DeFi Deep Dive: Avalanche
R.F. Capital Alpha Score: 89
The past few months have been incredibly exciting for Avalanche. In late September, Avalanche launched their incentive program, Avalanche Rush. When Rush launched it was worth $180M of AVAX, and after the announcement of Rush AVAX saw some huge price movements. When Rush launched AVAX was worth around $20, flash to current prices and AVAX is breaking ATHs, trading currently at $96 despite recent market conditions.
Another piece of bullish news for Avalanche is the recently announced Avalanche Summit. This summit is similar to other coin summits, developers and users are invited to an event to talk about news and updates on Dapps and network news. To top it off AVAX has seen insane growth in users in the past few months, with key metrics like daily active wallet addresses increasing by 20x in the last 3 months.
Prior to the recent market pullback, AVAX was in a Solana type moment where it was gaining narrative as the next Ethereum killer. The cheap transaction fees paired with multi chain compatibility and a growing ecosystem with the likes of Wonderland (TIME) and Trader Joe (JOE) enhancing liquidity flow to this competitive Layer 1.
Avax has managed to outperform competitors while building a die-hard fanbase, which is a must for any protocol that wishes to take market share away from Ethereum or Binance Smart Chain. On LunarCrush they are ranked top 3 on the Altcoin list and on Coinrank they are ranked 100/100. That kind of community support has been what propelled it to op out in the top 10 at its recent peak.
Avalanche is a relatively new protocol that offers scaling solutions to typical issues associated with blockchains and is showing to be a real competitor in this space.
Let’s dig in deeper.
History
Avalanche launched in 2018, their test net launched on 5/16/2019, and their main net launched 9/21/2020.
Avalanche is a very unique blockchain for one large reason. Instead of being comprised of one blockchain, they have 3 that serve different use-cases. The chains are called X, C, and P.
- The X chain is the default AVAX chain where transactions are settled.
- The P chain is for receiving staking rewards and cross-chain transfers.
- The C chain is their EVM chain, where users can interact with the Ethereum Virtual Machine.
The public face of the project would be the founder and CEO, Emin Gün Sirer, or @el33th4xor on Twitter. He currently teaches computer science at Cornell University as an associate professor. In his remarks where he brought Avalanche main net to market on behalf of Avalabs, he cites improved scalability, usability, and truly decentralized governance as reasons why his project was needed in the space.
Avalabs is built with a team of experts in computer science, economics, finance, and law who are passionate individuals creating a frictionless world by redefining the way people build and use finance applications. The team has collective experience from leading Fortune 500 finance and tech companies to high-growth blockchain companies.
Capital Funding
Avalanche has done a few private fundraising sales over the course of 2 years. Their most recent fundraising resulted in $230 M from a multitude of institutions, giving them a large leg up in regards to bringing the best talent on board.
The initial token distribution is as follows:
- 50% Staking Rewards
- 2.5% Seed Sale
- 3.5% Private Sale
- 10% Public Sales (3)
- 9.26% Foundation
- 7% Community and Dev Endowment
- 5% Strategic Partners
- 2.5% Airdrop
- 10% Team
Avalanche’s company wallet still holds around 10% of the total supply as WAVAX or Wrapped AVAX. Also, less than 5% of the token supply is held by whales currently.
What Does It Do?
The primary use case of AVAX is to serve as the native currency to build and transact on the Avalanche network.
This includes things like:
- Staker Fees
- Transaction Costs
- Sliding Cost Function
- Spam Management
- Governance
The current staking reward is at 9.37% annually which is more than double what Solana and Ethereum have to offer and directly competes against Luna at 8.68% (not including air drops for Luna stakers).
Avalanche is targeting the Layer 1 smart contract industry, with their main competitors being ETH, SOL, LUNA and FTM. As previously mentioned, the three subchains allows for integration with ERC-20 smart contracts, dApps, sub chains built on their underlying protocol, and advancement of the overall primary network.
