Axelar: Stablecoin Infrastructure and Financial Institution Utilization Strategy
1. Introduction: Challenges Facing Stablecoin Infrastructure
Stablecoins have already become a core component of the crypto market, but they remain challenging assets for financial institutions. The issuance structure, regulatory jurisdiction, settlement methods, and accounting standards differ between issuers and chains, making it difficult to integrate seamlessly into existing financial systems.
The focus of discussions so far has primarily been on the question, “Which stablecoin is safer?” However, the real question from a financial institution’s perspective is somewhat different:
“Can stablecoins traded across multiple issuers and chains be handled consistently within regulatory, accounting, and risk frameworks?”
Rather than issuing new stablecoins directly, Axelar aims to provide an infrastructure-level solution to this question. Without issuing stablecoins or performing KYC/AML, and while leaving the issuance responsibility to banks, custodians, and VASPs, Axelar serves as a non-issuing interchain infrastructure layer that facilitates cross-chain circulation, settlement, and state synchronization.
This report outlines Axelar’s structure from the perspective of financial institutions across the following three areas:
How can regulatory, accounting, and settlement requirements be addressed?
What structural differences exist compared to existing stablecoin infrastructures?
How can it be applied in scenarios for financial institutions, custodians, and payment gateway (PG) providers?
1.1 The Need for Interoperability from a Financial Institution Perspective
The current stablecoin ecosystem is a typical many-to-many structure. Multiple issuers issue and circulate stablecoins on various public chains, with different bridge structures and security levels across each chain.
For individual investors, this might seem like a simple matter of switching chains. However, for financial institutions, the questions become:
Given that each issuer has a different reserve, redemption structure, and regulatory jurisdiction, can these assets be managed within the institution’s policy and accounting framework?
With different bridges and token standards on each chain, can settlement and redemption patterns be standardized?
Thus, interoperability is a critical requirement for extending regulatory, settlement, and accounting frameworks to a multi-chain environment, beyond simply the ease of cross-chain transfers and exchanges.
1.2 Constraints Imposed on Financial Institutions by the Lack of Interoperability
In the absence of sufficient interoperability, financial institutions face four main constraints:
Fragmentation of Payments and Circulation
The circulation path is fragmented by issuer and chain, so stablecoins do not function as “digital cash universally accepted everywhere,” but rather as a “value unit confined to a specific network.”Possibility of Accounting and Settlement Discrepancies
In multi-chain transactions, it is difficult to record on-chain balances, reserves, and burn records along a single timeline, which becomes a continuous burden in internal reconciliation and external audits.Difficulty in Classifying Cash Equivalents
Due to the lack of standardized patterns to prove redemption capability, liquidity, and control, most stablecoins are classified as financial products (IAS 32), making them difficult to use as short-term liquid assets for corporations and banks.Fragmentation in Circulation and Risk Management
Issuance vs. circulation, chain-to-chain movement, and redemption history are scattered across different bridges, chains, and protocols, making it difficult to design consistent AML monitoring, sanctions risk management, and key risk indicators (KRIs).
To resolve these constraints, stablecoins need to transition from being “limited exchange tools within the blockchain ecosystem” to being integrated into institutional financial infrastructures.
2. Blockchain Adoption Requirements from a Financial Institution Perspective
When financial institutions assess blockchain and stablecoin infrastructures, they focus on three main criteria:
Regulatory Acceptance and Role Separation
Security and Privacy
Risk Management and Monitoring
Interchain infrastructures like Axelar must meet these three requirements to be adopted by financial institutions, irrespective of their technical excellence.
2.1 Regulatory Acceptance and Role Separation
Regulators and financial institutions are highly concerned about structures where responsibilities are unclear. It must be clearly defined who the issuer is, who the infrastructure provider is, and where the responsibility for KYC/AML and redemption agreements lies.
Issuer (Bank, Custodian, VASP)
Financial institutions are responsible for managing reserves, licenses, KYC/AML, and redemption agreements.Infrastructure Provider (e.g., Axelar)
A technology layer that executes and synchronizes issuer decisions across chains.
