$AVAX | Even the largest Avalanche is triggered by small things..!
Today we will provide an in-depth analysis of the Avalanche network and AVAX as a crypto asset. This paper provides comprehensive coverage of Avalanche and AVAX products currently available on the market.
Introduction
Avalanche is a Proof-of-Stake cryptocurrency that utilizes the “Avalanche consensus mechanism”. It is a blockchain network with a transaction throughput of 4,500 transactions per second (TPS) and the first world’s smart contract platform capable of confirming transactions in less than one second.
Avalanche is a high-performance, scalable, configurable, and secure blockchain platform designed for the purpose of developing application-specific blockchains, scalable decentralized apps, and sophisticated digital smart assets. Indeed, the Avalanche protocol offers a variety of newer, smart-contract-focused projects with the goal of accelerating the adoption of blockchain technology via the use of rapid technologies.
The project has been founded by Ava Labs in 2018 by Emim Gun Sirer, a Turkish-American computer scientist and associate professor at Cornell. The firm is headquartered in New York City and Miami and was founded with funding from Andreessen Horowitz, Polychain Capital, Initialized Capital, and angel investors including AngelList’s Balaji Srinvasan and Naval Ravikant. The launch of the project has been performed in 2020.
Recent initiatives include the Avalanche Foundation’s $180 million incentive scheme to attract decentralized finance (DeFi) assets and applications to the network. Aave and Curve, two leading DeFi protocols, will be among the first to join the endeavor, along with BENQI, an Avalanche-native liquidity protocol.
Team
Ava Labs today employs more than 110 employees, with over half devoted exclusively to technological research and development. According to Emin Gun Sirer, CEO and creator of AVA Labs, almost everyone on his team has an ETH background. Other latest information about the team can be found directly from their Medium.
Technology
The Avalanche network is composed of many blockchains in which each chain is a virtual computer in its own right, with support for a variety of custom virtual machines such as EVM and WASM. This is made possible thanks to the gRPC server that enables multiple languages to be used.
As a result, each chain may include case-specific functionality. Every virtual computer is linked to a subnet with its own set of incentives for the validators; it is a bespoke blockchain network comprised of “a dynamic group of validators cooperating to create consensus.” As a consequence, Avalanche may be considered a “platform of platforms”, consisting of thousands of subnets that collaborate to create a single interoperable network.
Avalanche is pre-configured with three blockchains: the Exchange Chain (X-Chain), the Platform Chain (P-Chain), and the Contract Chain (C-Chain).
All 3 blockchains are validated and secured by the Primary Network.
The Primary Network is a dedicated subnet that confirms Avalanche’s built-in blockchains: all the subnets are part of it.
members. To join the Primary Network, an individual must invest some Avalanche tokens. As a result, all validators of all blockchains are required to verify Avalanche’s built-in blockchains and to have staked Avalanche tokens (at least 2,000 AVAX in the Primary Network)
The different chains of Avalanche can be categorized as follows:
- The C-Chain is an Avalanche-powered instance of the Ethereum Virtual Machine. By using the C-API, Chain’s users may build smart contracts and do any other task that would be possible on Ethereum.
- The default subnet is the only one on the Avalanche platform that is permissionless. By enrolling on the P-chain, you may construct your own permissioned subnets on the Avalanche platform.
- NFTs are integrated directly into the X-Chain transaction structure. Its architecture is really more akin to EIP-1155 (Collectible NFTs) than ERC 721. EIP-1155 is a design generalization of ERC721 in any case.
Detailed explanation — Consensus mechanism
The Avalanche Consensus Protocol is a collection of four processes — Slush, Snowflake, Snowball, and Avalanche — that build on one another and grow more secure over time.
In a nutshell, the Avalanche Consensus Procedure is a one-of-a-kind voting protocol based on repeated random subsampling: validator nodes question other validators in a random way until the network finds consensus and chooses whether to accept or reject an incoming transaction. In this sense, the consensus is inspired by gossip algorithms, and its safety is guaranteed by utilizing a metastable procedure.
In contrast to the conventional linear “chain”, the Avalanche Consensus Protocol utilizes Directed Acyclic Graphs (DAGs) to give a relative sequencing of transactions.
