.



“The important thing is in the design, the risk is only for the service provider providing funds to the user. At no point is the user exposed to losing money compared to what we have in our standard credit protocol,” Fig said.



“The worst thing that can happen is if the service provider tries to censor the transaction, in that case, it falls back elegantly to the previous system…so you will still get your transaction in 20 minutes.”



<hr class="wp-block-separator has-alpha-channel-opacity"/>



Get the news in your inbox. Explore Blockworks newsletters:



<ul class="wp-block-list">
<li><a href="https://blockworks.co/newsletter/the-breakdown">The Breakdown</a>: Decoding crypto and the markets. Daily.</li>



<li><a href="https://blockworks.co/newsletter/0xresearch">0xResearch</a>: Alpha in your inbox. Think like an analyst. </li>
</ul>

Cross-chain transactions in just 2 seconds? Squid says it’s possible

Katherine Ross

Microsoft is teaming up with Axelar to build a data integration and interoperability layer. The companies say they hope to help deliver blockchain onramps, and also indicated a desire to “further advance the adoption of blockchain technologies.”



<a href="https://blockworks.co/tag/axelar">Axelar</a>, which is backed by Coinbase Ventures, Binance, and Galaxy to name a few, is an interoperability network that allows for secure cross-chain communication in Web3. Co-founder Sergey Gorbunov said Axelar has “been connecting a lot of public blockchains and kind of simplifying developer and user experiences.”



In an interview with Blockworks, Gorbunov stated, “I think there&#8217;s going to be a need to connect a lot of the private blockchains as well kind of make sure that assets can be issued in a secure and sort of a decentralized way across traditional Web2 stacks and Web3 stacks, and so for us, it&#8217;s a way to expand our distribution right to a lot of corporate/enterprise customers use cases around asset issuance.”



Daniel An, director of business development at Microsoft Web3 &amp; AI, said the partnership will “accelerate blockchain integration and deliver valuable solutions to our customers.”



“By leveraging our strengths and expertise, we can empower organizations to embrace blockchain technology and transform their operations,” he said.&nbsp;



The partnership intends to allow customers to access services and developer tools on AxelarJS SDX, and Axelar General Message Passing on Microsoft’s Azure Marketplace. The two will also collaborate on “AI and hybrid blockchain initiatives.”&nbsp;



Gorbunov said that, through Azure, <a href="https://blockworks.co/tag/microsoft">Microsoft</a> customers will be able to “utilize all of [Axelar’s] stack.”



Specifically, customers will get access to modules on Axelar’sJS SDX, including AxelarAssetTRansfer, which allows for cross-chain token transfer through deposit address generation and Axelar QueryAPI, which is a collection of “helpful predefined queries into the network” according to Axelar’s <a href="https://docs.axelar.dev/dev/axelarjs-sdk/intro">website</a>.&nbsp;



Axelar’s GMP is <a href="https://blockworks.co/tag/axelar">also used by asset management protocol Sommelier</a>.&nbsp;



Customers will also be able to access “an end-to-end blockchain interoperability solution that is programmable and secure.”



Gorbunov told Blockworks there’s a lot of “exploratory work” for Microsoft and Axelar, but the two are working together to “figure out how do we extend the trust of public blockchains to the private blockchain.”



The partners will “explore innovative solutions that will further advance the maturity of the Web3 industry, such as seamlessly connecting private with public blockchains and leveraging Azure OpenAI services to create entirely new experiences in Web3,” the press release said.



Gorbunov hopes that Axelar, as part of its partnership with Microsoft, can focus on the need for decentralized interoperability.



“I think, overall, we&#8217;ve seen a lot of collapse from like centralized players, right, like centralized exchanges, because they&#8217;ve been offering interoperability in a centralized way, right? By just running a central database in the middle,” Gorbunov told Blockworks.



“And I think what we&#8217;re trying to do with Axelar plus what we&#8217;re trying to do with Microsoft and beyond that is really making sure that any connectivity or any application that you want to build across different ledgers can still be robust, can still be secure and decentralized.”



An example, he added, would be something Axelar has been “tackling pretty aggressively,” which is “cross-chain asset transfers and you still have decentralized exchanges being cross-chain.”



