A dive into the Avalanche ecosystem, AVAX Token, the protocol’s architecture, tokenomics and more.
Overview
Avalanche (previously abbreviated as AVA) is an open-source platform designed for high-performance dApps (decentralized applications), interoperable blockchains and smart contracts. The platform enables the development of blockchain-based solutions on a large scale with customizable application-specific deployments.
Background
Founded by Emin Gun Sirer and Maofan Yin the company has a team of experts in computer science, economics, finance, and law with offices in New York City and Ithaca, New York. Both the founders have a background in Computer science, hold PhDs and have worked at Cornell University, NY.
Emin Gün Sirer is one of the prominent personas of the crypto market, considering his participation in the cypherpunk movement. His research can be found on Hacking Distributed and he’s a vital member of the IC3 (the Initiative for Cryptocurrencies and Contracts).
After studying Satoshi Nakamoto’s invention in the early years, Emin discovered one of the biggest flaws in Bitcoin termed as ‘selfish mining’. The power consumption and non-eco friendly mining techniques put Emin off and he researched for better solutions birthing Avalanche.
Protocol Architecture
Brief
Avalanche uses Proof-of-Stake (PoS) consensus mechanism to validate transactions. The environment-friendly mining strengthens the network with 4500 transactions-per-second (TPS). With a mixture of Proof-of-Work’s robustness, scaling and decentralization and Stake’s fine speed, energy efficiency and quick functionality the blockchain boasts of a revolutionary consensus engine.
Subnetworks
According to Avalanche’s whitepaper “A subnetwork, or subnet, is a dynamic set of validators working together to achieve consensus on the state of a set of blockchains”. Every blockchain is validated by a subnet. Subnets validate arbitrarily multiple blockchains and a validator can be a part of arbitrarily numerous subnets. A subnet concludes who may enter it, and may necessitate that its constituent validators have certain predetermined properties. The platform endorses the production and operations of arbitrarily multiple subsets. To make another subnet or to join an existing one, participants need to pay fees in $AVAX.
Additionally, there’s a Default subnet that is validated by all validators. In order to validate any subnet, one must also validate the Default subnet which validates a set of pre-defined blockchains, including AVAX’s native blockchain.
Advantages of the Subnet Model:-
- In contrast to other blockchains where every validator must validate every transaction, Avalanche provides its validators with the flexibility of opting out of blocks they don’t want to validate. This reduces network congestion and minimizes computational power consumption.
- Since subnets decide who may enter them, participants can create private subnets. That is, each blockchain in the subnet is validated only by a set of trusted validators.
- With customizable subnets, each validator can have certain similar or different properties. For instance, a customized subnet can be created. Wherein validators can have certain geographical similarity to abide by certain jurisdictions for compliance reasons.
Virtual Machine
The interface, state and behavior of a blockchain is defined by its virtual machine; it acts as a blueprint. Avalanche Virtual Machine (AVM) is the network’s built-in virtual machines. It defines an application for creating and trading digital assets.
The virtual machine defines the contents of a block including the state transition that occurs when a block is accepted. It also determines the APIs exposed by the blockchain and their endpoints and the data that is persisted to the disk.
One can create new blockchains using an existing virtual machine. Multiple blockchains can run on the same virtual machine simultaneously and can still be independent from others and maintain their own state.
Protocol Properties
- Scalability
Avalanche is designed to handle large volumes of transactions and network pressure. The core consensus engine is able to support a global network of potentially hundreds of millions of internet-connected, low and high powered devices that operate seamlessly, with low latencies and very high TPS.
- Secure
Avalanche is one the first permissionless systems with advanced security fences and is built around a high security ecosystem. While protocols based on Proof-of-Work consensus mechanisms are vulnerable to 51% attacks, Avalanche provides a parametrized automated system that degrades the attackers position even when 51% of the miners are Byzantine.
- Decentralized
Avalanche runs and supports decentralized blockchains through its distributed network. Participants in the platform collectively act as a decentralized reserve bank. This implies a commitment to multiple client implementations and no centralized control of any kind. The ecosystem is designed to avoid divisions between classes of users with different interests making no distinctions between miners, developers, and users.
- Governable and Democratic
Avalanche’s $AVAX token keeps the platform distributed and community-driven. All users can connect to its network, participate in validating transactions and vote for first-hand governance. Token holders are eligible to determine financial parameters and make system-related decisions.
- Interoperable and Flexible
Avalanche is intended to be an all inclusive and adaptable infrastructure for multiple blockchains and digital assets while $AVAX toke is utilized for security and accounts for values traded. The system is designed to work in an unbiased fashion tyo support the blockchains built on top of it. The platform is architectured for interoperability and supports a number of scripts/languages and virtual machines for quick and seamless integrations.
