Avalanche Subnets — Bridge The Chasm
Avalanche lays the foundations that could enable new web3 products and economies through several key components and innovations in consensus, infrastructure design, and economics. This blog will reiterate them in understandable terms and follow the protocol’s web3 business logic and implications.
Fundamental Components
Avalanche Consensus
Avalanche is a third-generation consensus that combines properties of Nakamoto consensus(Bitcoin, Ethereum, Zcash, etc.) and classical consensus (Cosmos, Tezos, Polkadot, Algorand, BSC, Near, etc.), allowing novel properties. Without getting into too many details, we should outline what is essential and plays a role in the Avalanche economy.
Key facts: Avalanche is the first consensus to simultaneously enable sub-second transaction finality while having an uncapped number of block-producing validators.
In-depth on Avalanche consensus: https://medium.com/avalancheavax/avalanche-consensus-101-99c68a3e3159
AVAX
AVAX is the native token of the Avalanche platform. It is used to secure the network through staking, pay for fees, and provide a basic unit of account between the multiple subnetworks created on the Avalanche platform.
Key facts:
- AVAX fees on the primary network are burned; AVAX is capped at 720M. No more than 720M AVAX can ever exist.
- AVAX can be used as a gas token on any subnet deployed.
- AVAX emissions are controlled by a dynamic mechanism. Burned Fees are deflationary, minting is inflationary, and those two forces control the remaining mintable supply, dynamically adjusting the reward rates.
Avalanche Infrastructure Design
Avalanche is not a blockchain. It’s a network of subnets that validate independent blockchains.
A blockchain to web3 is like a server is to web2. A blockchain may have multiple applications deployed, but they all share the same execution environment and work in concurrency for resources. Same as they would share the same execution environment on a single web2 server.
Avalanche is to web3 as AWS is to web2. It provides a reliable, customizable, and easy deploy infrastructure to anyone who needs to scale their products in web3.
Key facts: Avalanche is a web3 network of networks two levels above the topology of a blockchain. Avalanche doesn’t force design decisions on its subnets except for the consensus with the lowest latency (tx finality) in web3.
In-depth comparison with other significant networks: https://medium.com/avalanche-hub/comparison-between-avalanche-cosmos-and-polkadot-a2a98f46c03b
Subnets
Subnets are highly customizable verticals that allow anyone to run their independent blockchain: using any VM, defining any economic primitives, choosing any set of features, gas token, validator requirements, and security models. They can be anything ranging from privacy-focused L1 with smart contracts to L2 payments settlement layer, a permissioned institutional blockchain, or a single popular PvP Tetris game.
For example, USDC could create an L1 subnet, appoint validators, use USDC as gas tokens, and enable smart contracts. That would translate to the fastest USD stable coin settlement layer that requires no additional tokens to pay for tx fees.
Key facts: Subnets are highly customizable; Subnets inherit avalanche consensus latency(sub-second tx finality); Subnets can choose shared or non-shared security; Subnets need validators from the primary network validator pool;
Validators
Avalanche Validators are AVAX holders incentivized to stake their tokens to secure Avalanche while receiving a reward in return.
Anyone can run an Avalanche node, stake their AVAX, and earn AVAX rewards. In addition, as validators of the primary network, they become eligible to validate other Avalanche subnets, giving them direct access to more rewards and opportunities for early investments and participation in new and exciting products.
Every subnet needs to acquire validators from the primary network either by running them themselves, incentivizing existing validators, or a combination of both, depending on the nature of the subnet.
Key facts: Running a validator requires 2000 AVAX staked. Validators are a precious resource in the grand scheme of horizontal scaling through subnets. Owning an Avalanche validator is an access point to lending infrastructure to the products and businesses that choose subnets for their needs.
Bridging Across The Chasm
“In his 1991 book Crossing the Chasm, Geoffrey Moore argued that the key to achieving breakthrough adoption for high-tech innovations was overcoming the “chasm” in order to reach the “early majority” (the pragmatists). He describes this chasm as the massive gap that lies between the early adopters (tech enthusiasts and visionaries) and the early majority, which exists when a new product has the potential to be highly disruptive and thus require behavioral changes” — James Kilroe and Seamus Hennessy
Web3 is built to be the new, better web, but due to a series of shortcomings in the available technology and infrastructure, it appeared hard to reach the UX of web2.
While the benefits are widely known frequently, they are insufficient to overcome the tradeoffs in user experience, performance, and ease of use. On the other hand, the transition for builders and businesses suffers from the lack of tooling and reliable solutions. A combination that widens the adoption chasm for the majority of use cases.