<hr class="wp-block-separator has-alpha-channel-opacity"/>



Get the news in your inbox. Explore Blockworks newsletters:



<ul class="wp-block-list">
<li><a href="https://blockworks.co/newsletter/the-breakdown">The Breakdown</a>: Decoding crypto and the markets. Daily.</li>



<li><a href="https://blockworks.co/newsletter/0xresearch">0xResearch</a>: Alpha in your inbox. Think like an analyst. </li>
</ul>

Microsoft, Axelar team up to ‘further advance’ adoption of blockchain technologies

In the culinary world, a sommelier is a trained and knowledgeable professional, adept in food and wine pairing. In the <a href="https://www.blockworksresearch.com/glossary#inter-blockchain-communication-protocol-ibc" target="_blank" rel="noreferrer noopener">interchain</a> landscape, asset management protocol <a href="https://blockworks.co/tag/sommelier" target="_blank" rel="noreferrer noopener">Sommelier</a> mixes and matches DeFi yield opportunities selected by independent strategists.



The Cosmos-based chain launched its first “intelligent DeFi vaults” on Ethereum mainnet in January, and has since grown its total value locked (TVL) from about $1.4 million to $16.7 million.&nbsp;



Now, thanks to Axelar’s implementation of general message passing (GMP), Sommelier is expanding to additional EVM-compatible chains, starting with layer-2 rollup, Arbitrum One.



Sommelier took two years to build, co-founder Zaki Manian told Blockworks in an interview. But with the advent of <a href="https://blockworks.co/tag/axelar" target="_blank" rel="noreferrer noopener">Axelar</a>, if they were starting from scratch today, it could be done in 60 days, Manian said.



“The combination of the two is immensely powerful,” Manian said. “What Axelar has done is establish a transport system.” It brings the same level of composability as found natively in the Cosmos tech stack to other EVM-based <a href="https://blockworks.co/tag/layer-1" target="_blank" rel="noreferrer noopener">layer-1</a> chains and <a href="https://blockworks.co/tag/rollups" target="_blank" rel="noreferrer noopener">rollups</a>.



Axelar’s GMP for Cosmos recently went live on mainnet, and this will be its first production use once Sommelier&#8217;s Arbitrum vault launches.



“I think the [layer-1] war is going to start coming to an end soon,” said Manian. When decentralized application layers all fit together, “we’re gonna build amazing user experiences that are really able to onboard at a mass scale,” he said.



For instance, the protocol&#8217;s two main vault strategies — Real Yield USD and Real Yield ETH, which account for 97% of its TVL — couldn’t exist without the mechanisms of the Cosmos SDK. Non-custodial depositors on Ethereum mainnet are able to deploy capital into vaults managed by Sommelier’s strategists, approved by holders of its native token SOMM on its Cosmos chain.



But Ethereum mainnet — due to gas costs and performance constraints — lacks financial primitives, such as derivatives, that are enabled by other chains, including Arbitrum. The Axelar tie-up gives strategies access to Arbitrum dapps, while offloading the cross-chain infrastructure requirements to Axelar’s validators.



“Everything you can build with the Cosmos SDK is now going to be a lot more interoperable with Ethereum and other layer-1s that have EVM-support,” Axelar’s co-founder and engineering lead Sergey Gorbunov told Blockworks.



Previously, Sommelier would have had to run nodes, not only on Ethereum, but on any additional chains where it wants to offer its vaults. But now Axelar becomes a single point of contact for its future expansion.



“The Axelar network has been designed to support that type of activity on the economic side, on the incentive side,” Gorbunov said.



<h2 class="wp-block-heading">What are the risks?</h2>



Sommelier vaults on Arbitrum naturally will introduce some new trust assumptions and commensurate risks.



As before, users of its DeFi strategies have to trust SOMM validators to behave correctly, but now must trust the design of Axelar’s GMP and its validators as well. However, Manian said, “we have designed our smart contracts on Sommelier to make it so it would be difficult for validators to steal funds, even if Sommelier or Axelar is compromised.



