This is not the first time that the native Avalanche blockchain token has encountered wild fluctuations. In February, AVAX hit only $ 60 to hit a nadir in June-July. But after hitting a low of $ 9.34, AVAX is now above $ 60 and is currently trading at $ 76. This earned it a place in the top 20 cryptocurrencies by market cap with $ 16 billion, according to TBEN Markets Pro. Avalanche is among layer one blockchains labeled as “Ethereum killers” that appear to have recently reduced the dominance of top altcoin in terms of total locked-in value (TVL). Of TVL’s $ 170 billion, Ethereum currently controls 67% based on data from Defi Llama. But while the number seems high, it is actually much lower than in February when it contained around 96% TVL.
Background on avalanches
Avalanche was developed by Cornell Associate Professor of Computer Science Emin Gün Sirer and Ava Labs in 2018. The blockchain protocol offers high throughputs and fast final time. In 2019, it received seed funding through the sale of 18 million AVAX tokens priced at $ 0.33 each, or nearly $ 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 raised an additional $ 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 for Avalanche despite its launch on the Mainnet which just celebrated its first anniversary.
How Avalanche is reinventing DeFi?
Avalanche is caught in the midst of increasingly intense competition, with Binance Smart Chain (BSC), Polkadot and Terra vying for greater market share from their main competitor, Ethereum. And just like its counterparts, Avalanche’s scalability is just as crucial. Avalanche claims 4,500 transactions per second (TPS) with a finality of less than three seconds. On the other hand, Ethereum processes 15 to 30 transactions per second with a finality greater than 1 minute. Additionally, transaction fees are much more desirable on Avalanche than on Ethereum. Avalanche’s fees range from 75 nAVAX to 225 nAVAX ($ 0.000048 to $ 0.0000144 at the coin’s current value).
However, it takes more than lower costs and faster transactions to compete with first-mover in Etheruem. Developers keen to build apps on Avalanche are needed to drive adoption. In this regard, it is clear that 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 such as SushiSwap, Chainlink, Circle and The Graph have benefited from the smart contract infrastructure provided by Avalanche. Non-fungible tokens, or NFTs, have also found a place in Avalanche; for example, Topps, a sports-themed trading card company, created a Major League Baseball Avalanche NFT collection called “Inception.” Topps has also partnered with the German soccer league Bundesliga, posting video moments of the league in two available card packages, all as NFTs on the Avalanche blockchain. In addition, the $ 230 million raised by Avalanche in 2021 will be used to support this flourishing ecosystem of decentralized finance, or DeFi.
One of the important steps Avalanche has taken in redefining finance is its cross-chain Ethereum bridge, in which it facilitates “seamless ERC-20 and ERC-721 transfers 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 built on Avalanche and benefits from the Avalanche-Ethereum bridge. Decentralized Exchange (DEX) allows trading of all tokens issued on Ethereum and Avalanche. This allows users to bypass high and slow transaction times when trading assets. 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 have been transferred using the bridge.
More DeFi growth
Additionally, in an effort to advance its burgeoning DeFi ecosystem, Avalanche integrates two of the leading DApps on Ethereum to the Avalanche blockchain. Avalanche Rush, a $ 180 million cash-extraction incentive program, has been partially distributed to Curve Finance and Aave. In the initial phase of the program, AVAX will be used as a liquidity incentive for Aave and Curve users for three months. About $ 27 million of AVAX has already been set aside by the Avalanche Foundation to fund the program, and additional allocations are also 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 one-sided pool of Pangolin (PNG).
What’s under the hood?
Perhaps Avalanche’s strong point is its network infrastructure, which is supposed to offer 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). The X chain is mainly used to create and exchange assets, while the P chain is used to create subnets and coordinate validators, and the C chain is used to execute Ethereum virtual machine contracts. Most of the transactions take place in chain C, as Ethereum developers can easily create Ethereum compatible applications using this blockchain.
All three blockchains are validated and secured by a mainnet sound, which is a special type of subnet or subnet. Anyone can secure the network by staking at least 2,000 AVAX, currently $ 152,000. Avalanche defines a subnet as a “dynamic set of validators working together to reach consensus on the state of a set of blockchains”. Essentially, a subnet is a new network capable of hosting multiple blockchains that can have its own consensus model and its own virtual machine.
These subnets open up opportunities for certain niche use cases because they are highly customizable. This can be useful for different organizations, businesses, and even governments, as the network architecture also supports private subnets, meaning those who wish to deploy private blockchains can do so.
Why has the price of AVAX climbed lately?
Avalanche Rush was a major factor that helped drive AVax’s price up 192% in August. But another reason AVax’s price has appreciated recently is due to more DEX Initial Offers (IDOs) to come. AvaXlauncher, the launch pad and incubator for the Avalanche ecosystem, announced two new IDOs on Twitter. One is Oracle on Avalanche and the other is Gaming Project: Breed, Play and Earn.
And with these two IDOs, stakes and AvaXlauncher (AVXL) token holders will see a small portion of those IDOs dropped. An IDO is a new kind of crowdfunding model in the crypto space. It offers immediate liquidity, immediate trades, and lower listing costs compared to previous models such as initial coin offerings and initial exchange offers.
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Factor in tokenomics
The tokenomics behind AVAX may also play a small role in its growing value. The token supply is capped at 720 million AVAX, but it should be noted that 40% of this is already allocated to private investors and the AVAX team. Then about 360 million goes to staking rewards, and 10% went to public sales.
Additionally, the fee for each transaction also follows a similar burning mechanism as Ethereum’s 1559 improvement proposal. To date, nearly 278,000 AVAX tokens ($ 21 million) have been burned since its inception. , exerting additional deflationary pressures on top of its limited supply. Currently, AVAX’s total circulating supply is approximately 220 million AVAX.
There is no doubt that the growing popularity of Layer One protocols is reinventing the DeFi landscape. But even with a slight decrease in Ethereum’s dominance, as evidenced by its reduced TVL, it remains in an enviable position that competitors may find it difficult to uproot. So, counting Ethereum before Ethereum 2.0 could be premature. Yet these “Ethereum killers” are on the rise, and sooner or later one of them may come across as a worthy opponent.
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