Wormhole Protocol and W tokenomics explained

Imagine a cryptocurrency that allows users to transfer their native tokens across multiple blockchains without the need for liquidity pools. This is where Wormhole comes into play!

Wormhole is a cross-chain protocol enabling the secure transfer of data, tokens, or NFTs across many top blockchains, such as Ethereum, Solana, BNB, and more.

Though to be clear, Wormhole itself is not a blockchain, instead, it provides a means of communication between various blockchains and rollup applications.

But what exactly does all this mean, and how does it work?

Today we find out.

What is Wormhole?

Founded by Saeed, Tony, Anthony, Robinson, and Dan in 2020, Wormhole is a general messaging protocol that enables different blockchains to communicate together.

In the beginning, Wormhole was a simple token bridge between Solana and Ethereum, but today, it has evolved to include a variety of use cases, such as the transfer of tokens and NFTs between blockchains, enabling cross-chain governance for protocols, and facilitating multi-chain blockchain gaming as well.

But what problem does Wormhole specifically look to solve?

The answer is cross-chain liquidity.

In today’s blockchain environment users deposit their funds across multiple blockchains to access various different opportunities.

However, to facilitate the continued growth of these ecosystems the flow of liquidity between these blockchains needs to be constant and seamless, and this is where Wormhole comes in.

Wormhole aims to be the leading interoperability blockchain platform powering multichain applications and bridges at scale.

The platform is designed to connect independent blockchains allowing for the secure and efficient transfer of data and assets.

This means Wormhole can best be imagined as a series of train lines connecting cities, with each station representing a separate blockchain network.

But how does it work exactly?

How does Wormhole work?

Wormhole is a Proof-of-Authority based platform.

Typically, Proof-of-Stake networks allow anyone to become a validator to help secure the network, with their likelihood of being selected as a validator being directly correlated with how many tokens they have staked to the network.

However, under Proof-of-Authority, the network itself limits and dictates who can become a validator and instead lets users delegate their stake to these selected few validators and rewards stakers based on their chosen validator’s performance, rather than their own.

The benefits here are mostly speed and scalability as having so few nodes allows the network to quickly achieve consensus.

But how does a user make a request to another blockchain through Wormhole?

In short, the process of sending data to another blockchain through Wormhole, such as tokens or NFTs, starts with the Emitter.

The Emitter is just a smart contract that creates and sends a message using Wormhole’s core system. This message gets picked up by Wormhole, allowing the data to be transferred to another blockchain.

Wormhole is secured by a peer-to-peer network of Guardian nodes, which are the validators Wormhole has selected to secure their network.

These Guardians are responsible for signing and validating messages passing through Wormhole, and if 13 out of the 19 Guardians sign the same message, that message is deemed valid.

These signed messages are known as Verified Action Approvals, or VAAs, and these messages are then relayed to their destination protocol via the Relayer network. To ensure security, Relayers are unable to modify the VAA.

Then, once the VAA is delivered, the destination protocol authenticates the signatures on the message to verify its legitimacy, which completes the transfer.

In addition to signing messages, these Guardians also monitor connected blockchains for anomalies in block production or for any consensus violations.

What makes Wormhole unique?

What makes Wormhole unique from its competitors is the projects it’s bringing into its current messaging ecosystem.

This includes Wormhole ZK, which aims to integrate zero-knowledge proofs into the Wormhole protocol, as this will improve the trust assumptions of the protocol overall.

Wormhole ZK also seeks to allow permissionless verification of messages, integrations, improved composability, and flexibility for applications built and integrated with Wormhole technologies.

Additionally, there are also Wormhole Queries which facilitate the querying of blockchain data and enables developers to access on-chain data quickly and cheaply.

Next, Wormhole Gateway is a Cosmos-based appchain designed to bring the benefits of Wormhole’s liquidity to Cosmos.

Then there’s Wormhole Connect which enables developers to easily integrate the bridging of wrapped or native tokens directly into their applications in a few clicks.

And finally, there are Native Token Transfers which are an open framework to enable any token to be made multichain compatible.

However, what makes the Native Token Transfers so special is they enable seamless native transfers across all supported blockchains without the need for liquidity pools to enable a completely synchronised token state across all compatible blockchains.

Together, these additional products form a complete suite of products for developers seeking cross-chain interoperability and integration of their products.

W tokenomics

In the end, there will be 10 billion W tokens available, though at launch only 1.8 billion were released.

By the time all 10 billion W tokens have been released according to their token vesting schedules, which will be completed around 5 years after launch, the initial token distribution will have looked as follows:

31% will go towards ecosystem and incubation, 23.3% will go to the foundation treasury, 17% towards the community launch, 12% to core contributors, 11.6% to strategic network participants, and finally 5.1% to the guardian nodes which verify and secure the network.

As is typical for Proof-of-Stake and Proof-of-Authority based platforms, the W token can be used for the classics of payments, staking, and governance.

Is Wormhole worth the hype?

Wormhole isn’t a blockchain per se, it is what enables other blockchains to communicate with each other and trade assets natively as if they were all one.

Having discovered a legitimate problem within the crypto landscape and actively built a product to help fix an ever-increasing problem, Wormhole appears to have set itself up nicely for the future.

There is no denying that such an application is required if we are to avoid a liquidity issue on certain blockchains in the future.

This is because, as blockchains get older and newer competitors appear, the money investors can invest into each chain individually decreases, which can result in a serious liquidity problem and result in users being unable to withdraw their investments at a fair exchange.

By working on solutions that do not require liquidity pools to work cross-chain, Wormhole is really attempting to push the boat out and could eventually end up saving older blockchains long after most of their users have placed their funds elsewhere.

Of course, nothing is ever guaranteed in crypto, and the management team at the top will need to work hard to ensure they remain relevant and competitive as the years progress, but presuming that they do, it currently seems likely there will be more green days ahead for Wormhole.

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