Competitor Analysis
Titled as the Ethereum Killer of 2020, Avalanche has a few competitors in town. Here’s a quick review of the same!
Cosmos
The consolidated accomplishment of the open-source ecsystem, decentralized record sharing, and public digital forms of money has propelled an agreement that decentralized protocols can be utilized to profoundly improve economic infrastructures.The current top digital assets in the market are historical examples of decentralized assets while Cosmos is a part of the next-generation blockchain and digital asset ecosystem.
Cosmos is a heterogeneous network of many independent parallel blockchains, each powered by classical BFT consensus algorithms like Tendermint. It’s a novel blockchain network architecture that addresses problems associated with Bitcoin and Ethereum such as scalability. Cosmos plans to have thousands of Zones and Hubs that are Interoperable through the Inter-Blockchain Communication Protocol (IBC). Cosmos can also connect to other systems through peg zones, which are particularly designed zones that are customized to interact with other ecosystems such as Ethereum and Bitcoin. (Source: Cosmos Whitepaper)
Polkadot
Time and again blockchain technology has proved its utility in several fields including “Internet of Things” (IoT), finance, governance, identity management, web decentralisation, asset-tracking and more, although no significant adoptions of the technology have been recorded yet. Possibilities are the gaps in the decentralized ecosystems stem from two of its nascent problems: scalability and isolatability. That said, Polkadot has been designed to provide meaningful improvements in each of these classes of problems.
Polkadot is also an heterogeneous blockchain protocol that connects multiple specialised blockchains into one unified network. It achieves scalability through a sharding infrastructure with multiple blockchains running in parallel, called parachains, that connect to a central chain called the Relay Chain. The relay chain validates the state transition of connected parachains, providing shared state across the entire ecosystem. Polakadot is aiming to become a scalable, heterogeneous multi-chain protocol with the potential to be backwards compatible to certain, pre-existing blockchain networks. (Source: Polkadot Whitepaper)
| Token | Cosmos | Polkadot | Avalanche |
| TPS | 1000 | 1500 | 4500 |
| Decentralization | 200 nodes | 1000 nodes | 10000+ nodes |
| Consensus Mechanisms | BFT | NPoS | PoS |
| Market Cap | $4,334,485,735 | $23,927,654,614 | $3,737,328,291 |
Token Economics
AVAX as the native token of the avalanche platform is used to secure the network. It’s also utilized to pay the fees related to the ecosystem and acts as the basic unit of account between the multiple blockchains deployed on the larger Avalanche network. AVAX plays a vital role in the governance of Avalanche. The reward rates are subject to governance, within pre-established boundaries. This allows token holders to choose the rate at which $AVAX reaches its capped supply. Currently, AVAX has a capped-supply of 720M tokens and a total circulating supply of 360M AVAX tokens.
A few key properties of the $AVAX economics model:
- The resources spent and rewards accumulated by a validator for staking are proportional to that validator’s total stake.
- Being decentralized Avalanche has no “rich-get-richer” compounding effects.
- Validators that lock their stake for longer are rewarded more as they are incentivized to stay online and operate correctly (Rewards are based on proof-of-uptime and proof-of-correctness).
- While capped, $AVAX is still governable. The rate at which the maximum cap is reached is subject to governance.
- To increase scarcity of $AVAX fees are not paid to any specific validator instead, they are burned.
Price Performance
Launched in September 2020, AVAX was traded at $5.60 in Q3 of 2020 and managed to maintain support until late december when it fell to $2.80 and rose back up hitting an all-time-high in January 2021 at $13.72.
Since January 2021, AVAX has conquered multiple ATHs. The most recent one is a 50X jump from its initial launch price at $49.6
It’s too soon to tell where the token is headed next, if it will stabilize at its current position, find new ATHs or drop back to its lows. Stay tuned for more updates!
Conclusion
In its recent public token sale, Avalanche raised $42 million, and within six months of its launch, AVAX has managed to rank in the list of top #20 cryptocurrencies on CoinMarketCap. With a strong team and a stronger technology, the scope of Avalanche project cannot be undermined.
The project offers high utility to the retail and enterprise markets in the cryptospace.
With its Visa like TPS and thousands of validators, the decentralized technology doesn’t only cater for payments in its native token, but also any other asset including stablecoins.
It offers a highly customisable, interoperable platform for other projects to build/export blockchains. The fixed capped supply of AVAX token creates assured scarcity and won’t suffer from the continuous dilution through inflation like other staking platforms since subnets are all paid in AVAX which are burned, which reduces the total supply and guarantees an increase in price with increase in demand.
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