Avalanche introduced subnets to their ecosystem this year, which is meant to be a method of scaling the network to take load off of the C-Chain. The first subnet on Avalanche was the Defi Kingdoms Subnet, which amassed a massive TVL of almost half a billion in just a matter of days after its launch, which was comparable to the TVL of a few entire Layer 1 ecosystems.
The Swimmer mainnet also launched as an AVAX Subnet this year, with a vision of being a blockchain dedicated to gaming.
Intially, a large bulk of the transaction volume on AVAX was coming from a game on AVAX called Crabada, with the transactions occuring on the C-chain. This was a source of congestion on the C-chain, as the in-game transactions happened frequently and at high volumes.
After the launch of the Swimmer Mainnet, a large amount of the transaction volume moved off the AVAX C-chain to the subnet, which greatly reduced the congestion on the C-chain.
The Swimmer Mainnet was also able to customise the gas token of the subnet to be an in-game token called TUS, effectively helping to “burn” TUS as well.
Subnets seem to offer a plethora of benefits and customisability, but what exactly are subnets? The concept of subnets seems to be similar to the PoS (Proof-of-Stake) sidechains that Polygon offers, but there are a few key differences that make them inherently different from each other.
Types of scaling
To understand why subnets or sidechains are needed, we first must understand the two types of blockchain scaling.
Scaling can be classified into horizontal or vertical scaling.
Vertical scaling entails the expansion of a network by adding more power and memory to a system’s core processing unit, which in this case would be scaling the base layer of a blockchain by improving the efficiency of each individual transaction¹.
Horizontal scaling involves the addition of more nodes to the framework of an existing system, which can be seen as a way of outsourcing the transactions to another layer, which serves to improve the efficiency of each individual transaction. Examples of horizontal scaling solutions are methods such as Eth 2.0’s use of sharding¹.
In this sense, vertical scaling may be easier to implement as in the example that a virtual machine is unable to handle a transaction load, all that is required is adding hardware with more power and memory to the virtual machine that is processing the transactions, as the greater memory would allow the virtual machine to process the increased load.
However, the implication of this is that scaling would be limited by the hardware and memory available, which means there can be a cap on the amount of transaction load that can be processed by the system. Horizontal scaling on the other hand, can be used to scale a system almost infinitely, as in the case of a virtual machine, multiple instances of it can be used to increase and spread the transaction load almost endlessly.
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In this case, Avalanche Subnets and Polygon sidechains can be observed to be a form of horizontal scaling, as they both make use of different methods to spread transaction loads to different chains to allow their individual layers to scale. However, a key difference would be that subnets are a method to scale the layer 1 Avalanche network, while Polygon is innately a Layer 2 solution for its Layer 1 blockchain, which is Ethereum.
Polygon Sidechains
Polygon is a Layer 2 that is built on top of Ethereum and is meant to help scale Ethereum horizontally, through its use of scaling solutions like sidechains and plasma. Sidechains are essentially a separate blockchain used to scale Layer 1s like Ethereum. Although Polygon now has expanded to include multiple scaling solutions such as rollups, for this analysis the focus will be on sidechains.
Mechanism
Polygon’s PoS is an EVM-compatible Ethereum sidechain, just as the name suggests, the sidechain processes transactions in parallel with the main chain. Polygon’s sidechain consensus mechanism is Proof of Stake. It has its own set of permissionless validators, as sidechains can choose their consensus mechanism, be it PoW or PoA etc. Polygon PoS helps scale Ethereum by taking transactions and processing batches of transactions on its own blockchain, reducing the load on the Ethereum network and making it faster.
Polygon PoS uses the two-peg mechanism for transfers between Ethereum and its blockchain, and periodically publishes its state to the Ethereum main chain, which is a process called checkpointing. Checkpointing also provide ‘proof of burn’ in the withdrawal of assets, which can be helpful in the event of a broken Polygon PoS chain, as the validators would be able to fork from the last good block saved in the checkpoint².
Benefits of Sidechains
Shared Security
Polygon allows for the building of sovereign Ethereum chains, as its shared security model is optional³. As a result, parties do not need to sacrifice any independence or flexibility, and the parameters of its sidechains are highly customisable. Such stand-alone chains would be secured by validators connected to the main blockchain via bridges.