There are also inherent risks of transacting on EVM alternatives, such as Arbitrum, including the need to trust its centralized sequencer. These scaling solutions are still comparatively new, and there could be flaws or bugs yet to be revealed, Manian said.



“There is a reason why 95% of the Defi TVL is on Ethereum, but there’s so many exciting applications being built on L-2s like derivatives that are very exciting for strategies that it’s impossible for us to ignore the possibilities,” he said.



<hr class="wp-block-separator has-alpha-channel-opacity"/>



Get the news in your inbox. Explore Blockworks newsletters:



<ul class="wp-block-list">
<li><a href="https://blockworks.co/newsletter/the-breakdown">The Breakdown</a>: Decoding crypto and the markets. Daily.</li>



<li><a href="https://blockworks.co/newsletter/0xresearch">0xResearch</a>: Alpha in your inbox. Think like an analyst. </li>
</ul>

Arbitrum

DeFi Strategies Get a Multichain Boost From Sommelier and Axelar

“We’re so early,” as the crypto meme goes, but when it comes to the experience of working as a Web3 developer, that’s not necessarily a good thing.



There are multiple challenges facing blockchain-focused teams looking to attract developer talent, sources tell Blockworks. These range from finding funding in a bearish macro environment, to the novel smart contract programming languages and practical considerations such as infrastructure and workflow tools.



Forcing devs to deal with novel workflow issues is a problem with serious consequences — not merely a drain on productivity, but, with money on the line in decentralized finance, major financial losses result when security missteps occur. Just ask <a href="https://blockworks.co/tag/bridges">cross-chain bridge users</a>.



San Diego, California-based Cubist, which announced the close of its $7 million seed round today, is focusing on the tools software engineers need for multichain and cross-chain development.



The round was led by Polychain Capital, with participation from venture capital and other investors including dao5, Amplify Partners, Polygon, and Axelar.



The company’s initial focus is on chains supporting the Ethereum Virtual Machine (EVM), CEO and co-founder ​​Riad Wahby told Blockworks, noting Ethereum has the most well established developer tooling, but only for the needs of individual developers, not larger more professional developer teams.



Some in the crypto space use the lack of developer familiarity with <a href="https://www.blockworksresearch.com/glossary#solidity-programming-language-ethereum">Solidity</a>, Ethereum’s smart contract language, “as an excuse,” Wahby said.



“I think there is a slice of the developer ecosystem in Web2 that’s basically like Javascript or nothing…but I don’t think that’s actually the problem,” he said, adding, “I think the actual problem is, all the other tooling that goes along with developing serious applications in Web2 is just totally missing.”



Wahby cited continuous integration testing — automating the merging of code changes from multiple contributors into a single software project — as one example where Web3 falls short.



“That’s still nascent technology, whereas in Web2 that’s just table stakes,” he said.



<h2 class="wp-block-heading">There are only so many early adopters</h2>



For Web3 startups, the goal should be attracting developers that are not going to be your fanatics, they’re going to be your customers, according to Dean Tribble, CEO of Agoric, a company facilitating building DeFi dapps in JavaScript.



“It’s fine to get fanatics, but there are just a limited number of them, and the goal is to transition to where we get lots and lots of customers from this platform technology.”



There is certainly the programming language aspect, Tribble said, noting that the number of JavaScript developers in the world sits at 15 million and the language&#8217;s strengths in building frameworks of components — composable software from many different contributors.



“Being able to build on the shoulders of others is critical,” he said.



But a more salient problem right now is the overall market downturn. “People don’t communicate what’s the value [proposition] of it, for people solving their own problems…what’s the actual advantage here?”



Among the obstacles: New jargon, new patterns, the security hazards, the perceived fraudulent behavior — “scummy, scammy behavior,” as Tribble put it.



“FTX’s same-old-same-old brokerage fraud of mixing customer funds with investment — the fraud part didn’t have anything to do with Web3, the technology stack and what opportunity is enabled, and yet from 10,000 feet it all looks like a mess,” he said.



Tribble expects to see applications that rely on other chains bringing their value, but acknowledges the potential downside of application dependency, a form of counterparty risk.



