Avalanche, the smart contract blockchain that has recently seen 300% gains, has an impressive technology stack and even more impressive VC backing. Even though it has recently shot up from a top 80 to a top 20 project, it may still have room to grow, especially if they continue to find mainstream adoption and interest from DeFi farmers.
Recently, Ethereum alternatives have been increasing in popularity. This is mainly due to the congestion on the Ethereum network, leading to high fees and slow transaction times. For example, a simple Uniswap transaction on the Ethereum network may cost upwards of $50, which is unacceptable for day-to-day use. Though this issue will be solved with the release of Ethereum 2.0 in 2022, hundreds of thousands of users are looking for a solution that is usable today.
One of the most viable solutions is Avalanche, a smart contract platform that is EVM-compatible, meaning that any projects on Ethereum can easily migrate to this new platform. Avalanche’s mainnet was launched in September 2020, and since then it has amassed over 1000 validators, 200,000 daily transactions, and an $8.5 billion market capitalization for AVAX, the native token of the Avalanche ecosystem.
Avalanche’s most unique feature is its consensus mechanism, which is also known as Avalanche. Without getting into too much technical detail, this consensus mechanism allows for near-instant finality between transactions and manages three different blockchains: the X-Chain, which manages the AVAX coin and other tokens, the P-Chain, which allows for the creation of custom Avalanche chains, and the C-Chain, which is where smart contracts are deployed and executed. Additionally, the Avalanche consensus is capable of handling 4,500 transactions per second, compared to around 14 on Ethereum, while being more decentralized and costing one-tenth of an Ethereum transaction.
These advantages, along with a bridge from Ethereum to Avalanche, have made the platform a hotbed for new users and DeFi activity. This is mainly due to “Avalanche Rush,” a marketing effort by the Avalanche team which promises to offer $180 million in incentives to DeFi applications on the blockchain. This program has been working incredibly well, as Benqi, the money market on Avalanche, reached $1 billion in total value locked only a few days after its August launch. Additionally, Aave and Curve are planning to build on Avalanche and be part of the incentive program, and Sushi is already deployed. It is a great sign whenever these well-established dApps decide to build on a certain blockchain, as they are putting their reputation on the line, something that they only do for blockchains that they believe are secure and have a bright future.
The technology, adoption, and promise of Avalanche explain why it has recently tripled in value, but is there still room for growth? At its current price it is hard to argue that Avalanche is still undervalued. It has the same market capitalization as Polygon, and even though Avalanche does have superior technology it has significantly less value locked in its ecosystem than Polygon, meaning that there is less capital deployed and being used on Avalanche, giving the token less demand. Furthermore, the rest of Avalanche’s roadmap does not have any major upgrades in 2021 and they have yet to release a longer-facing roadmap, so it is difficult to determine if there will be any promising upgrades in the medium-term.
That being said, they have been creating many partnerships within the cryptocurrency space, such as with Chainlink, and they have venture capital backing from firms like Andreessen Horowitz. Any time a big name in the traditional finance or cryptocurrency world backs a project, it means that there is a group of highly-educated researchers and analysts who have carefully studied a project and have determined it is worth an investment. This type of research is much more thorough than what most average people do, so a good strategy for most people would be to follow what smart money is doing. Additionally, all fees on the Avalanche blockchain are burned, which means that AVAX could become deflationary, leading to a higher price.
The Avalanche ecosystem is experiencing some of its best growth ever, and does not show any signs of slowing down. However, once their incentive program dries up, it is possible that value will move to another blockchain that is offering better incentives. At the end of the day, the average person cares about yield and security, and at the moment Avalanche is the best for both so it is the blockchain of choice for yield farmers everywhere, at least for the time being.
By Lincoln Murr