This issuer-infrastructure role separation:
Clarifies responsibility for regulators.
Provides financial institutions with a structure where the regulatory framework remains intact even if the underlying technological infrastructure changes.
2.2 Security and Privacy
The security requirements from financial institutions go beyond simple protection against hacking.
Anomaly detection and conditional execution
Address whitelisting and limit-based approval policies
Auditability for all settlement and redemption flows
Simultaneously, personal information should remain off-chain. MAS and WEF recommend storing personal data off-chain and only storing hashes, reference IDs, and zk-proof on-chain.
Thus, financial institutions need an infrastructure where:
“On-chain states and off-chain KYC information are clearly referenced from the design stage.”
2.3 Risk Management and Monitoring
Adopting blockchain infrastructure entails establishing a new risk framework, including technological, operational, human error, and regulatory risks. A Key Risk Indicator (KRI) system that includes all these is essential.
Axelar’s strength lies in the fact that state changes and message flows between chains are recorded on-chain.
Issuance vs. circulation
Cross-chain movement
Redemption events
Anomalous transaction patterns
These data points can be defined as on-chain KRIs, which can be utilized in AML and sanctions risk management systems, linked to forensic tools.
From a financial institution's perspective, this is more about gaining a “new observational window where state changes can be transparently monitored” rather than introducing a separate system with difficult internal controls.
3. Structural Limitations of Existing Stablecoin Infrastructure
The current stablecoin infrastructure, separate from token design, has the following structural limitations at the infrastructure level:
Lack of Universal Liquidity
Although stablecoins exist across various issuers and chains, users must differentiate between issuers and chains, and recipients must individually assess the associated risks. As a result, stablecoins are not perceived as “digital cash universally accepted everywhere,” but rather as “different products depending on the issuer and chain.”Fragmentation of On- and Off-Ramps
Each issuer and chain has its own separate on- and off-ramp. Banks, payment gateways (PG), and fintech companies must each develop different bridge and settlement logic, and the same types of risks and operational costs are repeated across chains.Transfer of Credit and Accounting Risk to the Recipient
Corporations and banks must analyze the reserve composition, legal strength of redemption agreements, and regulatory jurisdiction each time they receive stablecoins. Due to the lack of standardized patterns for classifying stablecoins as cash equivalents under IAS 7, they are typically treated as financial products in practice.Difficulty in Integrating Issuance, Circulation, and Redemption Flows
While tracking is possible within a specific chain, it becomes difficult to create a global view of issuance vs. circulation, burn history, and settlement timing when considering a multi-chain, multi-bridge environment. This poses obstacles in accounting audits, regulatory reporting, and internal risk management.
Due to these limitations, while stablecoins can be used as convenient blockchain-based payment methods, they are not yet recognized as a "digital asset infrastructure with the same level of trust as institutional payment and settlement infrastructure."
4. Axelar: A Regulatory-Compliant Interchain Infrastructure for Financial Institutions
4.1 Axelar as a Non-Issuing Interchain Infrastructure Layer
Axelar does not issue stablecoins. Instead, it aims to connect various issuers, chains, and applications on a common interoperability infrastructure.
The core points are as follows:
• The responsibility for issuance, KYC, reserves, and redemption remains with the financial institution (issuer).
• Axelar handles cross-chain state synchronization, message routing, and token movement.
In other words, Axelar serves as a “non-issuing interchain infrastructure layer” that provides a structure capable of technically accommodating the regulatory, accounting, and settlement requirements demanded by financial institutions.
4.2 Interoperability Models Based on GMP, ITS, and AVM
Axelar's technology stack can be divided into three main layers:
1. GMP (General Message Passing)
It conveys settlement-related events such as redemption requests, approvals, settlement instructions, and burn reports as messages.
It enables the repeated pattern of “redemption request → message creation and verification → execution on the destination chain.”
2. ITS (Interchain Token Service)
Issues a single stablecoin across multiple public chains but prevents asset duplication through a Burn-and-Mint structure.
The issuer controls the total supply and the circulation amount per chain, while users experience the same asset on any chain.
