What Is Avalanche? – The Defiant

Avalanche is a third generation proof-of-stake blockchain network. Unlike Ethereum, which relies on Layer 2 scalability networks to increase traffic capacity, Avalanche relies on its backbone for scalability.

While this gives Avalanche an advantage, it is only a tenth the size of Ethereum in terms of total locked value (TVL). Can Avalanche catch up?

Development and financing of avalanches

In 2018, Turkish computer scientist Emin Gün Sirer co-founded Ava Labs in Brooklyn. Sirer founded the Initiative for Cryptocurrencies and Smart Contracts at Cornell University.

In 2003, Sirer helped develop Karma. This was the first peer-to-peer (P2P) virtual currency to feature an inflation protection mechanism, similar to Bitcoin five years later.

Main features and statistics of Avalanche

After two years of development, the Ava network was launched in September 2020 as a proof-of-stake public blockchain called Avalanche. Its mission is to enable a scalable DeFi infrastructure that allows developers to deploy both public and private smart contract platforms.

Thanks to its unique architecture, expressed through the Avalanche consensus protocol, the network can process 4,500 tps (transactions per second), with a confirmation time of less than one second. In comparison, on a day of normal traffic load, pre-merge Ethereum processed up to 14 tps with a confirmation time between 15 seconds and five minutes.

Not only is this performance nearly instantaneous and comparable to the Visa payment network, the avalanche fees are low. This is reflected in Avalanche’s Nano (10-9) gas fee designation – nAvax:

  • 1 nAvax is equal to 0.000000001 AVAX
  • At the lowest base fee, the Avalanche gas fee can go as low as 25 nAvax.

This means that users usually have to pay around $0.01 per transaction on the Avalanche network. Based on these two key ingredients – performance and low gas fee – Avalanche positions itself as Ethereum’s main competitor alongside Solana and other Layer 1 networks. At the peak of its TVL, Avalanche held $12.21 billion worth of funds locked in its smart contracts.

AVAX TVL Source: Defillama

If we look at transaction volume, Ethereum peaked on May 9, 2021 with 1.7 million daily transactions. Avalanche peaked on January 27, 2022 with 1.1 million daily transactions, or 64% of Ethereum’s transaction volume.

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This speaks to high demand for a fast DeFi network with minimal fees. In addition, Avalanche is compatible with Ethereum’s existing DeFi dApps.

How does Avalanche achieve its scalability?

Ethereum developers have been working for years to bring together the coveted combination of high network throughput and low fees. So far, this is possible through Ethereum’s Layer 2 scalability solutions such as Polygon, Arbitrum and Optimism. In late 2023, Ethereum’s mainchain has yet to be scaled with sharding as part of a planned upgrade called The Surge.

How did Avalanche come to Ethereum? Avalanche implemented Layer 2 networks, but in its backbone. The three-part Avalanche architecture manifests this scalability approach. Each layer is dedicated to a specific type of networking:

  • X chain — Exchange: This layer is responsible for generating assets as instances via the Avalanche Virtual Machine (AVM). One of these assets is AVAX, the native cryptocurrency for the Avalanche network. Funds are sent and received on X-Chain.
  • C chain — Contract: This layer is responsible for the generation and execution of Ethereum-compatible smart contracts via the Ethereum Virtual Machine (EVM) and is powered by the Snowman consensus protocol.
  • P chain — platform: This layer coordinates validators and subnets and allows the creation of new subnets with custom governance/monetization rules. This is where AVAX Staking takes place with AVAX Rewards.

What is manufacturer?

A step-by-step guide to one of the most influential DeFi lending protocols

Avalanche subnets can be made either private or public, which is an extremely useful flexibility as Avalanche can be used for both corporate and public organizations/institutions.

In practice, powered by the Snowman protocol, C-Chain hosts the Avalanche DeFi ecosystem of dApps, which contains the majority of user transactions.

