Overview

Wormhole is a suite of open-source, permissionless protocols used to move assets and queries across blockchains.  Despite being a common misconception, Wormhole is not just a token bridge. Nevertheless, protocols can build token bridges on top of Wormhole by leveraging the cross-chain messaging provided.

The Wormhole protocol offers four distinct products:

• Wormhole Messaging: Wormhole’s main offering—a decentralized cross-chain messaging protocol that other protocols can build on top of.
• Wormhole Connect and SDK: toolkits that allow developers to integrate bridges that leverage Wormhole Messaging. 
• Wormhole Queries: allows developers to query data on chains supported by Wormhole.
• Wormhole Gateway: a purpose-built, application-specific blockchain using Cosmos SDK to connect Wormhole-supported chains to the Cosmos ecosystem.

Wormhole Messaging

Wormhole, at its core, is a generalizable cross-chain message-passing protocol. Initially, Wormhole was designed as a cross-chain token wrapping and swapping protocol between Solana and Ethereum. Since this original design and implementation, Wormhole has expanded to become a cross-chain messaging layer, which not only allows token wrapping and swapping between chains but also enables external protocols to build on top of it by leveraging Wormhole’s cross-chain state attestation model and messaging.

As a cross-chain messaging protocol, Wormhole Messaging serves as foundational infrastructure that developers can build on top of. Messaging provides the basic language and framework to send data securely between two systems that aren’t compatible. At the same time, protocols on top can fulfill other use cases, such as token bridges (e.g. Portal, Allbridge), cross-chain DEXs (e.g. Mayan Swap, Hashflow), and money markets (e.g. Pike, Synonym). 

Architecture

Wormhole Messaging is made up of four core pillars: the core contracts, Verifiable Action Approvals (“VAAs”), the Guardian Network, and Relayers. The Core Contracts are used to emit messages across chains supported by Wormhole. They exist on each chain supported by Wormhole. Guardians are required to observe these core contracts and pick up emitted messages as an Observation.

When a smart contract on a source chain wants to communicate with a  target chain, it interacts with the Core Contract on the source chain by triggering a specific function to emit a cross-chain message. The Core Contract logs these interactions as events in a transaction log.

The cross-chain message and relevant metadata are contained in a VAA, a data packet. The metadata includes information regarding the originating chain, the target chain, and the sequence number. After a message is emitted, it must be validated by the Guardian Network, an external group of nodes operated by 19 whitelisted validator companies. Each Guardian operates a full node for every network that Wormhole supports.

The Guardian Network independently monitors transaction logs of Core Contracts and uses supermajority consensus (13 out of 19) to agree on the state of a message before signing it. Once Guardians reach a consensus, they collectively sign the VAA, attesting to its authenticity, and then gossip their signed messages over a peer-to-peer network.

Relayers pick up signed VAAs, transmit them from the originating chain to the target chain, and submit them to the core contract on the target chain. The relayer is a web service that listens for messages that Guardians have signed and emits them onto target chains. Relayers are mostly application-specific, meaning that applications built on top of Wormhole usually run their own relayer for the messages of the application. When users create a transaction on the source chain, they pay a fee, of which a relayer uses a portion to pay for gas fees on the target chain and keeps the remainder as a tip. Relayers are not able to alter the content of VAAs, with the core contract on the target chain processing the VAA.

 

ZK Proofs

Today, Wormhole Messaging heavily relies on the Guardian Network. The Guardian Network's purpose is to distribute control amongst a network of trusted, professional parties to avoid centralized and concentrated decision-making. The Guardian consensus mechanism is based on a multisig approach, potentially leading to issues if a supermajority of the 19 validators is compromised, as invalid messages could be sent to the target chain. Additionally, if more than 1/3rd of Guardians are offline, cannot sign a message, or choose to censor a message, consensus will not be achieved, affecting the liveness of the protocol. Although such issues are rare when it comes to professional validators, Dymension recently failed to reach consensus as Chorus One—also a Wormhole Guardian—ran into node issues that disrupted its ability to participate in consensus.

Wormhole plans to integrate ZKPs in an upcoming upgrade to improve the trust assumptions of the protocol. The goal is to offer trustless and permissionless verification of messages and achieve permissionless integration capabilities. As of now, the Guardian Network is relied on for verification and integration since Guardians need to run full nodes on each supported network. 

ZKPs will allow for the attestation of the source chain onto the target chain using block headers. Guardians can validate these ZKPs to ensure that no invalid proofs are submitted and test state from different chains.

Recently, the Wormhole Foundation has begun to onboard engineering teams, such as Lurk Labs and Zpoken, to research and develop ZKPs and cryptography to be integrated into the protocol. In addition, the Foundation announced that it will be partnering with AMD to source hardware and hardware accelerators, as well as introduce light clients for users and developers to self-verify state.

