Chain dissection. Avalanche

Much like Bitcoin, Avalanche started with the introduction of an anonymous academic paper describing a new family of consensus protocols called Snow. Academics at Cornell University further developed this protocol to create its real world implementation; the Avalanche Platform. The long-term goal of Avalanche is to become a platform-of-platforms. Let’s take a closer look.

You will learn about:

– Distinctive characteristics of Avalanche

– AVAX tokenomics

– Platform-of-platforms thesis, and why is it failing?

Structure and specifics

Avalanche is a layer 1 blockchain platform for running decentralized applications as well as for deploying public and private blockchains within a single, scalable ecosystem. Thus, Avalanche consists of Primary Network and an unlimited number of Subnets.

In its turn, the Primary Network consists of three blockchains:

• Exchange Chain (X-Chain) is the core chain. It provides tools for exchanging data between subnets and creating interchangeable tokens and NFTs;
• Contract Chain (C-Chain) is an EVM chain. It enables the creation of Ethereum-compatible smart contracts;
• Platform Chain (P-Chain) is the platform for subnets creating and operating. It stores metadata and is responsible for coordinating validator and subnets.

AVAX tokenomics

• Standard: AVAX & ERC-20
• Circulating supply: ~ 354 million
• Total supply: ~ 431 million
• Maximum supply: 720 million
• Current Market Cap: ~ $3.2 billion
• Current price: ~ $9
• All-time low: $2.79
• All-time high: $146.22
• Current inflation rate: 21.1%, meaning 74.67 mil AVAX were created in a year
• Inflation structure: 360 million coins were minted at launch, while the other 360 million are earmarked as staking rewards. 88% of coins enter circulation by Q3 2024, while the rest is fully unlocked by July 2030, making AVAX deflationary.

Interesting fact: despite it is separate from Ethereum blockchain, Avalanche allows ERC-20 token minting and bridging. A token can be generated on the Avalanche C-chain or bridged via the Avalanche Bridge. The vast majority of tokens are ERC -20, so in some sense, that feature makes Avalanche a Layer 2 scaling solution.

Platform-of-platforms

Another one? Are you kidding? Becoming the platform of platforms was one of the main narratives back in the days of bull run. The customizable nature of Avalanche allows launching many self-sovereign chains, subnets, and VMs on top of the mainnet. There were two major B2B categories of clients that Ava Labs wanted to attract for a subnet launch:

– Gaming companies. When Facebook rebranded into Meta, everybody was talking about blue-chip games coming on-chain with millions of users. It seemed like a gaming corporation was about to launch its subnet;

– Institutions. Ava Labs partnered with GoldenTree Asset Management, Wintermute, Jump Crypto, Valkyrie, Securitize, Deloitte, etc., hoping that they would start tokenization using Avalanche.

Now it is becoming more and more obvious that a game corporation or an institution would rather create a purpose-specific private Ethereum rollup using the OP Stack Client SDK than launch a subnet on Avalanche. And we haven’t seen the heyday of ZK rollups yet. And it’s not that Avalanche isn’t suitable as a platform-of-platforms for corporations and institutions; it’s just that Ethereum is more reliable and the first of its kind. To make life worse for Avalanche, the SEC has recently named AVAX an unregistered security.

Output

Although technologically interesting, Avalanche doesn’t have a killer feature or unique niche to occupy, like Solana or Cosmos, for example. It seems like the chain is trying to sit on a few chairs at once: there is a general-purpose layer 1 chain, which is trying to act as a layer 0, and an Ethereum scaling solution at once. It sounds great, but in reality, it rarely succeeds.

AVAX price action makes the situation even worse. The asset is highly inflationary and down 94% from its all-time high. There’s a good chance that the price will never recover to its former values, and the next bull run will produce venture-backed blockchains that are simply faster and more interesting.