One example is Agoric’s own stable token IST, which can be minted from Ethereum-based stablecoins like DAI, USDC and USDT that are brought over to Cosmos via bridges like Axelar and Gravity.



“But if one of those bridges goes down, that impacts our business and reputation even though we do not have control over those bridges.”&nbsp;


<div class="wp-block-image">
<figure class="alignright size-full is-resized"><img loading="lazy" decoding="async" src="https://blockworks-co.imgix.net/wp-content/uploads/2023/03/Wahby.jpeg" alt="" class="wp-image-48723" width="250" height="250" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2023/03/Wahby.jpeg?w=500 500w, https://blockworks-co.imgix.net/wp-content/uploads/2023/03/Wahby.jpeg?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2023/03/Wahby.jpeg?w=150 150w, https://blockworks-co.imgix.net/wp-content/uploads/2023/03/Wahby.jpeg?w=257 257w, https://blockworks-co.imgix.net/wp-content/uploads/2023/03/Wahby.jpeg?w=261 261w, https://blockworks-co.imgix.net/wp-content/uploads/2023/03/Wahby.jpeg?w=219 219w, https://blockworks-co.imgix.net/wp-content/uploads/2023/03/Wahby.jpeg?w=80 80w" sizes="auto, (max-width: 250px) 100vw, 250px" /><figcaption class="wp-element-caption">​​Riad Wahby; Source: Cubist.dev</figcaption></figure></div>


That’s among the problems Wahby’s team at Cubist aims to tackle — to improve the ability for developers to safely build and deploy multichain.&nbsp;



“I love the hacker ethic — of course that’s part of the reason why we love to work in Web3 — but I also want somebody who’s going to give me a [Service Level Agreement],” Wahby said.



Cubist is building tools for interchain developers, using the Axelar Virtual Machine (AVM), a new piece of permissionless infrastructure, Axelar’s content lead Galen Moore told Blockworks.



Axelar has a mission to make building interchain-native applications easy, as co-founder Sergey Gorbunov said at the recent <a href="https://interopsummit.com/">Interop Summit</a> in Denver, where he described how developers spend 70-80% of time dealing with the minutiae of software deployment in a multi-chain stack as opposed to being able to focus on building application logic.



“It&#8217;s possible to make Web3 easier — maybe even easier than traditional web development,” Moore said.



Gorbunov sees the development of Ethereum and Cosmos coalescing in the future.



“In some sense now the Cosmos stack I think is becoming more and more glued together with the EVM stack, and I think, as time goes by, these are going to be indistinguishable ecosystems, I believe,” Gorbunov said.



<h2 class="wp-block-heading">But first, solving the money problem</h2>



No matter how interested in Web3 potential developers are, teams have to be able to pay them. Griffin Anderson, CEO of Phi Labs, is seeing foundations reneging on promised grants, and projects funded by token issuance are suffering from the bear market downturn in token prices.



“There’s tons of demand to build apps and projects, but I would say the overwhelming 50 or 60 percent are depending on a financial grant in some capacity,” Anderson told Blockworks.



“It’s not like they don’t know Web 2.0 engineers and don’t want to bring their friends into the space, it’s that they can’t pay their salaries, at the end of the day, in this environment,” he said.



A core contributor to Archway, Anderson is working on devising alternative incentive mechanisms to bring more developers into Web3 by leveraging the underlying strengths of the technology.



The basic concept behind Archway, which is also Cosmos-based, is to programmatically reward developers based on the value and users they bring to the network.



Finding applications that excite developers and play to the strengths of Web3 can help, Tribble said. Testing applications across multiple machines, let alone multiple chains, presents novel problems.



“That’s rarely something engineers have experienced in non-crypto…[but] it is one that Web2 engineers actually find enticing — that’s interesting from an engineering point of view — it’s part of the attraction,” he said.