Source: Avalanche

At the heart of controlling these three layers is the combination of two common consensus protocols:

  • Classic consensus: Focuses on block finality performance by requiring all nodes to connect to all other nodes to reach consensus. Specifically, that a transaction cannot be undone or altered once it has been executed. Avalanche uses fast finality to speed up transactions.
  • Nakamoto Consensus: It was developed using Bitcoin’s proof-of-work consensus and focuses on decentralization, scalability, and security. In such a consensus system, a miner is chosen to generate each block.
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The Avalanche consensus protocol represents a breakthrough in distributed systems as a third option that combines the advantages of classical and Nakamoto consensus. In other words, it doesn’t need a miner to be elected, making it leaderless. Instead, Avalanche consensus directs the nodes to reach consensus.

A pseudonymous developer group going by the name of Team Rocket first proposed this novel probabilistic protocol in 2018. Sirer described validators operating under the Avalanche consensus as follows:

“They rely on randomness and they rely on random interactions, and yet they make sure that after the interactions everyone decided the same thing.”

Technically, the Avalanche protocol creates a directed acyclic graph (DAG) of all transactions, with each transaction being added to a previous parent. This creates a system in which the blockchain history is not linear, but unlimited.

Since all transactions complement each other in such a non-linear way, they are confirmed faster without having to wait in line. In other words, Avalanche transactions are processed as they are added, allowing for infinite scaling.

avalanche ecosystem

Thanks to Ethereum backwards compatibility, every major dApp on Ethereum can be found on Avalanche. Case in point: While Aave is one of the largest lending dApps on Ethereum, it is also the most popular on Avalanche.

Likewise, the Avalanche equivalent of Uniswap Decentralized Exchange (DEX) is Pangolin (PNG). In total there are 262 live projects on Avalanche in September 2022. For NFT traders, the most popular marketplaces on Avalanche are NFTrade, NFTStars, and Lootex.

When it comes to NFT collections, it has its own versions of the most popular ones on Ethereum, like CryptoDappers, AvaxApes, and DeFi Dinos. Exclusively, DCRC-RaceX is the first race-to-earn blockchain car simulation game where cars are upgradeable NFTs.

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How do I access Avalanche?

The Avalanche network is as easily accessible as Ethereum. With a MetaMask wallet installed in a browser, all you have to do is click on “Add Network”.

When the new Settings tab opens, this data needs to be added to the text boxes for each category:

  • Network Name: Avalanche Network
  • New RPC URL: https://api.avax.network/ext/bc/C/rpc
  • Chain ID: 43114
  • Icon: AVAX
  • Explorer: https://snowtrace.io

After adding, click on the “Save” button. Now the Avalanche network is added in the drop down list of available networks.

AVAX Tokenomics

AVAX tokens are capped at 720 million, 41% of which are in circulation. Half of the total supply is reserved for staking rewards, while 9.26% is reserved for the Avalanche Foundation, which is responsible for driving Avalanche’s adoption. As with other PoS networks, Avalanche validators secure the network by using their AVAX and receive rewards in return.

Unlike Ethereum, Avalanche has no mechanism to cut the stake in case validators act maliciously or unreliably. Additionally, Avalanche does not require high-end hardware or special equipment to become a validator.

At its highest price point, AVAX reached $146 in November 2021. To participate in the Avalanche ecosystem, users pay AVAX as transaction gas fees, with the base fee burned, i.e. permanently removed from the circulating supply.

This creates anti-inflationary pressure in addition to the maximum AVAX supply limit. All in all, Avalanche has all the makings of becoming a major player in the smart contract space.

Disclaimer for the series:

This series article is for general guidance and information only for beginners participating in cryptocurrencies and DeFi. Nothing in this article should be construed as legal, business, investment or tax advice. Consult your advisors for all legal, business, investment and tax implications and advice. The Defiant is not liable for lost funds. Please use your best judgment and exercise due diligence before interacting with Smart Contracts.

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