Three Chains and Subnets : Avalanche’s Brilliant Blockchain Trilemma Solution
Bitcoin was the first blockchain, and it inspired the design of all later networks, including Ethereum. On the other hand, the adoption of NFTs and Decentralized Finance has significantly altered the blockchain scene today.
Several cryptocurrency projects attempt to solve the blockchain trilemma: decentralization, scalability, and security.
Avalanche is a blockchain platform that aims to address the blockchain trilemma through its unique Proof of Stake mechanism and subnets that are interconnected via a native messaging layer.
What is Avalanche Network?
The Avalanche crypto network is a powerful Layer-1 blockchain platform for smart contracts, decentralized applications, and subnets. A significant advantage for Avalanche over other L1’s is its compatibility with the Ethereum Virtual Machine.
The network prioritizes transaction speed, low fees, and energy efficiency. The native token is AVAX.
Avalanche can deliver high throughput and near-finality transactions due to its three-blockchain architecture , unique proof-of-stake consensus protocol, subnets and Avalanche Warp messaging – allowing the network to scale without sacrificing security or decentralization.
History of Avalanche
The idea for Avalanche was conceptualized by a team of a pseudonymous group known as “Team Rocket” in 2018. Later on, the concrete development of the network was carried out by a team of developers at Cornell University led by Emin Gün Sirer, a professor of computer science, specializing in distributed systems, blockchain, and cryptocurrencies.
Sirer had helped conceptualize Karma, a virtual peer-to-peer currency developed six years before Satoshi Nakamoto published Bitcoin’s whitepaper. He was assisted by AVA Labs co-founders Kevin Sekniqi and Ted Yin.
In March 2020, the codebase for the Avalanche consensus mechanism became open-source, allowing anyone with internet access to use it.
The mainnet went live in September 2020. Although the platform’s core features and functionalities are already operational, it is still technically in development.
During 2019 and 2020, Avalanche raised approximately $60 million through various ICOs. Since then, the project has raised hundreds of millions of dollars through various crypto venture capitals.
These days, AVA Labs is managed by a team from blockchain, tech, and Fortune 500 companies.
What Makes Avalanche Unique?
Developers have added several features that set Avalanche apart from other blockchain networks:
- Instead of just one blockchain, Avalanche has three (plus subnets – see #2), each handling a different task. Avalanche is exceptionally efficient because it distributes work across multiple blockchains. It can take over 4,500 transactions per second and complete a transaction in under 1 second.
- Users can use Avalanche to create new blockchains that run on its network called subnets. These blockchains can have tokens and fee structures of their own.
- Avalanche and Ethereum are entirely compatible. Tokens from Ethereum can be transferred to Avalanche using the Avalanche Bridge, and Ethereum smart contracts (coded in Solidity using the Ethereum Virtual Machine) can be deployed on Avalanche using the same code.
- Another distinguishing feature is Avalanche’s consensus mechanism, or how it securely validates transactions. It uses Avalanche consensus, a system designed to be secure, fast, and energy-efficient.
How Does it Work?
Rather than having a single chain handle all tasks within the ecosystem, Avalanche is built with three blockchains to prevent the blockchain trilemma. Users can transfer digital assets between these chains to perform various functions within the ecosystem.
- Exchange Chain (X-Chain): This chain generates and exchanges AVAX tokens and other digital currencies. Like Ethereum’s token standards, these assets have rules that can be customized to control their behavior. The blockchain uses the Avalanche consensus system, and AVAX is used to pay transaction fees.
- Contract Chain (C-Chain): Developers can use C-Chain to create smart contracts for DApps. It hosts an instance of the Ethereum Virtual Machine (EVM), allowing developers to develop EVM-compatible DApps. It uses a Snowman-adjusted version of the Avalanche consensus protocol.
- Platform Chain (P-Chain): This chain manages network validators, keeps track of active subnets, and allows for the creation of new subnets. Subnets are groups of validators that serve as a consensus mechanism for specialized blockchains. A blockchain can be validated by only one subnet, but each can validate multiple blockchains. The P-Chain also employs the Snowman consensus system.
The three blockchains discussed above are secured by the chain-optimized ‘Snowman’ consensus, which allows for high-throughput secure smart contracts.
What Are the Benefits of Avalanche?
The Avalanche protocol is designed to provide several advantages over existing protocols such as Ethereum.