<hr class="wp-block-separator has-alpha-channel-opacity"/>



Get the news in your inbox. Explore Blockworks newsletters:



<ul class="wp-block-list">
<li><a href="https://blockworks.co/newsletter/the-breakdown">The Breakdown</a>: Decoding crypto and the markets. Daily.</li>



<li><a href="https://blockworks.co/newsletter/0xresearch">0xResearch</a>: Alpha in your inbox. Think like an analyst. </li>
</ul>

Agoric

Solving Web3’s Developer Problem: Web2 Remains Hesitant

Few pieces of blockchain infrastructure have proven to be both more necessary and more fragile than cross-chain interoperability protocols, commonly known as <a href="https://blockworks.co/tag/bridges">bridges</a>. Whether you favor Ethereum layer-2 rollups, or an <a href="https://www.blockworksresearch.com/research/2022-in-review-network-coverage-layer-1s-and-2s">app-chain thesis</a> such as Cosmos or Avalanche <a href="https://www.blockworksresearch.com/research/avalanche-subnets">subnets</a>, a <a href="https://blockworks.co/tag/multichain">multichain</a> future requires data and value to flow between chains.



But so far no one has conclusively solved the engineering problems to make cross-chain communication safe, fast and cheap — to wit, estimates put the total value <a href="https://twitter.com/WuBlockchain/status/1578295159850405888">lost</a> to hacks and exploits at upwards of $2 billion since 2021.



The latest startup to try is Orb Labs, which announced a $4.5M seed round Tuesday, led by Bain Capital Crypto, with participation from Shima Capital, 6th Man Ventures, Aves Lair, Newman Capital, Modular Capital, and SevenX Ventures.



Co-founders Richard Adjei and Felix Madutsa told Blockworks, exclusively, that their goal is “to make it possible for the everyday people to find Web3 to be a comfortable place to be.”



“We think fundamentally, messaging protocols are the last piece of Web3 scaleability,” Adjei said. &#8220;Their primary use case is to help amortize block space demand.”



That entails moving some computation to chains which are cheaper to use, like layer-2s, while keeping assets safely secured on a trusted chain such as Ethereum.&nbsp;



<h2 class="wp-block-heading">Efficiency versus security</h2>



To date, there have been three main types of cross-chain protocols:



<ol class="wp-block-list">
<li>Consensus light clients such as <a href="https://blockworks.co/tag/IBC">Cosmos’ IBC</a>, which are highly secure and trust-minimized;</li>



<li>Validator-based systems — the majority approach taken by Wormhole, LayerZero and Axelar — which have a set of validators verify messages off-chain; and</li>



<li>Optimistic messaging systems — the Nomad bridge being the most prominent — that rely on off-chain validity checks during a dispute window, much like <a href="https://www.blockworksresearch.com/glossary#optimistic-rollup-or">optimistic rollups</a>.</li>
</ol>



Each have their pros and cons, balancing the tradeoffs between speed, cost and security. The latter has sometimes been challenging in practice; <a href="https://blockworks.co/news/wormhole-parent-commits-320m-ether-to-replace-massive-defi-hack-losses">Wormhole</a> and <a href="https://blockworks.co/news/nomad-recovers-nearly-20m-of-stolen-190m">Nomad</a>, for instance, suffered exploits to the tune of hundreds of millions of dollars in 2022.



Orb Labs “went back to the drawing board” as Adjei and Madutsa put it, and came up with Earlybird, which uses “different libraries that get to the peak in terms of usability and security,” Adjei said.



Of course, they had to have catchy names.



Thunderbird, the most gas-efficient, uses a validator scheme much like existing popular protocols, but the team claims their solution delivers a greater than 20x cost savings.



The Rukh library is an optimistic messaging system which side-steps the problem that confronted Nomad.



Caladrius is the most trust-minimized — a consensus light client-based option that Adjei said will be cheap enough to work on Ethereum. By contrast, he estimates an implementation of IBC on Ethereum would cost on the order of $500 million per year.



Finally, Griffin, a library that combines the previous three, gives developers maximum flexibility, according to Orb Labs.



The basic idea is to allow applications to switch between the libraries based on the nature of their particular needs, dialing down security to reduce costs, or upping security with a more trust-minimized solution, when required.



This new approach is a major part of why venture investor Yida Gao, general partner at Shima Capital, sees room in the bridge market for a new player.



“We think that there’s a second-mover advantage when it comes to building cross-chain communications protocols,” Gao told Blockworks.



