CEX.IO Spotlight: Avalanche

Key info (as of August 16, 2022):

Circulating Supply — 284,944,466.15 AVAXTotal Supply — 404,229,626 AVAXMax Supply — 720,000,000 AVAXSector — Smart Contract PlatformsToken Type — NativeToken Usage — Payments, Work, VotesGenesis Block Date — September 21st, 2020ATH — $146.22ATH Date  — November 21, 2021

Overview

What is Avalanche (AVAX)?

Avalanche is an open-source smart contract platform for launching custom blockchain networks and decentralized finance (DeFi) applications within a single interoperable ecosystem. Avalanche claims to offer a high transaction throughput of over 4,500 transactions per second and to support sub-second transaction finality.

To achieve a highly scalable ecosystem, Avalanche features a unique platform architecture that consists of three build-in chains and an unlimited number of subnets. Each build-in chain has a distinct purpose within the network and relies on different consensus protocols based on their use cases. In turn, Avalanche subnets are similar to Ethereum’s layer 2 (L2) solutions and Polkadot’s parachains, but with fully isolated blockchain states.

The Avalanche platform has a native token called AVAX that is used to secure the network through staking, maintain payments within the ecosystem, and vote for network upgrades. 

A brief history of Avalanche

Avalanche was first conceptualized and shared on the InterPlanetary File System (IPFS) website in May 2018 by a pseudonymous group of enthusiasts named “Team Rocket.” In the same year, Cornell University professor Emin Gün Sirer, along with doctoral students Maofan “Ted” Yin and Kevin Sekniqi, founded Ava Labs, the lead developer of the Avalanche platform. 

In 2019, Ava Labs and Team Rocket published an updated version of the Avalanche concept and released three whitepapers: one each about the AVAX token, stablecoins, and the Avalanche platform. In 2019, Ava Labs raised $6 million from venture capital firms and individual investors. In 2020, Avalanche raised $12 million in the private token sale and $42 million during the public sale.

In March 2020, the codebase for the Avalanche consensus protocol became open-source and available to the public. The Avalanche mainnet launched on September 21, 2020.

In January 2021, the Avalanche-Ethereum bridge was deployed. In August 2021, it was migrated to the newly upgraded Avalanche Bridge (AB) to ensure fast and secure transfer of ERC-20 assets between Ethereum and Avalanche networks. As for now, AB is considered the largest Ethereum-connected bridge by total value locked (TVL). In July 2022, AB added support of the Bitcoin network. AB is considered one of the major reasons for the rapid growth of the Avalanche ecosystem. 

In 2021, numerous Avalanche-based and multi-chain DeFi projects were launched in the Avalanche network. It helped Avalanche to become one of the fastest-growing DeFi ecosystems in the industry. Avalanche reached $10 billion TVL in just 14 months since the mainnet launch. 

In July 2022, Ava Labs released a browser extension and mobile wallet called Core. It allows users to traverse the entire Avalanche network and ecosystem, as well as to natively bridge and swap assets.

How does Avalanche work?

Chains

Avalanche features three built-in chains: contract chain (C-Chain), platform chain (P-Chain), and exchange chain (X-Chain). These chains are validated and secured by all Avalanche validators that operate in the Primary network.

C-Chain — This chain allows developers to create Ethereum-compatible smart contracts using Ethereum Virtual Machine (EVM) powered by Avalanche. The vast majority of Avalanche applications are deployed on this chain. C-Chain uses the Snowman consensus protocol.P-Chain — This chain stores metadata and coordinates validators. P-Chain also keeps track of subnets (custom blockchain networks) and enables developers to create their own subnets. P-Chain implements the Snowman consensus protocol.X-Chain — This chain provides tools to create fungible and non-fungible tokens (NFTs), as well as exchange data across subnets. X-Chain is an instance of the Avalanche Virtual Machine (AVM). This chain utilizes the Avalanche consensus protocol.