Wormhole Messaging Use Cases

As mentioned previously, Wormhole Messaging is the foundational, generalizable message-passing layer upon which other protocols can build on top of. The most popular type of protocol to build on top of Wormhole is related to token bridging. Two prominent examples are Portal and the USDC Bridge.

Portal is a token bridge built by the xLabs team and uses Wormhole’s messaging protocol to implement a lock-and-mint process to transfer assets between chains. Unlike a burn-and-mint process, where assets on the source chain are burned, a lock-and-mint process boils down to assets being locked in a smart contract. A wrapped version of the token (an IOU) is then minted on the destination chain. Portal allows users to bridge any token between chains supported by Wormhole. As of February 18th, Wormhole supports 42 blockchains (including testnets).

The USDC bridge, built by Circle, enables bridging USDC without gas fees between CCTP supported chains. CCTP uses a burn-and-mint process and supports Arbitrum, Avalanche, Base, Ethereum, Noble, OP Mainnet, and Polygon PoS, with support for Solana expected to be added soon.

Apart from token bridges, Wormhole’s messaging layer can also be used for NFT bridging. The most popular example of this is the migration of DeGods and y00ts, which initially relocated from Solana to Ethereum and Polygon, respectively. This migration was through Wormhole using a burn-and-mint process. NFT holders on Solana burned their original NFT via a smart contract and redeemed their newly minted ERC-721 on Ethereum and Polygon directly within their wallets. 

Although the most popular use case for Wormhole currently is asset bridging, the protocol also enables other, more mature use cases, such as cross-chain governance and oracles.

For example, Uniswap leverages Wormhole for cross-chain governance. Uniswap Governance is on Ethereum Mainnet, meaning that decisions are made on Ethereum through token votes. However, Uniswap exists across many chains, including L2s and alt-EVMs. Within these deployments, holders must able to participate and inherit governance decisions made on Ethereum Mainnet. This can be done in a decentralized manner through Wormhole’s messaging layer, which enables Uniswap governance to send data from Ethereum Mainnet to target chains.

Another relevant use case for Wormhole is its utilization by Pyth. Pyth is a low-latency, pull-based oracle network that provides price feeds across multiple chains. Pyth uses Wormhole’s messaging layer to send price feeds and data cross-chain. Pyth receives data from market makers, financial institutions, etc., who broadcast price feeds to Pythnet—a fork of the Solana SVM—with the sole purpose of aggregating price feeds from different publishers. Wormhole enables Pyth to deliver these price feeds cross-chain to dApps on all Wormhole-supported chains by collecting the aggregated data and bridging it across chains.

Wormhole Connect and SDK

Wormhole Connect is a frontend-embeddable widget that allows developers to easily integrate bridges that leverage Wormhole Messaging. 

Wormhole Connect enables in-app bridging, gasless and gas-dropoff (only pay gas on the source chain) transfers, and the ability to bridge assets between different blockchains without leaving the application.

The Wormhole SDK is a separate product from Wormhole Connect, while allowing for the same functionality, with more effort and implementation. Similarly to Connect, the Wormhole SDK allows developers to interact with chains supported by Wormhole and build protocols on top of Wormhole Messaging through provided TypeScript modules.

Wormhole Queries

Prior to the introduction of Wormhole Queries, accessing state data from another blockchain required deploying smart contracts onto that chain to periodically "push" (publish) data. Wormhole Queries is an alternative method for querying cross-chain data by providing a “pull” mechanism for users to request information and receive attestations from Wormhole Guardians.  This process is comparatively quicker and cheaper, with pull queries reducing gas costs by ~84%.  

Instead of relying on Guardians to publish data, developers can submit queries to the Guardian Network and retrieve state data from supported blockchains. When a query request is submitted to the Guardian network, guardians listen for requests, submit them to the desired chain by executing against RPC nodes, receive the results, and then validate and return the requested data. The result is an attested response.

Wormhole Gateway

Gateway is an application-specific blockchain built using the Cosmos SDK, with the primary purpose of expanding access to and bringing liquidity within the Cosmos ecosystem by making it easy for non-IBC assets to be bridged to Cosmos. Gateway allows for Wormhole to connect to all Cosmos L1s without the need for each Guardian to run a full node on each Cosmos chain, which is more resource-efficient. It’s important to note that Gateway is not a competitor to the Inter-Blockchain Communication Protocol (“IBC”) but instead utilizes IBC by acting as a router for IBC transfers of Wormhole xAssets between Cosmos chains.

Through Gateway, users and entities can bridge any token from Wormhole-supported chains to Cosmos chains through the Gateway blockchain. When a token is bridged to Gateway, it is locked in a smart contract, and a new ICS-20 token is minted using a VAA message transmitted to Gateway via a relayer. The minted ICS-20 token is fungible across all Cosmos chains through IBC through Strangelove’s packet-forward-middleware. This IBC middleware module routes IBC packets from a source chain to a destination chain. 