Builders in the industry constantly innovate and manage to utilize the entire capacity of the existing Layer 1 protocols and quickly fill up any newly available block space through new primitives and products. Moreover, the rates of new developers entering web3 are not showing any signs of stopping. Instead, thousands of companies in web2 explore the benefits of decentralization, transparency, digital ownership, sovereign product economy, community engagement, DAOs, and many more for their existing and future products.
Many of those companies operate with millions of daily users and need scalable solutions that give them the flexibility to create their products on their terms. The smaller ones often lack the resources within their teams to transition due to the complexity of bootstrapping a healthy network with sufficient tooling, developing their own clients, handling security, and managing their own validator sets.
The roadblocks to transitioning include concurrency, high fees, slow UIs, weak performance, no scalability solution to ensure future growth, design limitations, complexity to launch, building initial liquidity, onboarding users, and lack of experienced talent.
How can Avalanche help?
Concurrency
Running google, twitter, facebook, and youtube on a single “mega server” wouldn’t work. It won’t and can’t work on a single blockchain either. Because they not only need to have all the capacity reserved for their users but would need to scale horizontally on-demand to serve their user growth.
Subnets allow apps to isolate an entire blockchain capacity or even launch multiple subnets to serve different regions if they face a growing demand for blockspace.
High fees
High fees are a product of growing demand on a congested network. The lack of concurrency and the ability to scale horizontally gives builders all the tools they need to ensure their users have a good experience.
Slow UIs/Weak Performance
In web2, we are used to lightning-fast interactions with application UIs. Going from low hundreds milliseconds to 120 seconds does not justify the benefits of web3 for many use cases, especially in gaming, messaging, payments processing, and many other applications that rely heavily on latency.
Avalanche offers lighting fast transactions measured by time to finality, with an average latency of 800ms on the primary network, a novel property of the avalanche consensus due to its simplicity in communication and decision making. This latency can be further reduced on subnets by parameter adjustments and validator selection. The primary network validators work with very low hardware requirements and can run on a home laptop.
500–800ms latency could easily rival the latency of VISA in a decentralized setting. VISA is measured to settle transactions between 900ms-2.5s. With subnets, builders no longer need to sacrifice performance and UX for the benefits of Web3.
Scalability
No one wants to build a product that is DOA due to its growth limitations imposed by infrastructure capacity. Furthermore, deploying under a monolithic blockchain with thousands of other DApps dooms application’s performance during increased network activity, such as a popular token sale or NFT mint, and any time the markets are highly volatile, making users rush to manage their risks.
Subnets are a blank slate that lets you implement any scalability solution. One can spin multiple subnets as sidechains, L2s, L3s a combination of them. The flexibility of their design allows builders to stay on edge with innovation, letting them adapt and utilize any new scaling technology that proves efficient.
Scaling the network of subnets under Avalanche is made possible by the property of the Avalanche consensus to uncap the number of network validators without degrading performance. The only resource required for spinning more subnets are validators on the primary network, and they have no limit except the AVAX supply.
Avalanche can vote to reduce the minimum staking requirement as the number of subnets grows to meet the new demand. At 25 AVAX stake for running a node, the capacity imposed by the AVAX total supply can be as high as 28,000,000 validators or 280 000 Subnets with an average of 100 validators each, assuming each validator only validates one subnet + primary network, while some can validate 2–3
Complexity to launch
Launching a blockchain is a complex process you can’t learn from tutorials on the internet. It usually goes through several testing phases that take months or even years.
Launching a subnet is a several steps process that anyone with basic Linux knowledge can follow through in several minutes. One can run their subnet testnet, and it will take them less time than reading this blog post.
Design Limitations
Existing BaaS solutions are broadly limiting and mostly tailored for private blockchains. The public BaaS sector is close to non-existent and consists of centralized, monolithic, non-scalable, or plain unsafe “solutions”. Builders have to make significant tradeoffs in their design decisions in functionality, economic model, ownership, etc.
Much like a server in web2, Avalanche Subnets offer the blank slate to build anything and do not force any design decisions. The only thing they inherit is the Avalanche consensus for communication, the same as we would use TCP/IP in web2 regardless of the product. Builders are not forced to use token X for gas. They can use their own token. They can decide their requirements for validators, their gas fee structures, virtual machines, whether to be permissioned or permissionless, their feature sets, security budget, utility, and literally every parameter.
