Axelar: Tokenomics - Figment

Axelar: Tokenomics

Mirella Guglielmi

Published

July 22, 2022

Axelar is a decentralized cross-chain communication network, aiming at leveling up interoperability in Web3 by connecting heterogeneous blockchains and enabling asset mobility and program composability in an optimized way for both builders and end-users. The network was built using Cosmos SDK and Tendermint consensus, but it’s able to support arbitrary platforms, different smart contract languages and is basically ecosystem-agnostic.

Quick Takes

• AXL tokens are used to pay fees to validators and stakers for every cross-chain call, via underlying services that convert from source-chain tokens.
• Token generation event (TGE) to take place around September 27, 2022.
• Community-sale participants will receive 5 months worth of tokens upon TGE.
• Remaining tokens will be released linearly over the following six months.
• Release schedule for core team and backers begins 3 months after TGE.
• Token supply of AXL at genesis is 1 billion.
• Base inflation rate set at 8%, plus additional external inflation of 1% per chain connected to the network during the first year.
• Token supply could eventually become deflationary with excess fee burn mechanisms.

Protocol Highlight

Axelar stands out from other cross-chain protocols by developing a very unique approach to interoperability: It enables the unlimited creational power of smart contracts to extend cross-chain with the decentralization and security of a proof-of-stake (PoS) network.

Although a dynamic validator set and permissionless network comes with its own difficulties, Axelar designs its economic incentives so each active part of the network can cooperate into ensuring security and longevity, without sacrificing decentralization or resorting to optimistic setups and federated multisigs.

It takes a step further by implementing generalized cross-chain messaging, which effectively creates cross-chain composability, regardless of programming languages, consensus models or initial compatibility. Cross-chain messaging allows interoperable transfers of assets, data, information and much more; Axelar is enabling applications on heterogeneous blockchains to connect to each other in ways never seen before.

Axelar is a blockchain to connect blockchains. This provides ecosystem-level incentives – similar to all the L1 blockchains it connects – and enables network-level functionality, such as the ability to generate one-time deposit addresses for seamless onboarding, akin to centralized exchanges.

As in L1 blockchains, the token is used to pay fees for every cross-chain call. Users don’t always see these fees directly: It’s not necessary for users to hold the AXL token; instead, various services can accept gas on the source chain and use it to pay Axelar for processing. These fees flow back to validators and stakers.

AXL Economics Overview

The AXL token on the Axelar Network has three primary functions:

• Fees to pay for the network usage, e.g. transaction fees.
• Incentives for securing the network through staking and for contributing to the ecosystem.
• Governance as stake-weighted voting so the community can actively participate in the network’s development.

Axelar uses proof-of-stake consensus to secure the network; validators are compensated for producing blocks and validating transactions on chain, while delegators can earn a portion of their rewards by contributing and staking their tokens to a validator. As in many of the layer-1 ecosystems Axelar connects, both stakers and validators are incentivized to not only hold their tokens, but to stake, participate in governance, and otherwise contribute to the health and growth of the network.

Rewards on Axelar are inflationary, gradually increasing the total supply of tokens. The overall inflation rate is driven by a function of three congruent components on the network:

• Participation in the Tendermint consensus; i.e. producing new blocks.
• Participation in multi-party signing protocols (MSigs).
• Verification of events on external chains.

The base token inflation rate is derived from a function of the total amount staked in the network— it’s currently set at 8% — which is split equally between the first two types of participation a validator performs, Tendermint consensus and MSigs.

Additionally, there is also an external chain inflation rate granted per each additional network, which gradually descends over the span of three years.

• 1% inflation rate per external chain during 0–1 year.
• 0.75%  inflation rate per external chain during 1–2 years.
• 0.5%  inflation rate per external chain during 2–3 years.

Check here for a projection of possible outcomes regarding the network’s APY.

AXL Distribution

The total supply of AXL at genesis will be 1 billion. The “Team” section comprises both employees and advisors, while the “Company operations” contains the operational treasury and future employee incentives. Investors are accounted for in “Backers”, and the “community sales” refers to the public sale which happened following the mainnet launch. “Community programs” are managed by the Axelar Foundation and they will fund grants and rewards for projects that contribute to the network’s growth. From that total of 35.96%, at least 5% will be allocated towards an insurance fund.

• Company: 29.5%
• Backers: 29.54%
• Community sale: 5%
• Community programs: 35.96%

Upon launching, only part of the tokens will be liquid. Locked tokens cannot be spent or transferred, but they can be staked. The community-sale participants will receive five months' worth of tokens on day one of genesis, while the core team and backers will receive their tokens three months after it, with corresponding vesting periods as seen below in the release schedules table and chart. For further details on backers’ investments, see here.

The network aims to have a greater total supply than the circulating supply until all genesis tokens are released. The total supply is equivalent to the total 1 billion genesis tokens plus the total number of reward tokens minted, while circulating supply comprises only the number of unlocked/released genesis tokens plus the number of reward tokens minted.

Axelar built its tokenomics plan envisioning the long-term success of the network, ensuring that a great amount of AXL tokens remains circulating within the community, that staking incentives have enough time to develop and gain self-sustainability, and that enough liquidity persists in the ecosystem.

Such architecture leverages fairness, decentralization and security, which in turn will lead the protocol towards growth and longevity. Governance will play an important role as well, with network parameters subject to community input through governance channels.

Staking AXL

Figment operates a validator on the Axelar network with a 10% commission fee. Follow this guide to learn how to stake with us and read more about rewards and slashing risks.

Figment Involvement

As Figment strives to support the growth of the crypto space, we couldn’t be more excited for what the Axelar team is building on its own network. As a very fast growing industry, the crypto space has to deal with the downsides that usually follow accelerated but disorderly growth, even if that’s beneficial from a diversity perspective; which is value siloed in their own native ecosystems.

Axelar and its interoperability stack can potentially change the way the space interacts with itself as a whole; the easy to use “plug and play” approach removes the heavy technical lift all developers currently face in order to broaden their dApp horizons and let them focus on building their own applications instead. Cross-chain communication is handled by a secure protocol that opens opportunities in cross-chain composability.

Achieving such a great level of connectivity requires a remarkable joint effort between the dev team, application developers, the community and us, the validators, who help keep the network healthy and secure. Axelar is breaking through the interoperability landscape of Web3.