Protocol Overview: Avalanche 2024

Summary

Avalanche is a heterogeneous network of high performant blockchains. Avalanche's standout feature is its platform architecture, which utilizes a horizontal scaling approach to build a multi-chain architecture with highly customizable, interoperable blockchains referred to as 'L1s' (formerly 'subnets'). The customizability enables Avalanche to support a wide range of builders and use cases, particularly across enterprise and institutional DeFi for teams that require privacy and access controls, as well as in gaming and consumer verticals. The mission of Avalanche is to "tokenize all of the world's assets", and strong BD efforts have supported many renowned companies/organizations in their efforts to move on-chain to explore innovative and impactful crypto use cases on Avalanche.

Background Information

Developed by Ava Labs, Avalanche mainnet launched in September 2020 with a high-performant EVM L1 (called the 'C-Chain', short for contract chain) powered by an innovative consensus mechanism to enable fast transaction finality (typically <2 seconds). The C-Chain quickly grew in adoption to become one of the leading 'EVM Alt-L1s' for DeFi activity, attracting over $10bn in TVL at its peak in 2021-22.

Since then, the Ava Labs has worked to distinguish Avalanche from Ethereum and other EVM-chains as more of an interoperability layer by focusing on the development of 'subnets', which are customizable chains that run in parallel to the Primary Network. Through subnets, which launched in mid-2022, Avalanche offers developers the tooling and capabilities to easily configure their blockchains to best suit the needs of their users across a wide range of use cases - subnet builders on Avalanche can define the execution logic, choose their own gas token, adjust the fee structure, and manage the set of validators that secure the chain. The platform also features native interoperability between blockchains and a shared liquidity hub via Avalanche Warp Messaging/Teleporter.

Avalanche9000: A major planned network upgrade (via the Etna Upgrade) will replace the current subnet model with a new concept called 'L1s', which will offer significant cost reductions to launching blockchains on Avalanche. Specifically, Etna removes the requirement for L1 validators to stake a minimum of 1000 AVAX (which was already reduced from 2000 AVAX in a prior upgrade) and the requirement to also validate the Primary Network (including the C-Chain). The new framework aims to spark accelerated subnet development and enable self-regulated security for enterprise L1s to meet regulatory compliance requirements (particularly for RWA issuers that are prohibited from validating permissionless networks like the C-Chain). The Etna Upgrade is targeted for deployment before the end of 2024.

Ecosystem Highlights

Avalanche ecosystem growth initiatives/marketing programs have targeted projects in DeFi, RWA/tokenization, gaming, and arts/culture end markets:

Notable Avalanche-related partnerships/project announcements separated by end market include:

Subnets can be configured to be public or private (i.e., blockchain data may only be made available to a managed set of validators). Some examples of public and private subnets are listed below:

Across all L1s on the Avalanche network, two L1s (DeFi Kingdoms and Dexalot) have already surpassed the C-Chain in total gas used and transaction count, showcasing the scaling benefits of Avalanche. However, the C-Chain still holds a sizable lead over the other L1s in active addresses:

Fundamental Metrics

Given the focus on serving builders with custom subnets/L1s, KPIs to assess the health of the Avalanche platform should include both the Primary Network AND all L1s such as: # of L1s, total addresses and tx count, total contracts deployed and contract deployers, maximum TPS, and total gas used by L1s.

Avalanche Subnets/L1s market stats:

AVAX Token / Tokenomics

Fee model: Avalanche C-Chain fees (paid in AVAX) are based on Ethereum's EIP-1559 consisting of a base fee and priority fee. However, transaction fees on Avalanche's C-Chain are burned in their entirety, inclusive of the priority fee (unlike on Ethereum where priority fees are paid to validators and only the base fee is burned).

Staking: ~56% of AVAX circulating supply is staked. Validators on the Primary Network are paid staking rewards via issuance (current staking reward is ~7.9% APY). Validators of subnets/L1s may receive other forms of staking rewards.

Vesting & Unlocks: Over the next year (9/9/24), 43.0m AVAX is scheduled to unlock (+10.6% of circulating supply). Aside from 1.7m AVAX scheduled to unlock every three months until 7/19/30, there will be no other cliff unlocks for any other allocations going forward (i.e., vesting unlocks have been completed for all groups other than the Foundation as of 8/20/24, including the Team and Investors). Staking rewards will continue to unlock linearly through 2030.

Competitive Positioning

Competitors: The most relevant comps for the Avalanche platform & its subnet/L1 network include: Ethereum & L2s, rollup ecosystems (e.g., Arbitrum Orbit, Optimism Superchain), Polygon Supernets & AggLayer, and interoperability platforms (e.g., Cosmos and Polkadot). These platforms aim to provide builders with customizable features to launch application-specific blockchains, yet they each have their own distinctive network designs:

Challenges / Opportunities going forward:

• Expanding the subnet/L1 ecosystem. Past network upgrades and the upcoming Avalanche9000 initiative aim to spark growth of Avalanche L1s by reducing setup/operational costs and introducing more customizable features for builders. Avalanche will need to attract quality projects and builders to its ecosystem while facing strong competition from Ethereum L2s, which come with a robust suite of dev tooling including Rollup-as-a-Service ('RaaS') providers which help projects easily deploy appchains on L2 platforms).

• Advancing institutional/enterprise adoption via permissioned, private subnets/L1s. Permissioned subnets have been positioned as potential solutions for regulated entities needing to meet certain compliance requirements (e.g., maintaining managed validator sets vs. permissionless validation). Evergreen subnet solutions, which are intended to serve TradFi entities for certain RWA/tokenization applications, are private by default. Ethereum currently leads other networks in regulatory acceptance, but as regulatory guidelines evolve around privacy/control settings of blockchains, Avalanche could gain acceptance for its deep customization and managed deployments in these sectors.

• Translating featured partnership announcements into actual sustained usage. Avalanche has been involved in several promising proof-of-concepts with notable partners, such as Deloitte x FEMA for disaster recovery disbursements, California DMV for tokenized car titles, and JPMorgan or Citi for tokenized financial applications. Moving these from POC to production will be key to validating these use cases.

• Showcasing other core technical features of the platform. Ava Labs has introduced tooling for developers for custom VM development including the HyperSDK toolkit, which has yet to launch its public devnet. Most of the major public subnets/L1s in existence today leverage the EVM with slight modifications (we have yet to see an Avalanche L1 that uses Solana's SVM or MoveVM in production), but having the HyperSDK and showcasing a more powerful custom-built VM can serve as a distinguishing feature for Avalanche to stand out from Ethereum and its L2 ecosystem.

Important Upcoming Events

Some important upcoming events and expected timing:

• Avalanche Summit LATAM 2024 (October 16-18, 2024)

• Etna Upgrade to Avalanche9000 (target November / end of year)

• Shrapnel Game Early Access / Public Launch (target 4Q24 / 1H25)

Avalanche Summary Data

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