Lack of high-quality talent
Developing and maintaining your own blockchain comes at an unjustifiably high cost for running a single application. Talent markets are signaling significant demand for experienced blockchain developers that are often nowhere to be found. Acquiring a full-scale blockchain team is challenging and costs tens of millions a year.
Avalanche is developing multiple subnet clients running on different virtual machines. The team at Ava Labs maintains those clients and updates them regularly with fixes and optimizations. Subnets come with wallets, explorers, and documentation.
User onboarding
The typical flow of introducing users to an application deployed under a popular L1 today consists of asking them to go to exchange X and acquire token Y, then move to exchange Z and acquire token Q. For comparison, onboarding a user in web2 comes down to clicking a button in the appstore or entering a URL.
Builders could easily match the web2 experience for onboarding users through an application-specific subnet that uses its own token for gas. For example, a mobile app could cost the user 1$ and, once purchased, credit them with 1$ worth of gas tokens. As another example, a subnet could have an alternative form of spam prevention (RPC, user verifications through NFTs, etc.) and offer users a gasless experience to its users.
Removing the complexity of the user onboarding process is a significant step for web3 adoption as it presented as one of the biggest challenges for broader adoption. In most web2, users don’t need to understand how a particular application’s underlying technology works. The flexibility of subnets design makes that possible in web3.
Chasm Bridge — Easy Bridge — Good Bridge
Avalanche is not a blockchain, but a network of powerful verticals called subnets. A single subnet carries the performance capacity of an L1 and could further be scaled by launching more blockchains horizontally or at L2 if they are willing to make the tradeoffs, able to reach millions of daily active users for a single application.
In this sense, Avalanche is a blockchain solution provider that offers builders an easy onboarding process for the fastest web3 tech that can scale on-demand horizontally and constantly develop tooling while granting them complete independence and customizability.
With a precise product-market fit and the exponentially growing demand for scalable application-specific web3 infrastructure, subnets come at the right time to bridge web3 across the adoption chasm.
Across The Chasm
As more existing web3 decentralized applications transition to subnets to scale, improve user experience and provide more utility for their underlying tokens. It won’t take long for the web2 native teams and companies on the chasm fence to take action and start enriching their products with the benefits of web3 and enable their sovereign economies by crossing the easy bridge subnets provide.
It’s easy to analyze product-market fit and hard to quantify growth, but it’s essential to measure sustainability and potential.
The Economic Implications
AVAX is the token that powers the wheel of the web3 equivalent of AWS. While in web2 there are several resources required to scale the infrastructure, in Avalanche, the only limit to the number of subnets is the available validators on the network, and their number is limited only by the AVAX supply divided by the minimum staking requirement for running a validator.
At the time of writing, 60.14% of the AVAX total supply is locked into validators with rewards of up to 9.37% per year. According to stakingrewards.com, several protocols have over 90% of the supply locked in staking without providing much higher returns or any notable benefits to their stakers.
With subnets, a validator on Avalanche can earn the staking rewards from the primary network and join a few more subnets that would reward them on top of their AVAX staking rewards if their hardware allows it.
The potential of a new validator economy primitives laid out by the Avalanche network fundamentals and its horizontal scalability product suggests the creation of a new validator as a service model that could turn anyone with basic Linux knowledge into a web3 infrastructure service provider with premium access to stake in new launching products that may require their services.
Avalanche capacity for a few hundred thousand subnets and the unlimited number of block-producing validators on the primary network suggest that this market could grow as big or even more significant than Proof-of-Work mining in 2017. With the critical differentiation that validators stake remains highly liquid, easily accessible, and doesn’t suffer from amortization in contrast with the fast aging ASICS and GPUs used in PoW mining.
As subnets are just getting started, this meta is yet to be caught by the broader public, but we can easily see why new and existing capital could flow into creating validators as the best +EV play in the existing staking protocols.
With subnets as the optimal solution for application-specific web3 scaling, the permissionless benefits of running a validator in the network, and the existence of several protocols with >90% staking ratio, it’s not a question of if but when AVAX will end up over 90% staked in validators and face supply shock. All while the demand for subnets grows due to network effects and recognition.
Final Thoughts
Several web2 unicorns changed how their relevant industries function by providing sustainable models that improve a widely used and needed product.
Everyone knows that the world’s largest taxi company owns no vehicles. Avalanche is designed to be the world’s largest web3 infrastructure provider that owns no servers. It creates new primitives and opens a large validation market through an innovative and much needed solution that could unlock the next wave of web3 products and adoption.
Or how Geoffrey Moore would call it — “Cross the Chasm”
