CAI’s first constituent: AVAX
CAI, Colony Avalanche Index, is the benchmark index for investors wanting to get exposure to the Avalanche ecosystem. It will be composed of the native token AVAX, and the most prominent projects in the ecosystem.
CAI weights the assets by market cap, and it also caps maximum weight of a single asset on 50%, to allow enough weight for other tokens. AVAX will be capped at 50%.
In this article, we will detail AVAX utility and look into the factors that make it a good long-term investment.
What is AVAX?
AVAX is Avalanche’s native token with a capped supply of 720 million. It is used to secure the network through staking and to pay for fees that are burned as a deflationary mechanism, benefiting the wider-Avalanche community. AVAX also serves as the common unit of account for all subnets, improving interoperability.
An incredible store of value
Scarcity:
An important feature of a store of value is scarcity. Unlike most other staking platforms which have an unlimited supply and continuously increase their supply at a compounded rate, AVAX has a fixed capped supply of 720 million.
Compounding the value derived from staking is the AVAX deflationary token mechanism. AVAX tokens used to pay transaction fees and subnets’ creation are burned from the supply, permanently lowering the amount of AVAX in circulation. This further increases the scarcity of AVAX for all token holders and creates a deflationary pressure.
Utility:
Scarcity alone is not enough to be a good store of value, there must be a high demand. Avalanche offers incredible utility, not only for individuals but also for institutions. AVAX has multiple use cases:
- Staking AVAX:
Avalanche primary network and all the subnets, require validators who own and stake AVAX tokens as collateral. That isn’t to say one has to be a validator to get rewarded for staking AVAX. AVAX staking rewards are also accessible by delegating one’s stake to a validator to earn a percentage of the staking rewards.
Right now, roughly 64% of AVAX tokens are staked (with around 9% APY), which also helps reduce the available supply to sell. And based on the supply/demand mechanics, it is safe to say that as supply falls, and demand stays the same, AVAX price will increase.
- Paying transaction fees with AVAX:
Avalanche is called the common unit of account within the ecosystem. In other words, AVAX is the network’s default currency. All transaction fees are paid using AVAX, and it’s also the common currency between subnets. Using AVAX between subnets is important because it helps interoperability between subnets that would otherwise use their own internal cryptocurrencies.
As the ecosystem grows, we will see a further increase in transactions, leading to a higher demand for AVAX, and therefore the number of AVAX burned, further reducing the total supply.
- Creating tokens and subnets using AVAX:
Avalanche allows you to create custom tokens and blockchain networks, called subnets. Developers can leverage the platform to deploy DeFi protocols, games and NFTs, amongst a myriad of other options.
Creating custom tokens, launching smart contracts, or generating subnets require AVAX payments. Subnets, in particular, are subscription-based with recurring AVAX payments.
Subnets are one of Avalanche’s main breakthroughs, as it allows institutions to migrate on-chain easily and experience the power of Web3. As Web3-native financial applications will increasingly become the foundation of the global financial system, subnets are the best instrument for institutions to build, on the blockchain, the premier financial infrastructures of the future. One can only predict the high demand this could place on AVAX to generate these innovative subnets and have the ability to scale infinitely.
An immense growth ahead
In less than 2 years, Avalanche has managed to attract developer teams, individuals and even institutions due to the power of its scalability, security, and innovative consensus mechanisms. With the platform designed for the scale of global finance, providing excellent utility, we will continue to witness exponential growth of the Avalanche ecosystem and an unceasing demand for AVAX.
About Avalanche
Avalanche is the fastest smart contracts platform in the blockchain industry, as measured by time-to-finality, and has the most validators securing its activity of any proof-of-stake protocol. Avalanche is blazingly fast, low cost, and green. Any smart contract-enabled application can outperform its competition by deploying on Avalanche. Don’t believe it? Try Avalanche today.
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Disclaimer:
Provided for informational purposes only, this does not constitute professional and/or investment advice or financial advice. Please conduct your own research to properly evaluate the risks and benefits of any project.
