Cryptocurrencies
18
Feb
avalanche

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What is Avalanche (AVAX)?

Avalanche is a cryptocurrency and one of the most popular smart contract platforms. Emin Gun Sirer is the founder of Avalanche. Avalanche officially launched in 2018.

Avalanche’s infrastructure is different from that of a typical smart contract platform. Subnets are Avalanche’s scaling solution. The AVAX token plays a similar role to the native tokens of other Proof of Stake blockchains.

What is Avalanche (AVAX)?

Avalanche is a cryptocurrency and one of the most popular smart contract platforms. Avalanche is an operating system for smart contracts, decentralized applications (Dapp), NFT, and tokenized assets (RWA). Avalanche’s competitors in the smart contract platform category include Ethereum, Solana, and Cardano.

Avalanche’s infrastructure consists of three blockchains: P-chain, C-chain, and X-chain. Each has its important tasks. Creating customized blockchains (subnets) within the Avalanche ecosystem is also possible.

Avalanche’s native token is also called Avalanche, and its ticker is AVAX. The AVAX token is used to pay transaction fees on the Avalanche ecosystem. Since Avalanche uses a Proof of Stake consensus, AVAX tokens are also needed for staking.

The table below provides basic information about Avalanche:

FeatureInfo
Category Smart contract platform
Ticker AVAX
Circulating supply 435 million AVAX
Max supply 720 million AVAX
All-time high (date) $146.22 (Nov 21, 2021)
All-time low (date) $2.79 (Dec 31, 2020)

Follow the real-time price of AVAX here: Avalanche price.

Avalanche’s MainNet was launched in 2020. The project rose to public awareness during the crypto boom of 2021. Since then, Avalanche has been one of the top 15 cryptocurrencies and has occasionally risen to the top 10 rankings.

This article is a beginner’s guide to Avalanche. We review the project’s history and technology and consider Avalanche’s potential as an investment.

Emin Gun Sirer is the founder of Avalanche

Emin Gun Sirer is the founder of Avalanche. Sirer was born in Turkey but moved to the United States at the turn of the millennium. He graduated from the University of Washington with a doctorate in computer science in 2002. Below is a picture of Emin Gun Sirer.

emin gun sirer

In 2003, Emin Gun Sirer published a white paper about a digital currency called Karma. Karma is a Proof-of-work currency with many similarities to Bitcoin. Why didn’t Karma become a Bitcoin-like success? According to Sirer, his vision was not big enough.

The system didn’t go anywhere because I didn’t get the timing right, and I didn’t have a vision as big as Satoshi. I had a much more limited vision, a much more realistic vision, but it would have been much better to have an unrealistic vision that rallies people than to have a realistic vision that is narrower in scope and doesn’t get people going with the same fervor (source: numbrs.com)

The launch of Bitcoin rekindled Sirer’s interest in cryptocurrencies. In 2013, he published the report “Majority is not Enough: Bitcoin Mining is Vulnerable,” which discussed the risks associated with Bitcoin mining. Sirer first received a lot of criticism for his post, but eventually, the Bitcoin community agreed that he was right.

Sirer also tried to warn the Ethereum community about the security risks of The DAO project but to no avail. The DAO hack happened in 2016 and threatened the future of the entire Ethereum project.

The Avalanche project was launched in 2018. Everything started from the white paper “Snowflake to Avalanche: A Novel Metastable Consensus Protocol Family for Cryptocurrencies” by an anonymous group called Team Rocket. According to some, Team Rocket references the popular Pokemon series.

The white paper published by Team Rocket described a new type of consensus mechanism that combined the best aspects of classical consensus and Nakatomo consensus. Below is Sirer’s X post from 2018.

Some claim Sirer was also a member of Team Rocket, but this was never confirmed. Sirer announced the new consensus to a broader audience at the Token Summit 2018 event. Later that year, he founded Ava Labs and started developing Avalanche based on this new consensus mechanism.

The founding of Avalanche

Avalanche officially launched in 2018. The project entered the market too late to participate in the 2017-2018 ICO boom. However, Avalanche’s founding date does not tell the whole story of its long history. Not many people in the crypto scene have more experience in the field than Emin Gun Sirer.

Ava Labs has been responsible for developing Avalanche since its beginning. It is headquartered in New York and currently employs hundreds of people.

