Crypto Quill

Axelar, the web3 infrastructure for secure cross-chain communication, has launched a new product suite called the Interchain Token Service (ITS). The aim of ITS is to boost the interoperability of ERC-20 tokens on any EVM-compatible blockchain that is integrated with the Axelar network.

What are Interchain Tokens and why do they matter?

Interchain Tokens are cross-chain tokens that go beyond bridges, moving freely cross-chain with native-like fungibility and full ERC-20 custom functionality. They allow web3 applications to extend their reach to new ecosystems with just a few clicks, without losing any of the features or utility of their tokens.

Interchain Tokens are important for the development of web3 technology, which faces a blockchain interoperability challenge. Currently, each blockchain is an isolated ecosystem, within which applications and digital assets can connect seamlessly. However, this interaction is confined to the respective ecosystem’s boundaries. When applications that rely on tokens want to interoperate across multiple blockchains, they often use bridges, which strip away fungibility and functionality, or incur the heavy cost of deployment on multiple chains.

Axelar’s Interchain Token Service (ITS) is a product suite that empowers web3 application developers to issue Interchain Tokens that avoid these costs and limitations. Now, web3 applications can overleap these barriers between blockchains and leave behind these restrictions.

How does Interchain Token Service work?

Interchain Token Service (ITS) is powered by the Axelar network, the largest, dynamic set of validators running proof-of-stake consensus. The Axelar network provides the cross-chain security guarantees for Interchain Tokens, as well as the connectivity to any EVM-compatible chain that is integrated with the network.

ITS consists of three main components:

• Interchain Token Factory: A smart contract that allows developers to create Interchain Tokens from existing or newly minted ERC-20 tokens. The factory also handles the supply management and the cross-chain transfers of Interchain Tokens.
• Interchain Token Registry: A smart contract that stores the metadata and the address of each Interchain Token on every connected chain. The registry ensures that Interchain Tokens are fungible and recognizable across chains.
• Interchain Token Portal: A web-based user interface that allows developers to interact with the Interchain Token Factory and the Interchain Token Registry. The portal also provides tools and documentation to help developers deploy and manage their Interchain Tokens.

What are the benefits of Interchain Token Service?

Interchain Token Service (ITS) offers several benefits for web3 application developers and users, such as:

• Fungibility: Interchain Tokens are fungible with one another, regardless of the chain they are on. This means that they can be easily exchanged, swapped, or transferred across chains without any loss of value or functionality.
• Functionality: Interchain Tokens preserve the custom features of their original ERC-20 tokens, such as yield, permissions, or governance. This means that they can retain their utility and compatibility with other web3 applications, even when they move cross-chain.
• Low overhead: Interchain Token Service automates the complex tasks of deploying and managing Interchain Tokens on multiple chains. This means that developers can save time and resources, and focus on building their core products and services.
• Scalability: Interchain Token Service enables web3 applications to scale up to 15+ blockchains with canonical versions of their tokens that share a single EVM address. This means that they can access new markets, users, and opportunities, without compromising on performance or security.

What are some use cases of Interchain Token Service?

Interchain Token Service (ITS) has many use cases, especially in the realm of DeFi. Some examples are:

• Liquidity: Interchain Tokens can improve the liquidity of web3 applications by allowing them to tap into multiple pools and markets across chains. For instance, Sushi is among the first to deploy Interchain Tokens, enabling its users to swap and provide liquidity for any token on any chain.
• Yield farming and staking: Interchain Tokens can simplify the yield farming and staking processes by allowing users to earn rewards on any chain, without having to wrap or unwrap their tokens. For instance, Frax Finance is using Interchain Tokens to power its Fraxtal L2, a cross-chain yield aggregator.
• Versatile dApps: Interchain Tokens can empower developers to build more versatile and innovative dApps that can leverage the best features of different chains. For instance, Orbs is using Interchain Tokens to create a cross-chain NFT marketplace that supports custom NFTs with complex logic and functionality.
• Chain-agnostic wallets: Interchain Tokens can enable the creation of chain-agnostic wallets that can store and manage any token on any chain, without having to switch networks or interfaces. For instance, MetaMask is exploring the integration of Interchain Tokens to enhance its user experience and cross-chain capabilities.
• Cross-chain collateralization: Interchain Tokens can open up opportunities for cross-chain collateralization in DeFi applications, such as lending, borrowing, or synthetic assets. For instance, MakerDAO is considering the use of Interchain Tokens to diversify its collateral portfolio and reduce its exposure to Ethereum-specific risks.

How to get started with Interchain Token Service?

Interchain Token Service (ITS) is now live and ready for use by web3 application developers. To get started, developers can visit the Interchain Token Portal and follow the steps to create their own Interchain Tokens. They can also read the documentation and join the Axelar community for more support and guidance.

Interchain Token Service (ITS) is a game-changer for web3 applications, as it enables them to overcome the cross-chain barriers and unleash the full potential of their tokens. By using Interchain Tokens, web3 applications can reach new heights of interoperability, functionality, and scalability, and create a more unified and vibrant blockchain ecosystem.