EVM-compatibility
Since Polygon PoS is also EVM-compatible, this means it would be much easier for developers to move their DApps to Polygon, also enabling Polygon to benefit from the already well-established large community of developers on Ethereum, as they would already be familiar with their existing tools as developing in Polygon is akin to developing in Ethereum.
Ethereum ecosystem Interoperability
Polygon has also suggested that it is working towards being the ‘Internet of blockchains’, with plans of building an ecosystem of Ethereum-interoperable blockchains together with its separate blockchains.
These blockchains would be used to distribute load from the Ethereum main network to cut transaction costs and increase transaction speeds. Self-sovereign chains would also be able to enjoy this interoperability with the Ethereum main chain, even if they opted out of Polygon’s security services.
Sidechain Summary
Polygon PoS offers developers familiar with the Ethereum ecosystem a similar environment to develop in, and its use of sidechains allows for near infinite scalability, which would in turn help boost Ethereum’s throughput without sacrificing security.
AVAX Subnets
Subnets on Avalanche can be seen as separate blockchains from the main Avalanche chains (P,X,C Chains), and can function as a Layer 1, or even a Layer 2. Subnets allow for application specific blockchains, as they can function on their own and process transactions separately from the main Avalanche network.
Mechanism
A subnet works by maintaining a dynamic set of validators working together to achieve consensus on the state of a set of blockchains. These subnets are processed in parallel with the main avalanche network, which allows for potentially infinite scalability. A subnet is validated by a group of validators that are already present on the main Avalanche chain, and the validators can be chosen by the subnet or incentivised to validate the subnet.
Benefits of Subnets
Customisability & Regulatory Compliance
The implications of allowing the choice of validators can be useful for enterprises who wish to launch their own blockchains, as this allows them to set up a validator on the main network for them to run their own blockchain, as this would reduce the chances of any validator misbehaviour as they can be in control of who validates transactions on their own enterprise subnet. Another implication would be being able to be more regulatory compliant, as allowing subnets to choose their validators allows them to enforce certain conditions on who can validate them. This allows subnets to possibly only allow validators who have passed KYC/AML checks, or even validators who are in a certain country⁴. This would allow for subnets who wish to be compliant with local regulations to shape and choose their conditions to ensure that their blockchain is set-up in such a manner.
EVM compatibility & Code Flexibility
Additionally, subnets are Ethereum Virtual Machine (EVM) compatible, which means that they allow for the easy migration of protocols or decentralised applications built on the EVM onto their own subnets⁴. Additionally, Avalanche has also created something called a ‘CHAINRPC VM’ which allows for custom virtual machines to be built on subnets as well. These customs VMs can also be run with any coding language if the necessary libraries are available, which allows for enhanced developer flexibility. Avalanche subnets also enable subnets to make use of their Avalanche consensus mechanism, which allows for secure validation and fast transaction speeds.
Interoperability
Another selling point of subnets is interoperability between subnets⁴. Avalanche has stated that in the near future, subnets would be able to transfer tokens between each other without the need of any bridges. This means that subnets would make up an entire ecosystem, and this would allow for ease of liquidity transfer between different blockchains, which would enable the entire ecosystem to benefit as users can move assets between different blockchains seamlessly and without much delays.
Flexibility & Customisability
The main draw of subnets, however, is the high degree of flexibility and customisability⁴. Subnets function as individual blockchains separate from the main Avalanche chain, and they have the ability to choose their own logic and fee structure in their individual subnets. This allows for the creation of application specific subnets, and this also means that users of subnets do not have to pay fees in AVAX tokens, but can pay for subnet fees with the subnets’ token of choice.
This can be especially useful for games that wish to implement blockchain technology, as these subnets would allow for games to use their in-game tokens as gas in the subnet.
In the case of the DFK subnet, gas fees for any in-game transactions, like harvesting from LPs or making swaps are paid in the native token JEWEL.
This is similar for Crabada on the Swimmer Mainnet as well, which has its gas token in TUS, which is an in-game token.
The use of TUS as the gas token for the Swimmet Mainnet has helped contribute to a lowered rate of token inflation for TUS, which can be beneficial to the in-game economy of Crabada by helping the token to retain its value.
The features that subnets offer can help to meet the needs of various different parties, as there can be subnets that serve the needs and cater to the niches of different parties, from gaming to derivatives or even DeFi subnets.