The linear blockchain is technically a directed acyclic graph (DAG), in which each block is a vertex with one ancestor, the block before it, and one descendant, the block following it.
Avalanche’s DAG is more versatile and allows for the existence of numerous ancestors and descendants for vertices. This results in greater speed since block generation can be parallelized, and it also removes the requirement for transaction competition to enter the next block and miner competition to locate the next block.
Multiple valid blocks at a given “layer” enable faster confirmation times because there is no performance limit on ensuring one block is connected before another one is produced. Additionally, there is little waste during block propagation.
The consensus algorithm is based on the Snowball Method, which utilizes:
- a sample size of k
- a quorum size of α
- a decision threshold of β
After interrogating k nodes on the network, a node may adjust its preferences using the Snowball method: if it encounters a certain statement or phrase α or more time in the responses to the query, it will alter its preference for that statement.
To decide on the statement or transaction, that node needs to hear that statement at least α times after querying k nodes on the network β times in a row, getting β consecutive majority counts of the statement.
Additionally, the Snowball approach is scalable, since nodes only query k nodes at a time. Regardless of the number of nodes in the network, each query is an interaction with a set number of nodes.
A node only queries k nodes about a given transaction once, and if it receives an α majority approval for that transaction, it gives it a “chit”.
A chit is just a boolean value (or 0 or 1) indicating if the node obtained a majority for the transaction. If the transaction receives a chit, it must increase the confidence and successive success counters of its forerunners.
The confidence of a transaction is equal to the total of its descendants’ chits plus its current chit. Moreover, the number of consecutive successes of a transaction is equal to the number of times it or its descendants obtained a successful majority question answer.
To keep things simple, we’re going to treat each transaction as its own node in the DAG: if a transaction is requested and does not obtain the required number of votes, it does not receive a chit: any ancestors that are not accepted have their success counts back to zero.
On the other hand, confidence remains unchanged since additional descendants of that transaction may still have chits. Without the chit, the transaction is essentially equivalent to adding 0 to the total of an ancestor’s descendent chits. Transactions become “accepted” when their consecutive success counts reach β.
Given the fact that transactions build on one another, you do not need to query each transaction at least β times before making a judgment about it. Each “child” of a transaction provides further evidence that it is genuine, which is how this propagation of trust and success works.
When voting, nodes vote yes to a transaction if it has the most confidence of any transaction in the conflict set, and vote no to the transaction if it does not have enough confidence.
The Avalanche Consensus Protocol’s primary advantage is its speed and determinism of finality. Unlike Nakamoto Consensus networks, which depend on time passing and the generation of additional blocks to increase confidence that your transaction will not be reversed as a result of a fork, Avalanche acceptance should take just a few seconds and is irreversible.
The security (ensuring that two honest nodes agree on the state of a transaction) is probabilistic and is controlled by the network’s parameters: nodes must stake the native token AVAX in order to participate in the consensus mechanism as validators, and the more a node stakes, the more likely it is to be queried.
To have a proper visualization and simplification of how the Avalanche consensus work, we recommend you to have a look on this video of Decentralized Thought , that can help you in further understanding. (Credits to @don_wonton)
https://www.youtube.com/watch?v=3TAgLJHTYRg
Token distribution
The token distribution is shown below. The first 360 million AVAX were issued upon launch, with the remaining 360 million distributed over decades. The vesting durations for the tokens created range from 1 year to 10 years.
Staking Incentives —50% of the tokens have been issued as staking rewards to validators.
Team — 10% of the tokens are distributed to founder and non-founding members of AVA Labs. Team members, including founders, who vested tokens before to launch will voluntarily re-lock all tokens for four years.
Seed Sale — 2.5 % of the tokens were allocated. The token price was $0.33 and the vesting schedule was 10% on mainnet debut, then 22.5% every 3 months for a year.
Private Sale — 3.5% of tokens were for private sale participants. The price per token was $0.5 and the vesting schedule was 10% on mainnet debut, then 22.5% every 3 months for a year.
Public Sale
- Option A1–1% of the tokens were for participants in Option A1. The price per token was $0.5 and each user could only get 25k tokens. Tokens have a 1-year vesting schedule with 10% issued upon mainnet launch and 22.5% distributed every 3 months for a year.
