It is not the first time that the blockchain’s native token Avalanche has encountered wild fluctuations. In February, AVAX skyrocketed to $ 60 only to hit a nadir in June and July. But after hitting rock bottom in USD 9.34, AVAX is now beyond USD 60 and is currently trading at USD 76. This has earned it a spot in the top 20 cryptocurrencies by market cap at $ 16 billion, according to Cointelegraph Markets Pro. Avalanche is among the layer-1 blockhains labeled the “Ethereum killers” that appear to have reduced the recent dominance of the top altcoin in terms of total value locked (TVL). Of the $ 170 billion in TVL, Ethereum currently controls 67% according to data from Defi Llama. But although the number seems high, it is actually much lower than in February, when it contained about 96% in TVL.
Avalanche was developed by Cornell Associate Professor of Computer Science Emin Gün Sirer and Ava Labs in 2018. The blockchain protocol boasts high throughputs and a fast completion time. In 2019, it received seed funding through the sale of 18 million AVAX tokens At a price of USD 0.33 each, amounting to almost USD 6 million. The following year, an additional 24.9 million tokens were auctioned in a private sale, this time at $ 0.50 each, bringing in an additional $ 12 million in funding. In July 2020, Avalanche secured other USD 42 million through a public token sale. And on September 16, 2021, Avalanche’s most recent funding raised $ 230 million from various investors led by Polychain and Three Arrows Capital. This brings a total funding amount of $ 290 million to Avalanche even though its mainnet launch just celebrated its one year anniversary.
How is Avalanche reinventing DeFi?
Avalanche is caught in the middle of increasingly intense layer-1 competition, with companies such as Binance Smart Chain (BSC), Polkadot and Terra vying for a larger market share from its main competitor, Ethereum. And like its counterparts, the scalability of Avalanche it’s crucial. Avalanche has 4,500 transactions per second (TPS) with a target of less than three seconds. In contrast, Ethereum processes 15 to 30 transactions per second with a purpose of more than 1 minute. Also, transaction fees are much more desirable on Avalanche compared to Ethereum. Avalanche rates range from 75 nAVAX to 225 nAVAX ($ 0.0000048 to $ 0.0000144 at the current currency value).
However, it takes more than lower costs and faster transactions to compete with the pioneer in Etheruem. Developers who want to build applications on Avalanche are needed to drive adoption. In this sense, it’s clear how Ethereum has the upper hand with 2,585 listed decentralized applications (DApps). But despite being only one year old, Avalanche has already attracted 320 projects.
Projects like SushiSwap, Chainlink, Circle, and The Graph have all benefited from the smart contract infrastructure provided by Avalanche. Non-fungible tokens, or NFTs, have also found a home in Avalanche; for example, Topps, a sports-themed trading card company, has created a Major League Baseball NFT collection on Avalanche called “Inception.” Topps has also partnered with the German soccer league Bundesliga, releasing video moments of the league on two available card packs, all as NFT on the Avalanche blockchain. Additionally, the $ 230 million raised by Avalanche in 2021 will go to support this burgeoning ecosystem of decentralized finance, or DeFi.
One of the important steps Avalanche has taken to redefine finance is its Ethereum cross-chain bridge, in which facilitates “smooth transfers of ERC-20 and ERC-721 between Avalanche and Ethereum.” The bridge helps migrate DeFi infrastructure from Ethereum to Avalanche, allowing users to transact faster and cheaper.
Pangolin, a notable player in the DeFi space, is based on Avalanche and benefits from the Avalanche-Ethereum bridge. The decentralized exchange (DEX) allows the trading of all tokens issued on Ethereum and Avalanche. This allows userss circumvent high and slow transaction times in asset trading. Besides Pangolin, other DApps, such as bZx, Union, JellySwap, Prosper, e-Money and others have joined the Avalanche ecosystem.
So far, a total of $ 1.72 billion in assets has been transferred using the bridge.
