What is Avalanche?

Feb 3, 2022

The Avalanche protocol is one of a range of newer, smart-contract focused projects with ambitions to accelerate the use of blockchain with faster technology. Besides enabling decentralized applications and services for financial institutions, Avalanche is focused on being environmentally friendly.

Beginnings

The concepts of the Avalanche platform were introduced in a whitepaper written anonymously by “Team Rocket” and published in early 2018. The project was later taken on by former Cornell University professor Emin Gün Sirer, along with Kevin Sekniqi and Moafan Yin. After announcing their work on Avalanche, the team conducted a series of funding rounds, including a $6 million round backed by venture firm Andreessen Horowitz (a16z) and later a $12 million private token sale. In July 2020, Avalanche further raised $42 million by selling 72 million of its AVAX tokens to the public.

The Avalanche ecosystem is supported by New York-based Ava Labs and the Avalanche Foundation, which is officially located in Singapore.

After two years of development, the mainnet of the Avalance protocol was launched in September 2020. At launch, the protocol touted its ability to allow institutions and enterprises to run independent blockchains connected to the Avalanche network and secured via a custom set of validators called subnets. It also offered a dedicated Avalanche Wallet and block explorer to track transactions.

The protocol’s kickoff was not without setbacks as the Avalanche-based DeFi protocol Vee Finance suffered a major hack soon after launch, resulting in a loss of around $35 million.

Uses

According to its whitepaper, Avalanche aims to introduce significant innovation by building a “family of protocols” that are “green, quiescent and efficient.” One of Avalanche’s stated goals is to provide a system that can support the speed needed for financial applications and financial institutions. As communicated by the project and its team, transaction throughput on Avalanche can reach 4’500 T/s. Avalanche purports to provide near-instantaneous finality, estimated at around 1 second.

Smart contracts and decentralized applications play a large part in the Avalanche platform. To enable them, Avalanche uses three different blockchains:

1. The X-chain (Exchange chain) – The X-chain is used to exchange the AVAX token, native to the Avalanche ecosystem.

2. The C-chain (Contract chain) – On the C-chain, developers can deploy smart contracts and build decentralized applications. It uses the EVM from Ethereum, which makes it possible to migrate dApps from the Ethereum blockchain to Avalanche with relative ease.

3. The P-chain (Platform chain) – With the P-chain, subnets can be created and tracked. Subnets that are connected to the P-chain can validate other blockchains, sometimes many at one time.

Avalanche employs two different consensus algorithms on its platform:

  1. Avalanche – with the Avalanche consensus algorithm, transactions are processed and validated in parallel with the help of directed acyclic graphics (DAGs). Validators are polled at random to check for transaction validity with statistical proof being provided after a threshold of sampling is reached. With the Avalanche consensus algorithm, there are no blocks produced. Instead, DAGs are used to allow the transactions and data to be recorded without conflict. This aims to allow application-specific decisions about what may or may not constitute a conflicting transaction. Nodes on the network query validators on a continual basis in order to ensure that transactions, which are batched in vertices, are correct.
  2. Snowman – in the Snowman consensus mechanism – used by the C- and P-chain of the Avalanche platform – transactions are processed linearly and blocks are produced.

The X-chain uses the Avalanche consensus mechanism, while the C-chain and the P-chain use versions of the Snowman consensus mechanism.

The AVAX token, native to the Avalanche protocol, can be staked and users who stake on the network can earn staking rewards. An amount of 2000 AVAX is required in order to stake on the network. The AVAX token supply is capped at 720 million and fees that are paid in AVAX on the network are burned which results in a deflationary economic effect.

Of special note is the fact that Avalanche is compatible with the EVM of the Ethereum network which allows developers to easily shift decentralized applications from Ethereum to Avalanche.

Avalanche and its AVAX token figure prominently in the wider blockchain and decentralized finance (DeFi) ecosystem. DeFi users can earn AVAX as rewards on Aave, Curve and Sushi. Avalanche also powers decentralized trading on Trader Joe.

Outlook

Avalanche’s AVAX token enjoyed a strong surge in price through the middle of 2021 as ever-more funds were locked in its expanding DeFi ecosystem. From July 2021 to late August, TVL surged from $180 million to over $1.5 billion.

Avalanche has made efforts to develop its ecosystem and encourage development on the protocol. After launching a $180 million incentives program called Avalanche Rush in August 2021, the project also raised over $220 million from prominent venture capital firms such as Polychain Capital and Three Arrows Capital to set up an ecosystem fund named “Blizzard.”

As of mid-year 2021, the network had reached a total of over 950 validators operating on the network.

Further steps in the Avalanche roadmap currently include upgrades to its wallet infrastructure and protocol upgrades, labeled Blueberry, with cross-subnet transfers and permissionless subnets – and Apricot, which focuses on X-Chain Fastsync and X-Chain dynamic sync, among other things.

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