- Option A2–8.3% of the tokens were for Public Sale Option A2 participants. The price per token was $0.5 with a $2.5 million maximum allotment per user. Tokens have a 1.5 year vesting schedule, with 10% issued upon mainnet launch and 15% distributed every 3 months for 18 months.
- Option B — 0.67 percent of tokens were for participants in Option B. The tokens cost $0.85 each and had no vesting time.
Foundation — 9.26% of tokens go to the Foundation. These tokens are utilized for marketing, bounties, incentive programs, and more. They are 10 year vesting.
Community and Development Endowment — 7% of the tokens go to this fund. These tokens go to people and organizations working on Avalanche’s core tools and infrastructure, as well as marketing and community promotion. Avalanche Hub, Avalanche Ambassadors, Avalanche-X awardees, etc. Grants given have a 1-year vesting term.
Testnet Incentive Program — 0.27%. Participants who verified in Avalanche’s incentive testnet programs get these tokens. Participants might earn up to 2000 AVAX by completing tasks. These tokens are year-locked.
Strategic Partners — 5% of tokens go to strategic partners. These tokens are granted to groups, organizations, and corporations who use the Avalanche technology and network to develop businesses. Entrepreneurs aiming to develop businesses based on Avalanche or financial institutions trying to tokenize assets on Avalanche via their own subnets may be examples. The vesting term is 4 years.
Airdrop — 2.5% These tokens are assigned to be delivered to different groups in order to increase the Avalanche community. For example, airdrops to crypto groups, Reddit communities, developer forums, and even exchange users.
Token utility
The Avalanche token (AVAX) is critical for network security, paying for network operations, and facilitating atomic asset exchanges (between subnetworks). AVAX functions similarly to Ethereum’s “gas,” but with added usefulness such as governance aspects.
Indeed, Avalanche validators benefit from a plethora of value streams in addition to pure staking. Governance will determine, among other things, the minting rate (how many coins will be minted, how quickly, but not the overall number, which is set at 720M) and the staking rate.
AVAX wants to be the universal unit of account and, ideally, a globally acknowledged currency, which makes it valuable; nevertheless, dApps built on Avalanche may have their own tokens, which will pay fees to Avalanche validators in their original currency.
AVAX transaction fees are burnt, hence increasing AVAX scarcity. However, the reward computation will take into consideration the current circulating supply and will guarantee that the hard limit is never exceeded. In any case, since transaction fees are burnt on the network, this constantly reduces the overall circulating supply, allowing for increased staking rewards without surpassing the limit.
Ecosystem
Since its debut and the announcement to be an Ethereum-compatible blockchain, Avalanche has greatly developed its ecosystem. Previously, the most major issues confronting Avalanche and other Layer-1 blockchains were a lack of infrastructure, tools, and interoperability with other blockchains, which operated as a barrier between the platform and widespread developer adoption. Avalanche addressed this problem by implementing cross-chain interoperability efficacy through their bridge solution.
The Avalanche Bridge allows users to transfer ERC 20 tokens between Ethereum and Avalanche’s C Chain, which has garnered significant interest from the DeFi community owing to its compatibility with the EVM (Ethereum Virtual Machine). Numerous Ethereum-based applications, including Sushiswap, TrueUSD, Reef, and bZx, have subsequently connected with the Avalanche blockchain.
DeFi
The Total Value Locked (TVL) measure is critical for DeFi growth since it indicates how much value is put in those protocols.
DefiLlama data shows that Total Value Locked inside the AVAX ecosystem increased from $9.1 million to $10.77 billion in only one year, a 118.3k% gain. The Avalanche ecosystem now supports 156 DeFi protocols.
However, it is still down 20% from its all-time high of $13.79 billion in December 2021, as seen below:
The top five AVAX DeFi protocols (Aave, Trader Joe, Benqi, Curve, and Multichain) account for 71% of AVAX TVL.
While $10.85 billion may seem to be a large sum of money, it is really rather little in comparison to other blockchains: indeed, at the time of writing, the total market capitalization of all blockchains measured in TVL is $208.57 billion. As a result, AVAX’s TVL is ranked fourth, accounting for approximately 5% of total TVL.