In the first investment round, the project raised 6 million dollars from well-known VCs such as a16z and Polychain Capital. The second private funding round brought in 12 million dollars in the spring of 2020. A public investment round, the ICO of the AVAX token, was organized only a month later. It raised 42 million dollars in just five hours.

Avalanche’s MainNet was launched on September 21, 2020. At the same time, the native token AVAX was also introduced. This is how Avalanche’s X-account tweeted about it a week before the launch.

Avalanche grew in popularity tremendously during the crypto boom of 2021. In September 2021, the project raised $230 million in addition to the previous funding rounds. This was a private investment round.

Avalanche’s popularity has not significantly decreased during 2022 and 2023 relative to competitors. The project has cemented its position as one of the most significant Ethereum challengers and smart contract platforms.

Avalanche’s three blockchains

Avalanche’s infrastructure is different from that of a typical smart contract platform. This is because Avalanche’s core functions are divided into three different blockchains:

  • C-chain
  • P-chain
  • X-chain

The image below helps to understand the role of these blockchains.

avalanche ecosystem

Next, let’s go through each blockchain separately.

C-chain

C-chain, or contract chain, is the closest to a typical smart contract platform. As the name suggests, it contains the smart contracts and decentralized applications (Dapps) of the Avalanche ecosystem.

Smart contracts are processed by a modified version of EVM (Ethereum Virtual Machine). This allows easy cloning of Ethereum-based applications to the Avalanche platform. Avalanche has modified the EVM to multiply its transaction capacity, among other things.

C-chain uses the Snowman Proof of Stake consensus protocol developed by Avalanche.

P-chain

P-chain, or platform chain, is responsible for two critical tasks. Firstly, it coordinates all Avalanche validators. Like P-chain, it uses the Snowman consensus protocol.

Secondly, the P-chain coordinates the custom blockchains of the Avalanche ecosystem, called subnets. Subnets can be seen as Avalanche’s scaling solution, i.e., they can be compared to Ethereum Layer 2s. The topic is discussed in more detail later in this article.

Each subnet has validators, which can use EVM and other virtual machines to process smart contracts.

X-chain

X-chain, or exchange chain, is home to Avalanche’s custom tokens. They are abbreviated ANT, which stands for Avalanche Native Token. Avalanche calls these “digital smart assets.”

For example, ANT can be a tokenized real-world asset such as a stock of a company. Note that ANTs are not the same as NFTs. NFTs run on the C-chain. The creation of custom tokens is paid for with AVAX tokens.

It’s good to know that Avalanche’s validators maintain all three blockchains. That is, the validators of the X-chain are the same as those of the P- and C-chains.

Subnets are Avalanche’s scaling solution

Subnets are Avalanche’s scaling solution. The idea of ​​a subnet is similar to Ethereum’s Layer 2s, Polkadot’s parachains, or the blockchains of the Cosmos ecosystem. All of these aim to shift the transaction load off the main blockchain onto faster & cheaper chains.

Subnets offer application developers the following benefits:

  • Scalability: Subnets don’t have to compete for resources with the Avalanche main chain or other subnets.
  • Transactions: Scalability brings faster and cheaper transactions.
  • Tokens: Subnets can have customer-native tokens or use AVAX for paying transactions.
  • Customization:  Subnets can be customized in a very versatile way.
  • Linking: Subnets can communicate with each other.

It is important to note that each subnet has unique validators. One validator can also participate in maintaining different subnets. Since a validator is required to hold a minimum of 2000 AVAX tokens, there are only about eight validators per subnet on average.

For now, development seems to be going toward creating one subnet for each decentralized application. In recent years, Avalanche has already managed to attract several blockchain game projects. Almost everything is implemented based on Avalanche’s EVM.

You can find all subnets at subnets.avax.network/subnets/.

Avalanche staking and AVAX token

The AVAX token plays a similar role to the native tokens of other Proof of Stake blockchains. It is used for staking and paying transaction fees. Let’s discuss the staking of Avalanche and the properties of the AVAX token in more detail.

The maximum amount of the AVAX token is 720 million. Half were set aside for staking rewards when the MainNet was launched. This is enough until 2029. Below is a graph of the AVAX token allocation.

avax allocation

At the time of the article’s publication, slightly more than half (367 million) of AVAX tokens are in circulation.