Tokenomics
Currently AVAX has a capped-supply of 720 M tokens with 360 M coming from the genesis block. The rest of the tokens will be minted as staking rewards given to node operators in exchange for putting up a stake and participating actively in the consensus process. Rewards are linked directly to node uptime and response latency. In clearer words, minting AVAX is done via proof-of-uptime and proof-of-responsiveness. Since there is no “leader” accumulating rewards, there is no “rich-get-richer” compounding effects.
AVAX has introduced a new system that allows users to choose the rate at which AVAX hits its capped supply. But, there still is a hard supply, so some years more tokens will be introduced than others depending on the number of validators and how long AVAX is staked for but there will never be more than 720 M tokens minted.
Since the Avalanche network C has access to the EVM there is relatively all the major dApps that allow staking, lending, borrowing, and yield farming on ETH as well as a few dApps native to AVAX themselves that serve similar functions.
Currently, the AVAX token can be leveraged in Abracadabra where users can upload their tokens as collateral to take out loans against it in MIM (Magic Internet Money), the stablecoin of Abracadabra. There are also multiple LP pools utilizing AVAX and other stables that can be borrowed against as well.
Roadmap, Progress, and Sentiment
Avalanche has seen tremendous growth and adoption over the past year since the launch of its main net. Earlier this year AVAX had a market cap of under $100 M; now it is at a staggering $23 B currently. AVAX also can boast a 20x growth of daily active users in just the last 3 months alone. Currently the TVL on Avalanche is $12 B, up from $200 M in August.
Avalanche has done a fantastic job of staying on track and not underdelivering on promises. So far they have followed most of roadmap and have managed to hit the majority of their milestones for the year.
They have a good amount of native dAapps launched on it as well as an EVM chain where ETH-based protocols can port over to access the users on Avalanche. dApps like TraderJoe, Wonderland, and BENQI have performed tremendously well and are a sign that AVAX gives devs the tools to build applications that can compete with the best out there.
The Avalanche Main net had a successful launch on September 21st, 2020. There were some small congestion issues when the main net first launched but these were fixed fast and no further issues prevailed. As adoption of the protocol has grown due to many of the innovations already presented, the network has grown more congested with some transaction times topping 25 minutes and much higher than normal gas fees at over $8. For reference, average gas fees range between .30 and .60 cents so that is a considerable increase. Solana saw similar issues when it had a massive adoption cycle as well but thus far Avalanche has never gone offline.
Current Innovations
The Avalanche Wallet is fully up and running on all three blockchains associated with AVAX. The wallet offers staking (Validation and Delegation) as well as cross-chain transfers (between X, P, and C). It also serves as a “home base” for NFTs and funds collected on the AVAX network to appear in a portfolio.
Unlike ETH where every transaction must pay some gas, AVAX adopted a different model that incorporates two types of transaction processing mechanisms:
- All keys with positive balances will be able to immediately interact with the platform, where the fees are based on an allotment mechanism, functionally similar to a tiered payments model adopted in cloud computing platforms. Every transaction has a sender address, which will be checked for current allotment.
- If the address has free invocations left, the transactions do not carry some fees based on the resources used to compute the transaction. Users may opt instead to pay for their transactions using computation. When a new transaction is generated, the user will compute and attach a valid PoW on the transaction, which can be checked by all other parties.
There are a few other networks that have multiple chains run under the main one but they don’t quite work the same as AVAX does with their X, C, and P functions.
The Bottom Line:
The Avalanche network is growing at a rapid pace and is currently in a position to be the next up-and-coming smart contract platform as it is quickly climbing the coin leaderboard. This is due to the very user-friendly interface for not only individuals but also devs who wish to build on AVAX. The innovations that could be coming out of this protocol in the next year are tremendous considering what they have managed to accomplish in the last 12 months. There likely will not be a true Ethereum killer but AVAX sure is trying their best to fill those shoes. Will it actually happen? Stay tuned.
About RF Capital
RF Capital is an alternative investment firm with a special focus in the underlying infrastructure of the blockchain space. Other areas of specialization include real estate, debt/equity markets, and OTC trading.