Avalanche chains. Source: Avalanche documentation

Subnets

Avalanche allows the creation of customized blockchains where developers may set up their own rules regarding token economics and how the blockchain should operate. A subnet is a set of validators that follow certain rules within the network. At the same time, validators may take part in the validation of several subnets. Any Avalanche user can create a subnet. To do this, one needs to pay a fee, which currently equals 0.01 AVAX.

Subnets are independent, effectively allowing the Avalanche network to scale up and retain higher transaction throughput with lower transaction costs provided by the Avalanche consensus. It also makes Avalanche suitable for institutions and businesses to build their own permissioned blockchains with native KYC functionality. For example, businesses may determine that validators must be located in certain countries or hold a certain license.

Consensus mechanism

In the Avalanche Platform Whitepaper, authors describe a family of consensus protocols called Snow. It includes three consensus protocols: Avalanche, Snowman, and Frosty. As mentioned above, Avalanche consensus protocol is used in X-Chain, while C-Chain and P-Chain rely on Snowman. The Frosty consensus protocol is currently in development.

The Avalanche consensus protocol uses the concept of a directed acyclic graph (DAG) that allows the network to process transactions in parallel. Validators poll a sampling of other validators and send requests to each other randomly to determine the validity of transactions. After a certain number of repeated rounds, it is considered statistically proven that it would be impossible for a transaction to be false. Additional confirmations are not required, allowing Avalanche to achieve quick finality of transactions and high throughput.

A validator’s chance of being sampled is proportional to their AVAX stake. A validator will receive a staking reward if they have more than 80% uptime during the validation period, as measured by a majority of validators.

​

Avalanche consensus protocol. Source: Avalanche documentation

Avalanche is considered a lightweight protocol because it doesn’t require special equipment or high-powered computing. This is one of the reasons why the Avalanche network enjoys a large number of validators. As of this writing, there are more than 1,250 active validators in the Avalanche mainnet. However, computing requirements for validators scale in proportion to the amount of AVAX staked on the node.

Because Avalanche uses a DAG, there are no blocks in the consensus protocol. Instead, the protocol operates with so-called vertices. They allow validators to bundle transactions into special groups for voting.

However, in order to operate with smart contracts (Ethereum-compatible, for example), blocks could be necessary. And here is when the Snowman consensus protocol is used. Snowman is based on the Avalanche protocol but creates blocks instead of vertices to make interaction with other networks compatible.

Governance

Avalanche provides on-chain governance where participants are able to vote on changes to the network using AVAX tokens. However, one key difference between Avalanche and many other networks with on-chain governance is that unlimited changes to arbitrary aspects of the system are not allowed. There is a predetermined number of parameters that can be modified via governance, including minimum staking amount, minting rate, transaction fees, and others.

All changes in network parameters via governance are also subject to limits within specific time bounds. It means that once a parameter is changed, users may have to wait a predetermined period of time before they can adjust the same element. This prevents the Avalanche network from changing drastically over a short period of time and makes the system more stable.

Avalanche native token

Utility

AVAX is Avalanche’s native token and is predominantly used within the network for the following purposes:

Staking — Users can become validators or delegate their tokens to secure the network and earn staking rewards. To become a validator users need to stake at least 2,000 AVAX. The minimum amount of tokens for delegation is 25 AVAX. Validators can set up a custom percentage fee of the reward they keep from delegators who back them.Fees — Transactions fees and fees for operations within subnets are paid in AVAX. Transactions done on the X-chain also generate fees in AVAX, which is similar to gas fees on the Ethereum platform, which are paid in ETH. It means transactions are always processed in AVAX regardless of the token used in fee payment.Swaps — AVAX serves as a universal unit of account between multiple subnets created on Avalanche. It enables native exchanges of any type of asset within the network, improving interoperability.

Token Allocation

The AVAX token has a capped max supply of 720 million tokens. At the mainnet launch, 360 million tokens had already been minted. The majority of these funds are locked in vesting periods between 1-10 years. The remaining 360 million AVAX will be released over time to staking validators. 