Some of the benefits are:
- Fast & Scalable: The Avalanche protocol is designed to be highly scalable. It is capable of processing up to 5,000 transactions per second. But the real game changer here is that subnets allow developers to scale on demand, overhauling infrastructure for mass scale in a matter of mere hours. (Read more on this here)
- Secure: Bad actors find it difficult to manipulate the network thanks to the gossip mechanism.
- Decentralized: The Avalanche protocol is designed to provide a high level of decentralization. To run a validator you need to stake 2000 AVAX.
- Governable & Democratic: The Avalanche protocol is designed to resist censorship. This means that users should be able to transact without fear of their transactions being blocked or reversed.
- Interoperable: The Avalanche protocol is designed to work with other protocols and networks. This means that users should be able to interact with one another regardless of their protocol or network.
Key of Scaling: Subnet
Subnets, or subnetworks, are a dynamic subset of Avalanche validators that achieve consensus on their blockchains. Subnets are effective ‘Blockchain-as-a-Service’ secured by some portion of Avalanche validators, as this definition can feel formal.
In other words, a Subnet is not a blockchain but a collection of validators. All Subnets (except the Primary Network) currently run a single blockchain, but future Subnets may run multiple blockchains.
Avalanche validators do not run blockchains for any Subnet automatically. Instead, Subnets must separately compensate Avalanche validators for their assistance.
Subnet validators can be rewarded in any token as long as the economy built on the subnet has proper incentives.
When an Avalanche validator establishes a Subnet, the Subnet can develop rulesets for their validators and launch their blockchains with customized virtual machines. Because developers can customize various aspects of how the underlying chain operates, they can implement features such as sending gas fees to a treasury smart contract or requiring all chain users to pass KYC before interacting with applications on the Subnet.
By definition, all Subnet validators must also validate the Avalanche Primary Network.
Avalanche Multiverse
Avalanche Multiverse is a $290 million (up to 4 million AVAX) incentive program focused on accelerating the adoption and growth of its novel “subnet” functionality, which enables a rich ecosystem of scalable app-specific blockchains.
Initially, the program will focus on supporting new ecosystems such as blockchain-enabled gaming, DeFi, NFTs, and institutional use cases.
They are partnering with Aave Companies, Golden Tree Asset Management, Wintermute, Jump Crypto, Valkyrie, Securitize, and others to create the first horizontally-integrated blockchain engineered specifically for Institutional DeFi with native KYC functionality.
This will allow regulated institutions to use the power of Subnets to access DeFi primitives at scale, accelerating institutional DeFi adoption.
Avalanche Bridge Technology
Avalanche launched the Avalanche Ethereum Bridge in early 2021. A few months later, the developers released the appropriately named Avalanche Bridge, which reduced transaction fees by five times and improved cross-chain interoperability.
The new Avalanche Bridge builds on Intel SGX technology in a breakthrough for cross-chain interoperability- it is 5x cheaper than the Avalanche-Ethereum Bridge launched in early 2021.
According to the developers, the Avalanche Bridge has been designed to:
- Ensure that users have access to security-first technologies.
- Cut the cost of bridging assets, making it as low as possible.
- Speed up transactions.
- Increase transparency so that users can be fully informed at every step.
- Make crypto assets intuitive so new users can easily understand how to use the bridge.
- Support the ecosystem so that users understand how capable the Avalanche ecosystem is after they’ve crossed the bridge.
- Allow users to seize opportunities with minimal friction in understanding the scope of the Avalanche ecosystem.
- Support blockchains and make Avalanche the hub of DeFi.
Avalanche Core
Ava Labs has released Core, a non-custodial browser extension that allows users to use Web3 powered by Avalanche seamlessly and securely.
Web3 browser extensions were hampered by cumbersome and fragmented experiences across applications, making them more of a barrier to adoption than a warm invitation.
The Core is an all-in-one operating system powered by Avalanche that combines Avalanche apps, Subnets, bridges, and NFTs in a seamless, high-performance browser experience. The Core is the simplest way to access the full power of Web3 on Avalanche. Core users will notice that previously time-consuming functions, such as adding new tokens to your portfolio, are now automated.
Core’s design and features evolve from an esoteric infrastructure to a convenient platform for all Web3.
What is AVAX?
AVAX is the Avalanche network’s native crypto token. The AVAX token has a maximum supply of 720 million coins. The smallest AVAX unit is known as nAVAX, and one nAVAX equals 0.000000001 AVAX.