None of these solutions is yet in production, but the team plans to use the new seed funding to bring the vision to reality. That means hiring, scaling the tech, conducting security audits, and finding launch partners.



“We’ve talked to a few [layer-1s] that are exploring ways to build really robust native bridges, partly because the thing they all need to solve is there are not good solutions other than multisigs,” Adjei said.



<h2 class="wp-block-heading">“Future-proof interoperability”</h2>



Other messaging protocols are moving in a similar direction. The team’s vision is similar to what Axelar co-founder Sergey Gorbunov <a href="https://axelar.network/blog/future-proof-interop-path-adaptability-for-cross-chain-dapps">calls</a> “a concept of future-proof interoperability,” working towards a decoupling of the interoperability layers.



“Developers can build their dApps based on specific message semantics, while the underlying validation and transport layers can be adapted and improved over time,” Gorbunov wrote on the Axelar blog.



Gorbunov disputes the idea that validator-based systems are inherently less secure, noting that even the gold standard IBC <a href="https://forum.cosmos.network/t/ibc-security-advisory-dragonberry/7702" target="_blank" rel="noreferrer noopener">encountered</a> critical bugs last year. After “two bugs in the same week, the full Cosmos community was like on fire having to deal with those things — thankfully nobody lost money,” Gorbunov told Blockworks.



But he agreed that there’s still room for innovation in cross-chain architecture, noting that “Besides security and robustness challenges, the architecture of interchain dApps needs to be revisited from the ground up.”



Orb Labs’ first product, MagicLane, is a token wrapping feature to send tokens from one chain to another very easily, and is built on top of Earlybird.



“The whole idea behind messaging protocols is everything becomes a cross-chain message, because we’re sort of like moving computation, transactions and users to the most scalable chain at any given point in time,” Adjei said.



“That’s the only way we enter this world in Web3 where most every transaction is free.”



<hr class="wp-block-separator has-alpha-channel-opacity"/>



Get the news in your inbox. Explore Blockworks newsletters:



<ul class="wp-block-list">
<li><a href="https://blockworks.co/newsletter/the-breakdown">The Breakdown</a>: Decoding crypto and the markets. Daily.</li>



<li><a href="https://blockworks.co/newsletter/0xresearch">0xResearch</a>: Alpha in your inbox. Think like an analyst. </li>
</ul>

Rethinking Bridges: Orb Labs Imagines World Where Every Transaction is Free

Jack Kubinec

<div id="highlights-block_5af1046aad9e9854b869d8872e94239c" class="highlights">
 <ul>
 <li>“You should be scared of bridges. There’s a huge risk profile,” the head of DAOs at Alliance said</li>
 <li>DeFi bridges create trade-offs between simplicity, decentralization and cost</li>
 </ul>
 
</div>



Bridge protocols, designed to offer relatively seamless transfers between different blockchains, have been struggling to attract users as cryptocurrency markets continue to churn largely sideways.&nbsp;



Multichain, the largest such cross-chain bridge, has seen its total value locked (TVL) shrink to under $2 billion from $7 billion in March, according to crypto data firm DeFi Llama.



As competition for users intensifies, DeFi platforms are jockeying to become the preferred cross-chain protocol investors wary of bridges — which have wiped out <a href="https://cms.blockworks.co/cross-chain-bridge-thefts-top-1b-in-2022/" target="_blank" rel="noreferrer noopener">more than $1 billion in 2022</a>, largely via avoidable hacks.&nbsp;



Cross-chain bridging proliferated during the 2021 <a href="https://cms.blockworks.co/what-is-yield-farming-what-you-need-to-know/" target="_blank" rel="noreferrer noopener">yield-farming</a> bonanza. Will Robinson, the head of community at digital assets-focused investment manager Alliance, said consumers ought to do their research before using bridges.



“You should be scared of bridges,” Robinson told Blockworks. “There’s a huge risk profile. They’re still new, they break for unexpected reasons, and you don’t know what you’re getting into.”



<h3 class="wp-block-heading">Alternative bridging solutions</h3>



Osmosis recently partnered with the decentralized network Axelar on a “one-click” bridge that runs on Ethereum. The cross-chain protocol’s security lies in its decentralization, according to Sergey Gorbunov, co-founder of Axelar.