The reward rate is subject to governance, meaning token holders determine the rate at which the max supply is ultimately reached. Fees paid for most transactions on the Avalanche network are burned, reducing the available supply and increasing the scarcity of AVAX. This means AVAX may experience deflationary pressure if the number of AVAX burned exceeds the number of AVAX minted in staking rewards. 

Avalanche has the following initial token allocation:

Staking rewards — 50%. Seed sale — 2.5%. Private sale — 3.5%. Public sale Option A1 — 1%. Public sale Option A2 — 8.3%. Public sale Option B — 0.67%. Foundation —  9.26%. These tokens can be used for ecosystem-building initiatives, and carry a 10-year vesting period.Community and Development Endowment — 7%. These tokens can be allocated to individuals and groups that develop core tools and infrastructure on Avalanche.Strategic partners — 5%. These tokens can be allocated to businesses and organizations that build projects on Avalanche and carry a four-year vesting period.Airdrop — 2.5%. These tokens were allocated to various communities to onboard more people to the Avalanche, and carry a four-year vesting period.Team — 10%. These tokens were allocated to Ava Labs members, and carry a four-year vesting period.

Avalanche token allocation. Source: Messari

AVAX tokens distributed during a series of private and public sales had a specific vesting period. 10% of these tokens were released on the mainnet launch, with the remainder released every three months over a period of 1-1.5 years. Public sale Option B had no vesting period but offered a higher price for AVAX tokens.

Avalanche ecosystem

In December 2021, the Avalanche ecosystem reached $13 billion in total value locked. But since then, Avalanche’s TVL dropped significantly, which corresponds with AVAX price performance and user activity in the network.

Source: DeFi Llama

Source: Avalanche network

Despite this, developers continue being active in the Avalanche network, deploying even more contracts after the TVL and price drop.

Source: Avalanche network

At the moment, there are more than 250 projects that call Avalanche their home, with most of them deployed on the C-Chain. These projects can be categorized as either native or non-native. Native projects mean they either began their development on Avalanche or have the vast majority of their activity on Avalanche. Non-native products predominantly entered the ecosystem using Avalanche bridges and Ethereum-compatible contracts.

Despite the C-Chain’s high performance, it may prove less appropriate for long-term scalability than the P-Chain. That is why Avalanche encourages developers to use subnets to deploy their applications. Currently, Avalanche has two custom live subnets and dozens of others rolling out on their own testnets. 

Infrastructure

Infrastructure projects typically see little attention from investors, but they are crucial for developing an ecosystem. Avalanche attracted multiple popular infrastructure products to its network to help developers adopt their projects. Some notable names include oracle network Chainlink, sidechain protocol Gravity, indexing protocol The Graph, and the launchpad Moralis. 

Lending

Cross-chain lending protocol Aave is Avalanche’s largest project in terms of TVL. It currently has over 46% dominance in the ecosystem. The next two largest lending protocols are Avalanche-native BENQI and Yeti Finance. BENQI is quite similar in terms of core functionality to Aave, by also empowering users to lend and borrow assets in an over-collateralized manner. However, BENQI differentiates itself by offering liquid staking. At the moment, BENQI is considered a major liquid staking protocol for AVAX.

Yeti Finance’s hallmark is offering users its native stablecoin YUSD. Users can collateralize YUSD loans with multiple assets, while the Yeti Finance protocol automatically recalculates potential yield. 

Decentralized Exchanges (DEXs)

There are two major sets of DEXs on Avalanche: general AMM-DEXs and “stable-priced” AMM DEXs. The two largest general AMM DEXs are Avalanche-native Pangolin and Trader Joe. Pangolin is the first DEX deployed on Avalanche, which offers swaps, yield farming, staking of its native PNG token, and leveraged trading. Trader Joe offers similar functionality to Pangolin and supports staking of its native JOE tokens on the platform. But since Trader Joe also provides launchpad Rocket Joe and NFT marketplace Joepegs, it is sometimes called a one-stop decentralized platform on Avalanche.