3. AVM and Private-Public Bridge (MDS, Interchain Amplifier)
Connects private chains and public chains while implementing access control, policy insertion, and data transformation logic via smart contracts.
Sensitive data remains on the private chain, and only necessary proofs and reference values are made public on the public chain, following the MAS INM (Information Management) principle.
From the perspective of financial institutions, Axelar is a “technology layer that integrates issuers, chains, and applications into a unified interoperability pattern.”
5. Axelar Utilization Models from a Financial Institution Perspective
The value of Axelar becomes clearer in specific scenarios. Three primary utilization models can be considered:
Overseas Issued Stablecoin Receipt and Redemption
Domestic Bank-Issued Stablecoin
Custody and Payment Gateway (PG) Provider Model
5.1 Overseas Issued Stablecoin Receipt and Redemption
Imagine a situation where a domestic bank receives and redeems overseas issued stablecoins on behalf of its customers. A useful approach here is the Collection Processing Model. The overseas issuer's deposit is not finalized in the customer’s account until it is actually deposited into the domestic account. Instead, the bank collects the funds from the overseas issuer on behalf of the customer. In this case, without the need for a new license, it can be operated within the existing foreign exchange law framework.
In this scenario, Axelar can verify the token burn and reserve movement on-chain in the overseas chain and deliver the results to the domestic bank via GMP messages. The bank can then execute payments in KRW or foreign currency based on this message and account for the "redemption completion." Although a public chain is used, this is not an outsourcing of foreign exchange tasks to a third party but rather defines the use of a public network for the financial institution’s internal settlement and redemption procedures.
5.2 Domestic Bank-Issued Stablecoin
The second model is where a domestic bank issues its own stablecoin. Based on its own reserves and redemption agreements, the bank designs a stablecoin and registers it with Axelar ITS, enabling immediate integration with multiple public chains. Customers and businesses can receive the same stablecoin on their preferred chains, and cross-chain movements are handled via the Burn-and-Mint structure.
The key to this structure is that the total supply, chain-specific circulation, and redemption history are always managed in a consistent pattern. Once the process of redemption request → inter-chain messaging → burn on the origin chain → payment to accounts is standardized, it will provide a clearer proof pattern for "redeemability, liquidity, and controllability" when discussing IAS 7 cash equivalent requirements.
5.3 Custody and Payment Gateway (PG) Provider Model
The third model involves custodians and PG providers. Custodians can integrate and manage stablecoin positions scattered across various chains via a multi-chain wallet infrastructure linked to the Axelar network. By standardizing the redemption, burn, and deposit processes between issuers, custodians, and banks with a GMP/ITS-based workflow, a settlement structure that is transparent and auditable for customers, institutions, and regulators.
For PG and payment providers, stablecoin payments from various chains can be aggregated through Axelar into a single settlement channel. By automating settlement, redemption, and reporting between PGs, issuers, and banks based on messages, each player can extend the system by sharing Axelar as a common interchain settlement network, rather than operating separate bridges.
6. Axelar-Based Response Structure from the Perspective of Accounting, Regulation, and Settlement
Axelar does not directly hold reserves or execute redemptions. Nevertheless, it can provide proof patterns that technically support accounting, regulatory, and settlement frameworks.
6.1 IAS 7 Cash Equivalent Requirements
To be recognized as a cash equivalent under IAS 7, stablecoins must meet three conditions:
Redeemability
Liquidity
Segregated Custody and Risk Control
While Axelar does not directly satisfy these conditions, it provides data and patterns that can demonstrate compliance with each requirement:
Redeemability
Redemption requests are recorded as on-chain messages, and tokens are burned on the origin chain via ITS. The structure ensures a 1:1 match with off-chain account payments.Liquidity
Axelar provides redemption channels that can process redemption and repurchase procedures quickly across multiple chains, reinforcing the "quick and easy cash conversion" claim.Segregated Custody and Risk Control
The issuance vs. circulation, redemption history, and cross-chain movement are all recorded on-chain, making them useful as evidence in accounting audits and risk management.