“Other bridges have permissioned nodes that participate in the system, but Axelar requires no trust for liveness or safety,” Gorbunov told Blockworks. “Even if people can’t operate their machines, Axelar still works on smart contracts.”



Permissioned bridging was largely to blame for the $625 million Ronin Bridge exploit, where multiple validators securing the Axie Infinity bridge were housed by the company. Axie has since increased and further decentralized its validators.



Axelar delegates most bridging legwork to the protocol, so all consumers see is assets moved from one chain to another — regardless of swaps on the back end.



With bridges receiving <a href="https://cms.blockworks.co/defi-exploits-top-1-8b-ytd-though-security-getting-better-immunefi-says/" target="_blank" rel="noreferrer noopener">lots of bad press</a> in 2022, some DeFi (decentralized finance) platforms are hoping to do away with the technology altogether.



The decentralized exchange (DEX) Hashflow went on a media blitz this year advertising its “bridgeless” cross-chain swap protocol. Rather than having smart contracts perform swaps, Hashflow moves assets by having dedicated market makers agree on prices.



“Mint-and-burn bridges can only generate representational assets escrowed by the underlying chain,” Varun Kumar, CEO of Hashflow, said in an email. Hashflow uses a “request-for-quote” model where market makers set prices and “off-chain components handle the gnarly parts where slippage and MEV would be introduced.”



Dominic Williams, founder of the protocol Internet Computer, believes bridging protocols like Axelar and Hashflow are not decentralized enough.&nbsp;



“If you have a centralized entity that’s taking funds, sooner or later things are gonna go wrong and you’ll get hacked,” Williams said to Blockworks. “Bridges require a trusted operator, so you get the same old problems.”&nbsp;



With wrapped tokens, “you’re basically asking the bridge to look after your money,” Williams said.



Wrapped assets are a common bridging practice where a protocol holds onto an investor’s original assets while providing an IOU to be swapped on different blockchains. Security breaches cause wrapped assets to lose their value. After the Wormhole hack, a <a href="https://cms.blockworks.co/wormhole-parent-commits-320m-ether-to-replace-massive-defi-hack-losses/" target="_blank" rel="noreferrer noopener">$320 million bailout</a> was needed to save Solana protocols that accepted wrapped ether as collateral.



Williams said his Internet Computer network will allow asset movement without bridges through an innovation called chain key cryptography — the splitting of validator keys into pieces to make a blockchain publicly accessible.&nbsp;



Internet Computer received over $100 million in funding from venture capital firms a16z and Polychain Capital in 2018 — before a 2021 market downturn stripped the project’s token of 95% of its value in just two weeks.&nbsp;



Internet Computer says its bridgeless protocol will soon integrate with Bitcoin, though the company has not provided a specific date.



Vitalik Buterin, co-founder of Ethereum, <a href="https://old.reddit.com/r/ethereum/comments/rwojtk/ama_we_are_the_efs_research_team_pt_7_07_january/hrngyk8/" target="_blank" rel="noreferrer noopener">warned</a> cross-chain bridges would have trouble keeping assets safe early this year. Security will likely remain an inherent risk investors take when moving assets between chains, but DeFi is a young industry, industry participants say.&nbsp;



In each of this year’s major bridge hacks, “protocols broke for way dumber reasons” than Buterin imagined, Robinson said. As DeFi matures, <a href="https://www.theblock.co/post/156038/how-a-fake-job-offer-took-down-the-worlds-most-popular-crypto-game" target="_blank" rel="noreferrer noopener">fake job offers</a> will be less viable means for exploiting consumer wallets.



<hr class="wp-block-separator has-alpha-channel-opacity"/>



Get the news in your inbox. Explore Blockworks newsletters:



<ul class="wp-block-list">
<li><a href="https://blockworks.co/newsletter/the-breakdown">The Breakdown</a>: Decoding crypto and the markets. Daily.</li>



<li><a href="https://blockworks.co/newsletter/0xresearch">0xResearch</a>: Alpha in your inbox. Think like an analyst. </li>
</ul>

Axelar

Newsletter

Blockworks Research