Cross-chain Curve and Avalanche-native Platypus Finance are the most popular projects among “stable-priced” AMM-DEXs on Avalanche. Curve Finance is designed for swapping stablecoins such as USDT, USDC, and DAI. In turn, Platypus Finance offers users the opportunity to “stake” stablecoins on Avalanche.

Derivatives

GMX was the first project that started offering futures on Avalanche. GMX also features spot trading using market and limit order functionality. Additionally, GMX’s approach to zero-slippage swaps helped the project become a leader in TVL among other derivatives platforms. The Hubble Exchange could potentially bring some competition to GMX by enabling multi-asset collateral and cross-margins. 

Projects like Ribbon Finance, Thetanuts Finance, and Dopex can be described as option-focused platforms. They provide option pools to let users buy or sell options in a simplified manner. There is also Avalanche-native Struct Finance that enables users to create products with custom interest rates.

Gaming

The most popular game in the Avalanche ecosystem is Crabada. Crabada is a fork of the play-to-earn game Axie Infinity, and was initially launched exclusively on Avalanche’s C-Chain. After three months of launch, Crabada has become so popular that it racked up over 30% of C-Chain’s daily transactions, leading to higher fees within the network. After Crabada switched to its own subnet called Swimmer Network, C-Chain load and transaction fees stabilized. 

Crabada’s story highlights the importance of subnets for Avalanche and its potential for scalability. It is noteworthy that the second live subnet on Avalanche also refers to the game it hosts: DeFi Kingdoms. In general, the pipeline for developing Avalanche subnets is filled with gaming products.

NFT

Most NFTs on Avalanche are traded on native Kalao and Joepegs, as well as cross-chain NFTTrade and Element Market platforms. NFT collectibles are appearing more widely on Avalanche C-Chain.

Avalanche’s NFT industry has experienced notable adoption across a wider market. For example, Topps, one of the oldest collectible companies in the U.S., launched its 2021 MLB Series 2 NFT collection on Avalanche. In turn, one of Banksy’s famous pieces, Love is in the Air, became a fractionalized NFT on Avalanche. 

Institutions and Enterprises

As mentioned above, Avalanche subnets allow developers to create custom blockchain networks programmed with their own rules. This feature attracted many institutions and enterprises to consider launching their own blockchain solutions on Avalanche. In March 2022, Ava Labs announced a collaboration with Valkyrie, Jump Crypto, GoldenTree Asset Management, and several other companies to build subnets with native KYC functionality. Ava Labs also partnered with accounting firm Deloitte and insurance company Lemonade to develop decentralized applications on Avalanche. 

Find out more about Avalanche

Avalanche has become an attractive option for deploying DeFi platforms due to its high scalability via subnets, low fees, and compatibility with Ethereum smart contracts. In almost two years after the mainnet launch, Avalanche has achieved larger adoption than some more established smart contract platforms. Avalanche network participants successfully increased activity on its C-Chain, making the network one of the largest in terms of TVL. 

Compared to its C-Chain, the P-Chain and X-Chain can be considered nascent. However, Avalanche developers and the community are continuing to work on subnet adoption and other network features. Some of the recent use cases show that this path may help Avalanche become an even more competitive platform. 

Stake Avalanche on CEX.IO

With CEX.IO, customers can buy AVAX using multiple payment methods. Buying AVAX allows users to join the Avalanche ecosystem and take advantage of Avalanche staking. In order to earn AVAX staking rewards, users can choose to hold their tokens on CEX.IO. CEX.IO features no-lock periods, meaning customers can withdraw and trade their AVAX tokens anytime, even when those funds are participating in staking. Check our staking page to learn the current estimated annual yield for staking AVAX on CEX.IO.