Cointelegraph Consulting: How Avalanche is reimagining DeFi

This is not the first time the Avalanche native token has experienced wild fluctuations. AVAX reached $60 in February before falling to $60 in June and July. AVAX has risen to $60 after hitting a low of $9.34. It is currently trading at $76. According to Cointelegraph Markets Pro, this has helped Avalanche earn a place in the top 20 cryptocurrency market capitalizations with $16 billion. Avalanche is one of the layer-one Blockchains that have been tagged “Ethereum killers” and appear to have diminished the dominance over the top altcoin by reducing its total locked value (TVL). Based on data from Defi Lama, Ethereum currently controls 67% of the $170 billion in TVL. Although it appears that the number is high, it is actually lower than February’s 96% TVL.

Background on Avalanche

Emin Gun Sier, a Cornell computer science associate, and Ava Labs developed Avalanche in 2018. The protocol uses blockchain technology to achieve high throughputs with a fast finality time. It received its initial funding in 2019 through the sale 18 million AVAX tokens at $0.33 each. This amount was close to $6 million. An additional 24.9million tokens were sold in a private auction at $0.50 each. This brought in $12 million more funding. Avalanche also secured $42 million via a public token sale in July 2020. Avalanche received $230 million in funding from three investors, Polychain Capital and Three Arrows Capital on September 16, 2021. Avalanche now has $290 million in total funding, despite the fact that its mainnet launched just one year ago.

What is Avalanche doing to DeFi?

Avalanche is in the middle of increasing layer-one competition with the likes Binance Smart Chain (BSC), Polkadot, and Terra all vying to take a bigger market share than their main competitor Ethereum. Avalanche’s scalability is crucial, just like its counterparts. Avalanche processes 4,500 transactions per second with a less than three-second finality. Ethereum, on the other hand, processes between 15-30 transactions per second (TPS) with a more than 1-minute finality. Avalanche’s transaction fees are also much more attractive than Ethereum’s. Avalanche’s transaction fees are between 75 and 225 nAVAX (0.0000048 to $0.0000144 depending on the coin’s current value).

To compete with Etheruem’s first-mover, however, it takes more than faster transactions and lower costs. To encourage adoption, developers must be willing to create applications on Avalanche. It’s evident that Ethereum is the leader in this area with 2,585 decentralized applications (DApps) listed. Avalanche is only one year old, but already it has attracted 320 projects.

Source: Avax-Projects

Avalanche’s smart contract infrastructure has been a boon to projects such as SushiSwap and Circle. Avalanche also offers a home for nonfungible tokens (or NFTs). Topps, a trading card company that focuses on sports, has created a Major League Baseball NFT collection called “Inception” on Avalanche. Topps also has partnered with Bundesliga to release video clips from the Bundesliga in two card packages. All NFTs are stored on the Avalanche Blockchain. Avalanche will also use the $230 million it raises in 2021 to support its flourishing Decentralized Finance (or DeFi) ecosystem.

Ethereum Bridge

Avalanche’s cross-chain Ethereum bridge is one of the most important steps in redefining finance. It facilitates seamless ERC-20 and ERC-721 transfers from Avalanche to Ethereum. This bridge allows users to perform faster and more affordable transactions.

Pangolin is a prominent player in DeFi and was built on Avalanche. He also benefits from the Avalanche–Ethereum bridge. All tokens that were issued on Ethereum or Avalanche can be traded through the decentralized exchange (DEX). This allows users to bypass the slow and expensive transaction times when swapping assets. Pangolin is not the only DApp that has joined Avalanche. JellySwap and Union as well as Prosper and e-Money are also part of the Avalanche ecosystem.

The bridge has already transferred assets totaling $1.72 trillion.

More DeFi growth

Avalanche has also added two top DApps to its Ethereum blockchain in an effort to expand its DeFi ecosystem. Curve Finance was part of the distribution of Avalanche Rush which is a $180 million liquidity mining incentive program. Avax will be used in the initial phase of the program as liquidity incentives to Curve and Aave users for three months. The Avalanche Foundation has already set aside $27 million in AVAX to finance the program. Additional allocations are planned for the second phase.

Pangolin joined Avalanche Rush and provided $2 million in AVAX incentives to a single-sided Pangolin pool (PNG) in addition to Curve Finance and Aave.

What is under the hood?

Avalanche’s greatest strength is its network infrastructure. It is said to offer better decentralization. Avalanche consists of three integrated blockchains, the Exchange Chain (XChain), Platform Chain(P-Chain), and Contract Chain (C–Chain). The X-Chain can be used primarily to create and exchange assets. The P-Chain can be used to create subnets or coordinate validators. And the C-Chain can be used for executing Ethereum Virtual Machine contract. The majority of transactions are done in the C-Chain, as Ethereum developers have the ability to easily create Ethereum-compatible apps using this blockchain.

Each of the three blockchains is validated and protected by its main network. This subnetwork or subnet is a special kind of subnetwork. Staking at least 2,000 AVAX (currently $152,000) can help secure the network. Avalanche defines subnets as “dynamic sets of validators working together in order to reach consensus on the state of an set of blockchains.” This is currently $152,000.

Because they can be customized, these subnets offer opportunities for niche applications. This is a great advantage for companies, governments, and other organizations. The network architecture supports private subnets which allows users to deploy private blockchains.

Why has AVAX’s price risen so much lately?

Avalanche Rush was an important factor in the AVAX price jump of 192% in August. Another reason AVAX’s price has appreciated is because of more initial DEX offerings (IDO). AvaXlauncher is the incubator and launchpad for Avalanche’s ecosystem. Two new IDOs have been announced by AvaXlauncher on Twitter. One is Oracle on Avalanche, the other Gaming Project: Breed, play and Earn.

With those IDOs, holders of AvaXlauncher tokens (AVXL), and stakers will be airdropped a portion of the IDOs. An IDO is a brand new crowdfunding model for crypto. It provides immediate liquidity and trading, and has lower listing costs than other anteceding models like initial coin offerings or initial exchange offerings.

The 31st Cointelegraph Consulting Biweekly Newsletter is available in its entirety. It includes charts and market signals as well as news and overviews about fundraising events.

Factoring in the tokenomics

AVAX’s tokenomics may also play a part in its rising value. The token supply is limited to 720 million AVAX. However, it is worth noting that 40% is already allocated for private investors and the AVAX project. The remaining 360 million are allotted to staking rewards. Public sales received 10%.

Source: Avalanche

The fees for each transaction follow a similar mechanism to Ethereum Improvement Proposal 15.59. Since its inception, almost 278,000 AVAX tokens (roughly 21 million dollars) have been burned, adding to the deflationary pressures. The current total AVAX circulating supply is approximately 220 million AVAX.

Source: Avascan

It is clear that layer-one protocols are reimagining DeFi. Even though Ethereum’s dominance is slowly waning, as shown by its lower TVL, it still occupies an enviable position that may prove difficult to overroot. It is possible to underestimate Ethereum’s importance before Ethereum 2.0. These “Ethereum killers”, however, are growing and could be a worthy opponent.

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