As a result, Axelar abstracts the redemption and settlement procedures for stablecoins into a consistent workflow and leaves all events as verifiable data. This fulfills the transparency and traceability requirements for redemption mechanisms as demanded by financial institutions.
6.2 Foreign Exchange Regulation and Capital Transaction Reporting
From the perspective of foreign exchange and capital transaction regulation, the key is to clearly explain: “Who sent funds to whom, for what purpose, and through which route?” Axelar’s GMP provides a structure where KYC reference keys, transaction purpose codes, country codes, amounts, and other foreign exchange reporting data can be included in the message metadata. When integrated with existing foreign exchange reporting systems, this enables a seamless connection between on-chain redemption/settlement events and off-chain reporting systems.
In the Collection Processing Model, the flow of token burning, reserve movement, and domestic account payments from an overseas chain is consolidated into a single pattern. In this case, Axelar is responsible for cross-chain state verification and asset matching, while the bank uses this information to perform foreign exchange and capital transaction reporting. The use of a public blockchain is not outsourcing foreign exchange tasks to a third party, but rather an opportunity for the bank to utilize public infrastructure with its internal capabilities.
6.3 Automated Settlement System
In traditional finance, settlement refers to the final stage of a transaction, where the ownership of assets is transferred. The same applies to blockchain:
Token issuance, burning, and movement
Account balances and accounting records are updated
Irreversibility (finality) is secured
Axelar does not perform the settlement directly. Instead, it modularizes the three stages necessary to enable settlement:
Settlement Trigger
A settlement trigger is initiated by the issuer, PG, or custodian system.Message Creation and Verification
Axelar Gateway generates the relevant message, which is verified by Axelar validators on the chain.Execution on the Destination Chain
The smart contract on the destination chain executes the message, burning tokens, updating balances, and storing the settlement record.
Through this process, financial institutions can consistently verify that cross-chain settlement has been properly executed, and the same data can be used as a common foundation for accounting, risk, and regulatory reporting.
7. Conclusion: Axelar’s Role and Implications in the Stablecoin Infrastructure
Existing discussions surrounding stablecoins have largely focused on structural comparisons, such as “which stablecoin is safer.” However, from a financial institution's perspective, the more important question is:
“Can stablecoins, incoming from different issuers and chains, be processed consistently within existing regulatory, accounting, and risk frameworks?”
Axelar provides an infrastructure-level solution to this question. Axelar is not itself an issuer of stablecoins, nor does it replace the role of financial institutions in performing KYC/AML. Instead, Axelar executes the entire process of "issuance – circulation – redemption – settlement – accounting" through a modular infrastructure, consisting of GMP, ITS, and AVM, within a single workflow pattern.
This abstraction is highly significant for financial institutions, which need to ensure compliance with institutional standards such as MAS's INM regulations, IAS 7's definition of cash equivalents, and foreign exchange and capital transaction reporting systems. By providing a unified on-chain interoperability layer, Axelar allows for the implementation of consistent regulatory and accounting flows without the need to individually interpret the different rules and message processing methods on each chain, the risks of each bridge, or the varying redemption structures of issuers.
Therefore, the infrastructure provided by Axelar goes beyond simple cross-chain functionality, serving as the foundational infrastructure that meets the regulatory compliance, risk management, and accounting consistency required by financial institutions in a multi-chain stablecoin era. This structure aligns naturally with the direction needed for stablecoins to be integrated into institutional financial infrastructure. Simultaneously, Axelar presents a practical and actionable path to make stablecoins’ institutional application a reality.
Key Source
Axelar - Why Decentralization Matters for Your Institutional Blockchain Strategy
Interop Labs - Responses to Specific RFI Questions
Introducing the Axelar Virtual Machine: Supercharging Interchain Development
What Is General Message Passing and How Can It Change Web3?
Interlinking Networks Technical Whitepaper
Building Multichain Stablecoins: Part One
GAAP : Corporate Accounting Standards Briefing
The Future of Wealth Management
Sub Source
Capital Market Research Institute – Global Stablecoin Systems and Usage Status
Capital Market Research Institute – Economic Implications and Policy Insights of Stablecoin Issuance