According to CoinMarketCap, AVAX has a market valuation of $22.2 billion and it is still down 37% from its late November 2021 high of $144.85.
Here below we have decided to cover some of the most interesting project developed in the Avalanche ecosystem:
Aave is a non-custodial protocol that allows users to earn interest on deposits and borrow digital assets. It is open source and free to use. Aave Limited, the company’s corporate entity in the United Kingdom, was granted an Electronic Money Institution license in July 2020. Stani Kulechov was the man behind the creation of Aave.
The Aspen Protocol is a decentralized protocol that uses oracles and incentive platforms to create synthetic assets that mirror the price of conventional assets.
Beefy.Finance is a yield farming optimizer that allows users to generate compound interest on their cryptocurrency holdings by using a variety of strategies. In order to avoid the expenses associated with manual optimization, the protocol algorithmically produces yield possibilities. This eliminates the need for users to engage in active farming.
BENQI is an algorithmic liquidity market protocol that enables users with a borrow and lend marketplace for Avalanche assets. In addition to Avalanche, Ascensive Asset, Dragonfly Capital, Mechanism Capital, and Avalanche are among the strategic investors on their list.
CURVE is a liquid exchange liquidity pool that enables swaps with little risk, minimal slippage, and minimal charge structures. This is an appealing manner of trading for both users who are exchanging stablecoins and liquidity providers that get their income from trading fees and interest rates charged to their customers.
Pangolin Exchange is a decentralized exchange for Ethereum and Avalanche assets that is built on top of Avalanche and utilizes the same automated market model (AMM) as Uniswap. It provides a quick settlement, cheap transaction costs, and a democratic distribution of the funds in a secure environment.
Reef is an EVM-compatible chain that encourages interoperability by integrating Defi from Ethereum, Polkadot, Avalanche, Cosmos, and the Binance Smart Chain, among other cryptocurrencies and blockchains. It is efficient, scalable, and does not need any wasted mining. It also has a nominated proof-of-stake consensus developed using Polka Substrate, which makes it more secure.
SushiSwap is a decentralized exchange and automated market-maker (amm) constructed on the Ethereum blockchain. It was created as a result of a split on the now-rival Uniswap exchange, which was founded in 2011.
Trader Joe is a decentralized trading platform and automated market-maker (amm) on the Avalanche blockchain that facilitates the exchange of two tokens amongst one another. By merging DEX services with DeFi financing, the platform is able to provide leveraged trading.
Trader Joe, which operates similarly to an Avalanche-based Uniswap, is a one-stop trading platform. Combining DEX functionality with DeFi lending options to offer a comprehensive suite of products, Trader Joe leverages comparable AMM technology as Compound and Cream to allow farming, staking, token swaps, and leveraged lending opportunities for Avalanche DeFi customers.
Trader Joe has established a reputation as the go-to DEX for AVAX holders trying to maximize the value of their assets and just surpassed Pangolin to become the biggest DEX on Avalanche: it intends to attract the attention of all DeFi users and establish itself as the greatest money-market protocol on Avalanche as a result of the ecosystem’s development and the addition of battle-tested technologies comparable to Compound and Cream Finance.
What’s next?
There is a lot of expectations for 2022 in the whole blockchain and crypto domains: in this sense, Avalanche is already positively impacted by its Foundation’s Blizzard fund has committed $200 million to network development, expansion, and innovation. The fund was launched in early November 2021 and includes investors such as Ava Labs, Polychain Capital, Three Arrows Capital, and Dragonfly Capital.
Perhaps the most compelling argument in favor of any Layer 1 is its capacity to incorporate real-world use cases for social and economic advantage.
Avalanche has a short operational history and has yet to be confirmed over an extended period of time. In late September 2020, the network deployed the genesis block. Despite extensive examinations, the crypto network is continually evolving and making critical design, functionality, and governance choices.
Disclaimer
This is not in any case financial advice, the goal of my research will always be to dive deep into projects and study it from different angles, I do include personal opinion based on my experience with similar projects that I have recently studied.
I am and will always be open to discussion.
Follow us on Twitter:
@daolectic
Please always do your own research before investing into anything.
Join Coinmonks Telegram Channel and Youtube Channel learn about crypto trading and investing