In addition to transaction fees, AVAX tokens are used for staking. Like other smart contract platforms, Avalanche is a Proof of Stake system. A group of validators is responsible for building consensus, updating the blockchain, and staking the native token. Staking locks a significant number of AVAX tokens out of circulation.

Below is information about the Avalanche staking. You can check the up-to-date readings at avax.network/validators/.

Avalanche stakingInfo
Validators 1759
Delegators 135000
AVAX's staking % 54% (only validators)
67% (validators + delegators)

Avalanche validators must stake at least 2000 AVAX tokens. This is a tough requirement, as it means a minimum bet of $80,000 at the time of writing. The requirement is almost the same as in the Ethereum staking. Delegation is already possible with 25 AVAX tokens.

Avalanche’s stake is currently offering an annual return of approximately 7.7 percent.

In addition to staking, AVAX tokens are also removed from circulation by burning the transaction fees. The downside of burning is that validators don’t get the transaction fees for themselves.

The AVAX token is also used to establish new subnets. These blockchains can use their token for transaction payments, so AVAX isn’t necessary. However, the validators of the subnets need AVAX for staking, so each subnet inevitably creates at least a little demand.

Avalanche as an investment

Avalanche has been a good investment target throughout its history. 2023 was also a strong year for the AVAX token, although it looked weak for a long time. The price of Avalanche eventually increased by more than 250 percent, which is more than the price of Bitcoin.

Avalanche founder Emin Gun Sirer’s CV is virtually unmatched in the crypto industry. Sirer is a true “OG” who developed his digital currency five years before Bitcoin.

From an investor’s perspective, Avalanche looks attractive because of its different technical approach. Avalanche’s implementation of three blockchains combined with subnets significantly differs from many competitors.

The project’s foundation seems to be in order: a real crypto guru as the founder, an unusual technological implementation, and a good course development of the native token. Also, the vesting schedule of the AVAX token looks pretty good.

avalanche vesting

The allocations of the early-stage investors and strategic partners have been released to the market. The portion shown in pink is the only one that significantly increases. These are tokens reserved for staking rewards (block rewards).

How about Avalanche’s weaknesses?

The biggest shortcoming of the project is its low visibility compared to the most significant competitors. When was the last time you saw Avalanche-related news or forum posts? Or when the social media influencer you follow has talked about Avalanche?

Ethereum is in a class of its own when it comes to visibility. After this comes Layer 2s (Arbitrum, Optimism), Solana, and Cardano. Avalanche has fallen into the third category. In the coming years, modular blockchains will also compete for popularity.

The Avalanche project also lacks transparency. Many important pieces of information are not told anywhere. Its technological implementation is also not significantly ahead of competitors.

Below is the current situation in the DeFi sector, where Avalanche fits in the top 10 positions. In recent years, Avalanche has fallen behind Solana, Tron, and Ethereum L2 in growth.

PlatformNative tokenTVLMarket share
Ethereum ETH $50.3 billion 57.0%
Tron TRX $9.5 billion 10.7%
BNB Chain BNB $5.7 billion 6.3%
Solana SOL $4.6 billion 5.2%
Arbitrum ARB $3.2 billion 3.6%
Blast BLAST $1.3 billion 1.5%
Avalanche AVAX 1.2 billion 1.4%
Base - 1.2 billion 1.3%

In any case, Avalanche is a high-quality project that has received hundreds of millions of dollars from the scene’s most prominent VC firms. Technically, Avalanche also has the building blocks to build a successful ecosystem. Time will tell how well it succeeds in the ever-tightening platform race.

If you want to purchase Avalanche (AVAX), you should do that on Binance and Coinbase exchanges.

Antti Hyppänen

Antti Hyppänen is the founder and editor-in-chief of AboutBitcoin.io. Antti has written articles about cryptos since 2017. He follows the crypto market every day of the year and is responsible for the daily operations of AboutBitcoin. Antti is not a maximalist regarding any cryptocurrency but looks at the industry objectively. Antti’s investment profile is “buy & hold,” i.e., he does not trade or use leverage. His crypto portfolio consists of mainly Bitcoin and Ethereum. Antti also follows macroeconomic events. In addition to cryptos, his interests include gold, silver, and the US stock market.