Avalanche (AVAX)

In the midst of overpromising in the blockchain projects, Avalanche is a ready-to-use platform that has better scalability, decentralization, and interoperability than most of its competitors. Avalanche is a complex and customizable open-source blockchain platform. Users can create a decentralized application or even a customizable public/private blockchain. This flexibility comes from its unique infrastructure and consensus mechanism. How does Avalanche work and how promising is its tokenomics?

How does Avalanche work?

Unlike other blockchains, Avalanche’s network consists of three chains:

  1. Exchange Chain (X-Chain)

The place for creating and exchanging assets in Avalanche including native coin of Avalanche (AVAX).  

2. Platform Chain (P-Chain)

A metadata chain that coordinates validators and creates subnets. A subnet is a new customizable network in the Avalanche ecosystem. Each subnet can have multiple blockchains that might have their own consensus mechanism (exp. PoW or PoS). The customized private or public blockchain is also integrated with its own VM to support interoperability.

3. Contract Chain (C-Chain)

The smart contract blockchain which is compatible with smart contracts in Ethereum. C-Chain uses solidity language and EVM (Ethereum Virtual Machine), so Ethereum developers can easily migrate to Avalanche.

Source: Ecosystem Avalanche Scheme Source: Avalabs
Ecosystem Avalanche Scheme 

The key of Avalanche lies in the architecture. All three chains combined to provide the same capabilities of a single network. Each chain has a different consensus mechanism. A decentralized network means no central authority to determine every choice in the network. A consensus mechanism means the protocol to achieve consensus within the network. P-Chain dan C-Chain uses a snowman consensus which can create reliable and fast smart contracts, while the X-Chain uses DAG (Directed Acyclic Graph) consensus mechanism which can lead to the final transaction in a mere second.

The difference between blockchain and DAG is on data organization. Blockchain is a collection of transactions pooled together as a “block”. The active participants (nodes) will verify the block using the chosen consensus mechanism. The confirmed block will be added to a linear and chronological order of the chain.  The technology of these chained blocks will create an auditable and transparent record of transactions which is later known as blockchain.

However, because everything is in chronological order, blockchain can be slow to process and verify the transaction. DAG sacrifices simplicity and replicates how people gossip in real life. A new transaction will be checked by a small random of subsets validators. If the transaction is valid, the gossip mechanism is started. The participants will exchange information back and forth to accept or reject the transaction. However, a consensus will be reached in a certain desired time frame regardless of the number of nodes.

Ecosystem Avalanche Scheme

DAG-optimized novel family of Proof-of-Stake Snowman consensus consists of three components: Slush, Snowflake, and Snowball. Snowflake and Snowball are leaderless Byzantine fault tolerance (BFT) protocols built around Slush, a non-BFT metastable mechanism. Avalanche is designed to be leaderless. Verified transactions are the result of random nodes communicating with each other until a sufficiently large portion of them reach an agreement.

The chance of chosen validators is proportional to their AVAX stake. Validators would receive staking rewards  if they are online and respond for more than 80% of their validation period, as measured by a majority of validators. The minimum amount that a validator must stake is 2,000 AVAX. This leaderless design allows Avalanche to  waive slashing penalties, which can otherwise act as a deterrent to prospective stakers. Ultimately, this approach is aimed at maximizing its total validator set.

The Features of Avalanche

Thanks to different consensus mechanisms, Avalanche can create a fast and flexible platform yet still maintain its security and decentralization. Currently, Avalanche can produce more than 4,500 transactions per second (TPS), much faster than its competitors like Bitcoin (7 tps) or Polkadot (1,500 tps). However, it is still behind Visa (65,000 tps) or even Ethereum 2.0 (100,000 tps).

Avalanche TPS

The snowman protocol also achieves irreversible finality under 2 seconds which is much faster than its competitors, although it is slower than Solana 400 millisecond finality. The overall Avalanche network uses a Proof of Stake (PoS) consensus mechanism to provide Sybil protection to the blockchain. PoS also ensures validators to have rights in the system so that the network would remain resistant to attack, robust, and reliable. PoS is a lightweight protocol that does not require special computer hardware.  

People Behind Avalanche

Avalanche was first conceptualized in the InterPlanetary File System (IPFS) in May 2018 by Team Rocket. Later it was developed by a researcher team from Cornell University. The research was led by Emin Gün Sirer, a computer science professor at Cornell University and software engineer. He was assisted by doctoral students Maofan Yin and Kevin Sekniqi.

Following the research, Emin founded Ava Labs to develop a network for a complex financial industry. In 2018, Avalanche launched its whitepaper and Ava Labs got total funding of $140.5 million from various venture capital such as Andreessen Horowitz, Initialized, and Polychain Capital. In July 2020, Avalanche had Initial Coin Offering (ICO) and successfully launched mainnet in September 2020.