More DeFi growth
Additionally, in a move to promote its burgeoning DeFi ecosystem, Avalanche is bringing two of Ethereum’s leading DApps onto the Avalanche blockchain. Avalanche Rush, a $ 180 million liquidity mining incentive program, it was partially distributed to Curve Finance and Aave. In the initial phase of the program, AVAX will be used as liquidity incentives for Aave and Curve users for three months. The Avalanche Foundation has already set aside about $ 27 million in AVAX to fund the program, and there are also additional allocations planned for its second phase.
In addition to Aave and Curve Finance, Pangolin also joined Avalanche Rush, providing $ 2 million in AVAX incentives for a single Pangolin group (PNG).
What’s under the hood?
Perhaps Avalanche’s strongest suit is its network infrastructure, which is touted to provide better decentralization. Avalanche is made up of three integrated blockchains: the exchange chain (X-Chain), the platform chain (P-Chain) and the contract chain (C-Chain).. X-Chain is primarily for creating and exchanging assets, while P-Chain is for creating subnets and coordinating validators, and C-Chain is for executing Ethereum virtual machine contracts. Most of the transactions take place on the C-Chain, as Ethereum developers can easily create Ethereum-compatible applications using this blockchain.
All three blockchains are validated and secured by your main network, which is a special type of subnet or subnet. Anyone can secure the network by betting at least 2,000 AVAX, currently $ 152,000. Avalanche defines a subnet as a “dynamic set of validators that work together to achieve consensus on the state of a set of blockchains.” Essentially, a subnet is a new network capable of hosting multiple blockchains that can have their own consensus model and their own virtual machine.
These subnets open up opportunities for certain niche use cases, as they are highly customizable. This can be useful for different organizations, companies, and even governments because the network architecture also supports private subnets, which means that those who want to implement private blockchains can do so.
Why has the price of AVAX gone up lately?
Avalanche Rush was a major factor contributing to the price of AVAX rising 192% in August. But another reason why AVAX price recently appreciated is due to the upcoming DEX Initial Offerings (IDO). AvaXlauncher, the launch pad and incubator for the Avalanche ecosystem, has announced two new IDOs in Twitter ORone is not Oracle at Avalanche and the other is Gaming Project: Breed, Play and Earn.
And with those two IDOs, AvaXlauncher (AVXL) bettors and token holders will receive a small portion of those IDOs. An IDO is a new type of crowdfunding model in the crypto space. Offers immediate liquidity, immediate trading and lower listing costs compared to previous models, such as initial coin offerings and initial exchange offerings.
Download Cointelegraph Consulting’s biweekly newsletter # 31 in its entirety, complete with charts and market signals, as well as fundraising event news and overviews.
Factor the “tokenomics”
The token economics, or “tokenomics” behind AVAX may also play a small role in its rising value. There is a cap on the supply of tokens of 720 million AVAX, but it is worth noting that 40% is already allocated to private investors and the AVAX team. Then, around 360 million is allocated to wagering rewards, with 10% going to public sales.
Furthermore, the fees for each transaction also follow a burn mechanism similar to the Ethereum 1559 Enhancement Proposal. To date, nearly 278,000 AVAX tokens ($ 21 million) have been burned since its inception, putting more deflationary pressures in addition to its limited supply. Currently, the total circulating supply of AVAX is around 220 million AVAX.
There is no question that the growing popularity of Layer-1 protocols is reinventing the DeFi landscape. But even with Ethereum’s dominance declining slightly, as evidenced by its lowered TVL, it remains in an enviable spot that competitors may find difficult to uproot. So ditching Ethereum before Ethereum 2.0 could be premature. Still, these “Ethereum killers” are on the rise and sooner or later one may emerge as a worthy adversary.
Cointelegraph’s Market Insights newsletter shares our insight into the fundamentals that drive the digital asset market. The newsletter dives into the latest data on social media sentiment, on-chain metrics, and derivatives.
We also review the most important news in the industry, including mergers and acquisitions, changes in the regulatory landscape, and enterprise blockchain integrations. Register now to be the first to receive this information. All previous editions of Market Insights are also available on Cointelegraph.com.