AVAX has three primary applications in the Avalanche ecosystem:
- Transaction fees and Subnet subscriptions are payable in AVAX. However, all AVAX used to pay transaction fees is burned, reducing total market supply and increasing its price in the long run.
- Through staking, the crypto token is used to participate in the network. Validator nodes can be run by users who have staked at least 2,000 AVAX tokens on the network, while delegators must stake at least 25 AVAX.
- AVAX serves as the standard unit of account for all Subnets, improving interoperability.
Token Distribution
At launch, 360 million AVAX were minted, with the remaining 360 million used as Staking rewards distributed over decades. The vesting periods for the tokens minted range from one year to ten years, as detailed below:
The Avalanche Ecosystem
Because the Avalanche ecosystem is vast, these are just a few examples:
A) Decentralized Finance
Aave is a finance Web3 app that allows users to lend and borrow cryptocurrencies. AAVE eliminates the need for a middleman and removes the approval process for taking out a loan.
BENQI is a non-custodial liquidity market protocol, built on Avalanche. The protocol enables users to effortlessly lend, borrow, and earn interest with their digital assets.
Trader Joe is a one-stop decentralized trading platform on the Avalanche network.
GMX is a decentralized spot and perpetual exchange that supports low swap fees and zero price impact trades.
Yield Yak provides tools for DeFi users on Avalanche. Discover a huge selection of auto compounding farms and make your life easier.
B) A platform for institutions, enterprises, and governments
KKR, an American global investment company, tokenized one of its funds on Avalanche to minimize operational complexities and costs.
Amazon fully supports Avalanche’s infrastructure and dApp ecosystem.Development teams can use AWS to deploy scalable, fault-tolerant, complaint offerings, reducing costly compliance expenses & time.
Deloitte developed a platform for governments that uses Avalanche to streamline the disaster release grants management lifecycle and reduce admin costs to maximize the amount of funding that goes to those who need it most.
The Congress of the Mexican State of Quintana Roo is implementing Avalanche, becoming the first national congress to use it for the digital certification of its legislative documentation.
C) NFTs
Shopify created an ecommerce app that provides both merchants & customers with the fastest path to using NFTs. NFTs will help maximize merchants’ success by expanding sources of revenue.
Joepegs is a trusted NFT Marketplace on Avalanche by Trader Joe.
The unique Oopa NFT collection offers a wide range of utility and freedom to the NFT owner, allowing them to customize their NFT’s in exciting and meaningful ways.
Game streaming platform Loco, in collaboration with Avalanche, will be creating an NFT marketplace for esports fans.
Partnerships
Avalanche seems to be reaping the benefits of recent partnerships, its network sealed with Amazon and finance platform Intain.
Amazon Web Services (AWS) has partnered with Ava Labs to help scale blockchain adoption across enterprises, institutions, and governments.
Through its marketplace, AWS will support Avalanche’s infrastructure and dApp ecosystem, as well as one-click node deployments. Ava Labs will also join AWS Activate, a program that assists startups and early-stage entrepreneurs in getting started on AWS’s platform.
Interestingly, Avalanche gained 20% in hours after the Amazon partnership announcement.
Here are highlights of the deals and partnerships Ava Labs has set up so far:
- Mastercard chose Ava Labs for its Start Path Crypto program. The accelerator program is designed to help crypto and blockchain start-ups scale their businesses.
- Deloitte, one of the Big Four accounting firms, partnered with Ava Labs and is using Avalanche to improve its cloud-based Close As You Go platform, which assists state and local governments in distributing disaster reimbursement payments.
- BitGo, an institutional digital asset custodian, added AVAX support in December 2021. This allows BitGo’s clients, which include multiple large crypto exchanges, to offer AVAX to investors.
What’s Next?
A Cosmos Landside is coming to Avalanche, enabling the first Cosmos/IBC-enabled subnet for AVAX. This will allow Native IBC integration within the Avalanche ecosystem.
Conclusion
The demand for AVAX is expected to skyrocket in 2023. As word of Amazon Web Services’ collaboration spread throughout the investment world, investors showed their support.
Aside from that, the platform hosts approximately 500 dApps in its ecosystem, with 200,000 active monthly users.
Avalanche is one of the most promising cryptocurrency projects, with a thriving network that will grow exponentially in the coming years.