Ecosystem in Avalanche

No matter how advanced the technology is, a network ecosystem is very important. As a new blockchain project, Avalanche team really makes an effort to promote and attract the developer.  In August 2021, Avalanche gave $180 million under an incentive program for DeFi developers. This Avalanche Rush program succeeded to increase Avalanche TVL to $1.8 billion. Moreover, Avalanche ecosystem grew exponentially in 2021. It seems there is only the beginning of Avalanche expansion because in November 2021, Avalanche established Blizzard, a $200 million venture capital specialized in the Avalanche ecosystem.

With more than 180 projects under the network, Avalanche has solid and promising projects from Decentralized Finance (DeFi), enterprise, infrastructure tools, to digital collectibles. DeFi is one of the most growing sectors in cryptocurrency. Most of the projects are Ethereum based. With EVM, Avalanche is fully compatible with Ethereum assets, apps, and tooling. Thus,many famous and promising projects based on Ethereum also migrate and expand to Avalanche, such as Aave, 1inch, Chainlink, Injective, and The Graph.

Avalanche is also the best verifiable platform for institutions, enterprises, and governments. Institutions can launch assets, build applications, and create subnets with complete control over their own implementation with compliance, data security, and other rule sets. Through customizable private blockchain, Institutions can build asset issuance and trading, Central Bank Digital Currencies (CBDC), debt financing, digital identity, and document tracking. Example of a project for institutions is Ryval, a stock market for litigation financing. Public now can buy and sell tokens that represent shares in a litigation and access to a multi-billion dollar investment class which was previously unavailable to the public. Digital collectibles is also one of the booming markets in cryptocurrency. Public can mint their own digital collectible in seconds for fees less than a cent.

Tokenomics

AVAX coin is the native coin in Avalanche’s network. AVAX is used to secure the network (stacking), pay all the transactions fees in the network, and unit of account in various customizable blockchains in Avalanche.

AVAX has a maximum supply of 720 million. Almost 65% is distributed for staking rewards and operation development. Around 19% is for the founder and team, while 16% is for the investor.

Currently, 31% of AVAX is already circulated, while 69% will be distributed gradually based on its vesting schedule. Out of 31% circulated supply, almost 62% is locked for stacking. In 2021,  Avalanche changed its fixed transactions fees to dynamic transactions fees. Based on this change, we can expect more reduction of supply as AVAX is burned through transaction fees, creation assets, blockchain, and subnets.  

AVAX Vesting Schedule

AVAX holders also have rights to governance. Participants can vote on changes to the network and settle network upgrade decisions democratically. However, Avalanche does not allow unlimited changes to arbitrary aspects of the system. Only a predetermined number of parameters can be modified via governance, rendering the system more predictable and increasing safety. Moreover, all governable parameters are subject to limits within specific time bounds, ensuring that the system remains predictable over short time ranges.

In conclusion, Avalanche offers a promising real solution to blockchain to be more decentralized, scalable, secure, and interoperable. However, Avalanche also has some serious competitors in the smart contract platforms. Even though currently the transaction speed in Avalanche is faster than average, Avalanche is not as fast as Visa or Ethereum 2.0. From tokenomics, AVAX can grow if only it is supported by the development of Dapps and the ecosystem in Avalanche. The thing worth considering is how the SEC looks at Avalanche. To be fair, a lot of blockchain projects are fragile to be categorized as securities including Avalanche. However, with a strong team and funding, Avalanche is a project worth your attention.

Sources:

Avalabs. (n.d.). Retrieved December 1, 2021, from https://www.avalabs.org/.

Avax. (n.d.). Retrieved December 1, 2021, from https://www.avax.network/.

Thurman, A. (2021, November 1). Avalanche Developers and Investors Form $200M ‘Blizzard’ Investment Fund. Coindesk. Retrieved December 1, 2021, from https://www.coindesk.com/tech/2021/11/01/avalanche-developers-and-investors-form-200m-blizzard-investment-fund/.

Coin98. (2021, November 9). Retrieved December 1, 2021, from https://twitter.com/Coin98Analytics/status/1458021815314354181/photo/1.

Messari. (n.d.). Launch & Initial Token Distribution. Messari Crypto News. Retrieved December 1, 2021, from https://messari.io/asset/avalanche/profile/launch-and-initial-token-distribution.

Vivar, A. L., Castedo, A. T., Orozco, A. L. S., & Villalba, L. J. G. (2020). Smart Contracts: A Review of Security Threats Alongside an Analysis of Existing Solutions. Entropy, 22(2), 203. https://doi.org/10.3390/e22020203

Walters, S. (2020, November 26). Avalanche (AVAX) Review: Third Generation Blockchain. coinbureau. Retrieved April 8, 2022, from https://www.coinbureau.com/review/avalanche-avax/