Subnet Summary
The subnets of Avalanche allow the network to scale horizontally, as DApps can migrate to their own individual subnets for better control of their own protocols, which simultaneously removes load from the Avalanche network. Applications that take up a heavy load of transactions on the main network, like Crabada, when migrated to their own individual subnets, would allow for faster network speeds on the main network, all while allowing for greater flexibility for individual projects to cater to their specific audiences.
After Crabada migrated to the Swimmer Mainnet, the total volume of transactions on the C-chain dropped significantly, as the subnet was now bearing the bulk of the load.
As such, subnets are an innovative way to scale a network and provide projects with application specific blockchains, all while maintaining and ensuring congestion on the main network is kept to a minimum.
Subnets vs Sidechains
Validators
Subnets differ from Polygons’ PoS in the fact that they do not require their own set of validators, as they can get validated from the validators that are on the Avalanche main chain. This allows for subnets to be constructed at a relatively low cost, as they just need to use the Avalanche subnet architecture to migrate over their applications or build on them, rather than needing them to lock up governance tokens to validate their own transactions.
Fee Structure & Payments
A key part of Avalanches’ subnets is the ability to allow subnet owners to choose what token they wish to use as gas fees. This differs from soverign sidechains on Polygon, as they still need to use the MATIC token to pay for gas fees to secure the network on Polygon. While both subnets and sidechains might provide flexibility and high degrees of customisability, subnets can be seen to have more niche use cases such as in gamefi, as the value of the gas tokens in subnets are likely to be more stable than those blockchains in Polygon’s ecosystem.
This is because if in game tokenomics are designed properly, it is possible to maintain the price of subnet tokens as the fees structures and conditions in the subnet would already be set at the optimal level to maintain the in game economies. On the other hand, the price of gas in other blockchains in the Polygon ecosystem might fluctuate wildly if the price of the gas token, MATIC, moves in an erratic manner.
Application Specific Scaling
Polygon also can get congested at times, even though it is supposed to be a scaling solution for Ethereum. In January, the transaction fees on Polygon skyrocketed due to the massive number of transactions from the NFT Sunflower Farmers game. Fees were seen to have increased from less than 0.01 USD to almost 0.5 USD, which is a massive increase for a network known for its high transaction throughput and low transaction fees⁵. In instances where there is a high volume of transactions on a chain, gas fees can still balloon even if the chain itself is a sidechain.
Arguably, a model like Avalanche subnets would have allowed NFT Sunflower Farmers to have their own game specific subnet, which would be separate from the main chain and would hence not tank the speed of the main chain as all transactions would be processed on an entirely different blockchain.
EVM vs VM
Polygon’s vision of interoperability is tied to the Ethereum ecosystem; hence it is no surprise that it is positioning itself mainly to be multichain compatible with EVM-compatible blockchains.
However, this might prove to be less attractive to developers who do not have a background of programming in Solidity but wish to enter the space, as they might wish to continue developing or building in the languages they are comfortable in. As such, subnets might be more useful in this aspect, as they allow for any type of virtual machine, and are also compatible with multiple different coding languages.
Conclusion
Avalanche subnets might be the next big scaling narrative in crypto. In theory, subnets provide a plethora of benefits like flexibility and control over an important aspect of blockchains which is the fee structure and validator requirements, as well as seamless interoperability with other blockchains within its ecosystem.
Although there has been scepticism on how they differ from the concept of sidechains, subnets seem to be an innovative and exciting scaling solution that offers tons of flexibility. While it might seem that Polygon sidechain scaling loses out in some of these aspects, it can be noted that they are also developing other forms of scaling such as ZK rollups, which are a relatively new technology which has the potential to be extremely scalable as well. Polygon has also recently developed Supernets, which function in a similar way to subnets, allowing for customisation and the construction of application specific blockchains.
The future has a high chance of being multichain, and as such it would not be good to stick to a single blockchain, but rather embrace a whole suite of blockchains that might serve and cater to the needs of different groups of users.
References
- System Design — Horizontal and Vertical Scaling — GeeksforGeeks
- Polygon PoS Chain — A Commit Chain And Not A Sidechain? — Finematics
- What is Polygon (MATIC) and Why It Matters for Ethereum — Decrypt
- Subnets Overview | Avalanche Docs (avax.network)
- Polygon Under Accidental Attack From Swarm of Sunflower Farmers