The newly minted ICS-20 token is then sent to the destination chain using the IBC Protocol. Wormhole uses the IBC Translator contract to transform Wormhole Token Bridge messages into ICS-20 messages. 

With Gateway, Wormhole also introduced a new module called Global Accountant, which works to improve Wormhole’s core architecture and enhance its security. The Global Accountant is a CosmWasm-based accounting contract built directly into Gateway. It enables Guardians to store a record of all bridge transactions on Gateway’s public ledger and runs checks against this ledger to ensure that assets bridged out of one chain never exceed the number of assets bridged in. This effectively mitigates the risk of an exploit resulting in an infinite mint from draining the Wormhole protocol via cross-chain contagion and works to protect all of Wormhole’s connected chains.

W Token

Wormhole recently announced that they will be launching their native token W. W will be used to influence the protocol's direction, including decisions like adding/removing blockchain connections, upgrading smart contracts, adjusting fees, and more.

W has a total supply of 10B and an initial circulating supply of 1.8B (18%). The token will launch as both a native ERC-20 (Ethereum) and SPL (Solana), using Wormhole’s Native Token Transfer standard.

The initial token distribution is shown below:

The W airdrop, categorized under "Community and Launch," will comprise of a majority of the initial circulating supply and 17% of the total supply, with 11% of this allocation unlocked at TGE. The exact criteria for the airdrop have not yet been announced. However, a significant portion will likely be allocated to those who have used applications powered by Wormhole’s Messaging, such as Mayan Finance, Portal, Hashflow, and more.

The remaining 82% of the locked supply will be gradually released over 4 years.

Risks

Typically, interoperability and cross-chain messaging protocols come with significant risks, particularly when it comes to exploits. Token bridges, one of the most popular use cases of cross-chain messaging protocols, have a large surface area for attacks, and hold large amounts of tokens across multiple chains, which make them attractive targets for exploiters.

However, as outlined by Uniswap DAO's third-party bridge assessment, Wormhole has strong security measures and a mature codebase. Although the set of 19 validators may seem small at first, it is an improvement in terms of decentralization compared to some other interoperability alternatives. Additionally, the Guardians are not only putting their capital at stake, but also their reputation. Despite the relative inefficiencies of the Guardian Network, which arise from the requirement of supermajority votes to implement changes and having to run full nodes on every Wormhole-supported chain, the network has been designated as relatively safer compared to alternatives by the Uniswap DAO.

Apart from smart contract and exploit risks, Wormhole also faces competition risk. Although many protocols are built on top of Wormhole, and they have integrated more than 40 EVM and non-EVM chains,  the interoperability sector is competitive, especially as teams like Axelar and LayerZero both have comparable tech stacks and integrations. However, Wormhole has established itself as the most popular interoperability solution on non-EVM chains such as Solana and Sui, and is deeply ingrained in the Solana ecosystem, which gives it a competitive advantage on these chains. Additionally, Uniswap choosing Wormhole for cross-chain governance should highlight that developers are actively choosing to integrate Wormhole over competitors. 

One important note is that Wormhole needs to become more active in the RWA space. Both Axelar and LayerZero boast RWA integrations, Axelar with Ondo Finance specifically, and both Axelar and LayerZero took part in a proof-of-concept private-public chain interoperability demonstration with JP Morgan. 

Final Thoughts

Interoperability protocols, such as Wormhole, will likely become increasingly important over the next few years. Since Ethereum has chosen to scale its execution layer through rollups, it's likely that in the next few years there will be a plethora of L2s and appchains launching, as developers and protocols seek to increase the utility of their native tokens. Wormhole will likely benefit from this, as users and developers rely on composability and interoperability and need to reduce the inefficiencies that come with fragmented liquidity. As modularity adds friction, protocols like Wormhole, which focuses on abstracting away bridging and other UX issues, will become increasingly important.

In addition to the need for interoperability between permissionless platforms, Wormhole could become a major beneficiary of interoperable tokenized assets gaining more popularity between private (permissioned blockchains run by institutions) and public chains (such as Ethereum, Solana, etc.). We will likely see Wormhole increasingly move into the RWA space, given that the potential volume and value secured for tokenized assets is extremely large.

This research report has been funded by Wormhole Foundation. By providing this disclosure, we aim to ensure that the research reported in this document is conducted with objectivity and transparency.  Blockworks Research makes the following disclosures: 1) Research Funding: The research reported in this document has been funded by Wormhole Foundation. The sponsor may have input on the content of the report, but Blockworks Research maintains editorial control over the final report to retain data accuracy and objectivity. All published reports by Blockworks Research are reviewed by internal independent parties to prevent bias. 2) Researchers submit financial conflict of interest (FCOI) disclosures on a monthly basis that are reviewed by appropriate internal parties. Readers are advised to conduct their own independent research and seek the advice of a qualified financial advisor before making any investment decisions.